You pay for CalPERS’ ethics

One of the forehead-slapping metrics by which City Hall set public employee (over)compensation, and contributed to Stockton’s bankruptcy, was called a salary survey. Unions and management picked 12 cities. Stockton had to be #4 on the list in terms of compensation.

Unions picked a couple San Joaquin Valley cities to look reasonable, then larded the list with cities such as Fremont, Pasadena and Huntington Beach. Cities with economies so much richer it was ludicrous for Stockton to compete with them. Not to mention that salary surveys are innately foolish. The only metric that matters is what a city such as Stockton can afford.

I mention all this only because that lingering budget buster, public employee pensions, is even straining the rich Joneses with Which Stockton once tried to keep up. Take Huntington Beach. There, the Council is robbing the Peter of services to pay the Paul of pensions. The Mayor pro tem, Mike Posey, blames CalPERS investment strategy.

“Their Investment Advisory Board has embraced an investment policy titled ESG. Environmental, Social, Governance integration,” Posey writes. “This policy seeks to make investments, on behalf of their members, not based upon investment returns, but instead based upon the pursuit of social justice. Social justice includes carbon footprint reduction, diversity, wage equality, etc. All of which are admirable objectives but should not be the drivers of maximizing members’ returns on investments. The difference between the historical lower return from their current investment policy vs. alternate policies falls on the backs of the taxpayers.”

He goes on:

“CalPERS divested from tobacco stocks about 12 years ago. This divestment, by their admission, cost the fund about $3 billion. That loss represents about 1 percent of the fund value but $3 billion is still three thousand million dollars. Additional divestures from firearms, (formerly) apartheid South Africa, Iran and others cost the fund almost $8 billion. The fund grew only from about $170 billion to just over $300 billion during the same period that the Dow ballooned from about 6,400 to just over 21,000. If the fund had chartered the same path as the Dow Industrials, the fund would be valued at or near $540 billion rather than just over $300 billion.”

Responsible investing is a tricky ethical question. Me, I support divesting from Big Tobacco, but I’d have stayed in firearms. Which is to say, I’d divest of the most egregious businesses but I would not seek moral purity at the cost of the greater public good. CalPERS policy may seem ethical, but how good is it to drive cities into bankruptcy when that entails lower quality of life and even, when public safety suffers, loss of life?

The irony is that CalPERS is not at all that ethical. Though Stockton’s largest creditor, it refused to negotiate with or help the city when we were in crisis. Instead it threatened to embroil the city in a costly and protracted litigation. Bullying CalPERS lawyers threatened to slap the city with a “termination fee” of over a billion dollars for quitting CalPERs. And they fought (unsuccessfully) in Stockton’s bankruptcy trial to retain its undemocratic immunity from the haircuts every other creditor gets in bankruptcy court.

So it may seem odd that these people, who were such selfish jerks, take the high road of ethical investing. But there’s a common thread, as Posey points out. “CalPERS enjoys the luxury of embarking on investments that mirror social justice values as the shortages of the returns earned are made up by the member municipalities. In other words. like everything else about CalPERS, you’re forced to pay for it.

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    Michael Fitzgerald

    Mike Fitzgerald is The Record’s award-winning metro columnist. His column runs in the paper three times a week. Born in San Francisco, he was raised in Stockton. His column covers diverse beats including, sometimes, the offbeat. Read Full
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