In their January 23 article (“Pension Cutters Bet Against Prosperity
”), Bill Raden and Gary Cohn deserve kudos for highlighting how financial returns by the public employee pension funds CalPERS and CalSTRS are undermining San Jose Mayor Reed’s proposed state ballot measure to cut employee pensions. But the article overlooks a larger point: CalPERS and CalSTRS invest about 10:1 against the California economy.
We all vote with our pocketbooks, and CalPERS invests over 90% of its enormous funds in California's competition - overseas and in other states. CalSTRS doesn't explicitly break down their investments by geography - at least not on their website, but adding up what they brag about investing in CA, we get to about 2% of total funds invested in the state that has to guarantee the pensions. In other words, we public employees outsource our pension investments and the jobs that they create. Our pension funds are invested in companies, real estate and infrastructure in places like Texas, China, India, Mexico, Brazil, Nebraska, creating jobs and opportunities elsewhere – jobs and opportunities that aren’t going to California.
Now if you believe that putting your money where your mouth is makes a statement, then one might ask why our unions don't invest more in California companies, real estate, infrastructure and the like. The apparent reason is that fund managers have a fiduciary duty is to maximize the return for the investors. And with California ranked 46th in the nation for unemployment, investing in the state is not seen as a good bet.
But isn't investing our funds in overseas industries and putting our tax revenues in foreign pockets at the expense of our own fellow citizens also unethical? We're expecting private California employers and employees to support our public employees and services, and make up any pension shortfalls, but sending their money to God knows where rather than making a difference here in our own back yard.
Shouldn't we be lobbying to make California a better bet and investing in our future? Wouldn't a more vibrant CA economy help all of us - and our retirements?
Consider how the UAW’s stake in GM helped GM What would it be like if UAW had invested instead in Toyota factories in Japan? Functional cooperatives around the world operate on the same principle, keeping their cash in their community.
Business people talk about having skin in the game, their own money at risk, to make people responsible. Well, couldn’t we change the dialogue and the economy and society for the better if public employees had a vested interest in seeing local private sector growth, and the private sector courted the public sector’s favor and funds?
What if well-meaning legislation’s potential economic consequences were seen through the potential affect on the employees’ pension funds.? What if corporate boards had to worry about mistreating their biggest investors? What if here in SF, municipal employees’ retirement funds could invest in housing and infrastructure bonds – helping nourish the golden goose rather than torture it – would that not help relieve the over stressed safety net – would that be a good bet? Seems to me if the city is to grow by 20-25% in coming years, it might be a good bet.
Of course, before we change anything, we’d have to do a cost-benefit analysis – would it be better for public employees to invest in their state or city, as they expect the private sector to do? Would that be good or bad for the future unfunded liabilities? Should public sector employees continue to use their enormous pension funds to outsource jobs, as they complain the private sector is doing, because California isn’t a profitable investment, or should they start working to make it a better investment and lure people and business in?
Just as a political question, how long does anyone think the public will land against the Chuck Reeds of the state, if the public employees continue to out-earn the private sector, but invest over 90% of their taxpayer-funded retirement elsewhere?
What it really boils down to is whether California's public employees should invest purely to maximize returns at the expense of our private sector workers or to create the sort of state we want to have. Should we use our investment funds the same way we use our lobbying power, or continue to use both against the engines of our economy?
I like to patronize locally-owned small businesses, buy locally grown food, and will pay more for locally produced goods. I vote for what I think is best for my city and state. If I had a choice, the same values would drive my retirement investment portfolio. Otherwise, well, I’m just a speculator.
Daniel Scherotter is a teacher at San Francisco’s John O’Connell High School