By Paul Brady
The Feb. 2 letter from CalPERS public relations representative Robert Glazier borders on self-serving nonsense. It was in response to The Davis Enterprise’s Jan. 26 editorial, “Fiscal crisis looms for our fine city,” which was a softball criticism of misguided CalPERS policies that have caused havoc in many, if not most, California cities, counties and other public agencies!
In 1998-99 CalPERS (in concert with its public-employee unions) assured the state Legislature that its investments could fund large state public-employee pension and other benefit increases — as much as 50 percent in pensions — and make them retroactive. For example, the 3 percent-per-year pension at 50 years for CHP, firefighters, prison guards and other public safety employees was approved.
Unfortunately, CalPERS has been unable to fulfill any of these enhanced benefits promises. This law needs to be unwound, but the Legislature, beholden to contributions from public unions, is unlikely to do so.
Cities and other public agencies adopted these increased and retroactive benefits, although their employees had been and were paying little or nothing into retirement contributions. (The politicians who approved these costly, unwise increases have retired or moved on to higher office.)
Unable to fulfill its promises, CalPERS has been making increasing demands on cities and counties, causing them to defer needed maintenance and reduce services, devastating their finances and putting many on the path to bankruptcy.
Davis has not escaped these political follies. Despite trimming city staff 20 percent, phasing down the extravagant $15,000 to $20,000 per-year medical cash-outs, etc., it still faces an annual $5.1 million deficit, which is growing. The Davis Community Pool complex is to be closed, with it falling to the Davis Aquadarts to pay for its summer operation and maintenance and to employ 70 instructors to teach 700 beginning swimmers.
The corruption, greed and million-dollar kickbacks to CalPERS board members have been exposed in the Sacramento Bee. CalPERS has been, or allowed itself to be, ripped off by private-equity investment houses, hedge funds, etc.; lost billions in ill-advised real estate investments; and just plain failed in its other investments, thus costing taxpayers tens of billions, and producing these huge costs for city, county and other employers (taxpayers).
CalPERS bragged about its 2013 returns, about 16 percent. However, the broadest stock market indexes averaged about 32 percent in 2013, revealing how poorly managed CalPERS funds are!
The unfunded liabilities of CalPERS are estimated to be at least several hundred billion dollars. The Dow Jones Index, the most conservative stock market index, has averaged 12.3 percent per year over the past 30-plus years. CalPERS has averaged, what, 8 percent per year? Over 33 years, $1 million would grow to $46 million in the Dow Jones Index vs. $12.7 million for CalPERS’ 8 percent per year!
CalPERS’ high-priced staff should be besting, not lagging, the market, and not comparing their performance to phony lowly benchmarks it invents.
CalPERS is run by and for public employees. Any market lag should be paid for by public-employee contributions, and not cost employers (taxpayers) billions, thus bankrupting or devastating many cities and other public agencies. Is it not clear that the investment horizon of CalPERS is many decades, and therefore conservative equities are the place to be.
Simply pu, the money into market indexes, such as the Dow Jones Index and S&P 500, costing about 0.1 percent per year. Investment houses usually charge fees around 2 percent per year plus about 20 percent of any gain. Taking very poor investment returns in the name of diversification is foolish and unnecessary.
Annual CalPERS costs for each public employee are rising rapidly. Our city manager recently gave us some estimates: Retiree pension and health care costs now 30 to 40 percent will rise to 50 to 60 percent or more of employee salaries. If nothing more is done, Davis will be a shell of the great little city it is now.
What havoc, CalPERS, our dysfunctional Legislature and local politicians have wreaked on our state, cities and counties. Possibly the dysfunction and decay of many of our state agencies — for example, Caltrans, and, on average, our K-12 educational system — are related to this fiscal havoc!
CalPERS is accountable to no one — a fox guarding the chickens! Most years, it falls billions short of promised and required investment returns, costing the taxpayers billions each year. With a board filled with union lackeys, no independent oversight, no definitive goals or achievement penalties, it appears to have little incentive to do better.
— Paul Brady is a longtime Davis resident and retired professor of physics at UC Davis. He is a principal in BPF Investments/Charitable Investments.