CA Dems Want State’s Overdrawn Pension Systems to Dump Fossil-Fuel Stocks

California’s two mammoth public-pension funds — the California Public Employees Retirement System and the California State Teachers’ Retirement System — are short a shocking $225 billion that they’re going to need to pay for the retirements of government workers. But what is it about the two pension funds that worries the state’s Democratic Party? Their fossil-fuel investments.

Delegates to the state’s annual Democratic Party convention voted over Memorial Day weekend in favor of a resolution urging the funds to dump oil, natural gas, and coal stocks. The vote follows the introduction earlier this year of state legislation that would require the pension funds to sell all coal-related stocks and study the implications of dropping oil and natural gas stocks. With the resolution, local Democrats jumped on the divestment bandwagon, inspired by radical environmentalist Bill McKibben, which has so far persuaded the endowment funds of about two dozen universities to sell shares in fossil-fuel companies. Yet if CalPERS and CalSTRS’s past social-investing records are any indication, the real losers from divestment won’t be the energy companies, but California taxpayers.

“I’ve been involved in five divestments for our fund,” CalSTRS chief investment officer Chris Ailman told his board earlier this year. “All five of them we’ve lost money, and all five of them have not brought about social change.”

For several decades, California’s pension funds have been subjected to a dizzying array of social-investment prerogatives. A 2011 Mercer Consulting study found that CalPERS investment officials had to follow 111 different investment priorities relating to the environment, social conditions, and corporate governance. Many of these directives have proven calamitous to the two funds’ bottom lines. Eight years after CalSTRS and CalPERS divested their portfolios of tobacco stocks in 2000, a study found that the move cost CalSTRS $1 billion and CalPERS about $750 million in foregone profits. CalPERS also ditched investments in developing countries such as Thailand and India, because board members objected to labor standards in these countries. A 2007 report found that avoiding investments in developing counties cost CalPERS about $400 million.

Via: California Political Review

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$340 Billion in CA Debts

A high-profile new report showed California still faces massive liabilities extending far into the future. The study, released by the nonpartisan Legislative Analyst’s Office, tallied over $340 billion in debts, deferred payment and other budgetary burdens “that will affect the state’s financial health in the future.”

According to the report, “Addressing California’s Key Liabilities,” there was some good news mixed in with the bad. The LAO was relatively sanguine toward a substantial portion of California’s long-brewing public pensions crisis. The report’s Executive Summary lauded “recent actions taken by the California Public Employees’ Retirement System (CalPERS) board … to address the unfunded liability for state employee pension benefits in about 30 years.”

Given the legal controversy surrounding CalPERS’ role in city bankruptcies, however, the LAO’s praise may not go far. Litigation concerning the bankruptcy of Stockton, for instance, has pulled CalPERS back into potential liability. “Even though the city decided not to try to cut its CalPERS payments,” the Sacramento Bee reported, “Judge Christopher Klein said he could rule that the pension fund could be treated like other creditors.”

That’s significant because a ruling along those lines would affect CalPERS statewide. CalPERS is locked in a closely watched mediation process with the city of San Bernardino, which hopes to avoid millions in back payments to CalPERS as a consequence of declaring bankruptcy.

CalPERS, however, isn’t the only pension system at the center of the LAO report. There’s also CalSTRS, the California State Teachers’ Retirement System. There, the LAO fingers “$200 billion in liabilities” that “merit further legislative attention.”

In his revised May budget, Brown has a plan to address the shortfall. It’s already drawing criticism. He aims to make a down payment on CalSTRS’ $74 billion shortfall — followed by $5 billion in increased funds every year for 30 years, once it’s fully phased in after seven years of stepped-up payments. Notably, $3.7 billion a year will be expected to come from school districts themselves — not a popular policy at the local level.

Via: California Political Review

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Jerry Brown’s fake surplus

Liberal award-winning economist Paul Krugman and the front pages of the New York Times just crow about the “California miracle” and “California renaissance” that Governor Jerry Brown and the liberal Democrats in control in Sacramento have ushered into the state, by raising taxes to sky high levels, the highest state sales, income, and gas taxes at the pump, to achieve a modest “surplus” of a few billion dollars in the state budget.

Liberals in the national media love this narrative of California getting to a “surplus” because they are so desperate to find success in their job and wealth killing high tax policies.  They seem to ignore that under the same policies, the state maintains the third highest unemployment rate in the nation, and now for the second year in a row according to the Census Bureau, California is the poorest state in the nation.

But setting California’s high poverty and unemployment rates aside, the reality is there is no surplus in the California state budget.  Rather, California is playing a deceptive game with how it presents its finances to the public, because the accounting does not include disclosure of the massive debt obligations to the state’s two public employee pension funds: CalPERS, which is the retirement fund for state employees; and Cal STRS, which is the pension plan for teachers in the state.  As a result of unreasonably generous defined benefits plans, bad investments, and unsound investment revenue forecasts, these pension funds are underfunded by over $100 billion each, and California’s so-called “surplus” of less than $5 billion hardly cracks these looming, monster debt obligations of the state.

If just the CalSTRS obligations were properly included in the state’s annual financial accounting, California would not have a budget surplus, rather, the budget disclosures would reveal a state deeply in debt.  This is because California is legally obligated to fund the pension plan.  For every dollar of pay, the state must contribute 5% of teacher salary to the CalSTRS pension fund, even though the teachers do not work for the state.  Local school districts contribute 8 1/4% of pay, and the teacher employee contributes 8% of pay to the pension fund.  But even with those three sources of funds coming into the pension fund, CalSTRS staff reported last week that the agency’s “net pension liability” is now a whopping $166.9 billion.  This net pension liability greatly exceeds generally accepted levels of pension liabilities for financial health of the fund, because of the generous defined benefit payments the plan will be required to make in future.  As a result of the new calculations, school districts, and the state, will likely be asked to increase their contributions to the plan to reduce the liability to lower levels.  In doing so, local agencies will be forced to cut programs and seek more taxpayer revenue, as well as the state.  Taxpayers will be tapped yet again to pay for bad public employee pension decisions made by liberal Democrats.

It is true that some part of the $166.9 billion “net pension liability” of CalSTRS, if not all of it, should be attributed to California’s books of account.  If California has a legal obligation to fund the CalSTRS pension system, shouldn’t any debt obligations to the system show up on California’s annual financial statements?  Of course they should, and right-thinking members of the Legislature ought to push for more transparency and disclosure of such obligations.  Doing so would of course erase the so-called state “surplus” but it would also offer a more accurate picture of California’s finances, which is not happening under the current rules.

And it is equally clear that public employee defined benefits packages are no longer tolerable financially in California, as liberal Democrats have pushed the benefits so far beyond the reasonable that public institutions, including local governments, are facing drastic reductions in local services and even bankruptcy to keep pace with their expensive pension debt obligations.  Yes, our public employee system needs reform across the board.  But one important reform that needs more discussion, is California stopping the charade of having a “surplus,” and rightfully placing all its own obligations on its public books of account, including public employee pension debt.

James V. Lacy is publisher of California Political Review and author of “Taxifornia: Liberals Laboratory to Bankrupt America,” a Politico.com top seller available at Amazon.com.

Via: California Political Review

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