Stocktonians still have not fully grasped what a number Calpers, the state pension system, is doing on Stockton.
A Washington economist lays it out in the Merc:
“In 2007, Stockton borrowed $125 million from the bond market to give to the California Public Employees Retirement System (Calpers) to invest for its pension assets. Calpers assumed a 7.75 percent rate of return as policy, while the borrowed money came with a 5.46 percent interest rate. The city council trusted Calpers’ return assumption and imputed $100 million in interest savings from this financing tactic.
“Instead, the Calpers investment plummeted in value by 26 percent when the markets crashed the next year. The city got stuck with the nearly $7 million debt service on the bonds while its unfunded pension liability grew. Its amortized cost — the annual amount it pays toward its pension shortfall — grew from $2.5 million in 2009 to $10 million this year and contributed to the recent $26 million budget deficit.”
So Calpers sold cities on the 3 percent at 50 enhanced — and unaffordable — retirement plan. It sold Stockton on an inflated rate of return when its risky investments were actually gyrating up and down. It left the city holding the bag for $7 million (I’ve heard $9 million). It played a big role in the city’s fiscal catastrophe — and now it takes the position that Stockton can give haircuts to everybody but Calpers.
They deserve to have their arrogant claim of immunity shattered in court, and it’s a shame that the city of Stockton is too weak to take them on.