First-Term Legislator is Instant Expert in Pension Funds Following South Dakota Visit
California Assembly newby Ash Kalra (D-San Jose) decided on his first day in the Legislature to use all the wonderful wisdom, intellect and knowledge he learned as a former public defender and high school teacher to introduce legislation dictating how our state’s largest pension funds are managed. His bill would put the future retirement security of hundreds of thousands of people in question.
Kalra decided that, in introducing AB 20, California’s two state huge public employee pension funds — CalPERS and CalSTRS — should divest themselves of any holdings they might have in companies involved in the Dakota Access pipeline. The pipeline is a project that, when completed, would carry 30,000 barrels of U.S. oil a day from North Dakota to Illinois.
As The Los Angeles Times reported, “A CalPERS spokesman confirmed Monday that the fund owns about 1.1 million shares of Energy Transfer Partners, the company involved in the pipeline project. Representatives of the teachers’ fund, CalSTRS, didn’t immediately reply to a request for comment.”
Energy Transfer Partners’ stock recently traded at $34.26 a share; at a capitalization of 1.1 million shares, it has a current market value of $37,686,000. On June 28, 1996, the stock was worth $10.13 a share — a market value of $11,143,000. If the shares had been sold at the price they traded on December 6th, the investment would have yielded a gain of $26,543,000 for California’s retirees.
Kalra’s decision to introduce his feel-good legislation and his only qualifications or experience suitable for tinkering with retirees pension plans came out of a recent visit he made to see protests on a North Dakota tribal reservation and at a site nearby, an oil-pipeline construction route over public land to carry North Dakota oil to the Midwest. He feel that what has happened was “really part of a greater movement.”
There are other views.
But what Kalra misses is that, according to the California State Controller’s office, the unfunded liability of California’s 130 state and local government pension plans totaled a whopping $214.3 billion as of 2014. The Controller made it clear, however, that his number didn’t include $125 billion in unfunded retiree health care costs. With the added missing funding, the pension plans must take in $439.3 billion in order to continue delivering retirement, health care and disability benefits to the state’s retired workforce.
That means that the pension funds desperately need to make many and varied investments that yield huge returns, investments like its stake in Energy Transfer Partners.
Even the sky-high deficit projections released by the Controller assumes returns on capital invested at interest rates far greater than those experienced by investors in T-bills and bonds, ordinary savings accounts, stock-market index funds, and the like. Imagine the deficit if CalPERS and CalSTRS yield more typical returns on their investments.
Assemblyman Kalra, if you truly want to be wowed into understanding that your legislation is wrong-headed and inappropriate for a state pension system mired deeply in debt, try reading Judy Lin’s article on California’s pension crisis, “Understanding California’s Public Pension Debt,” in The Los Angeles Times, 9/18/16, or Dan Walters’ article, “California’s Unfunded Pension Debts May be Larger Than Acknowledged,” in The Sacramento Bee, 9/11/16, or Jack Dolan’s article, “The Pension Gap,” in The Los Angeles Times.
It is tragically ironic that the bill’s language includes the sponsoring endorsement, “As Californians, we must hold ourselves to a high standard line of conduct, including how we invest our pension funds.”
Kalra should consider putting away his placard-carrying university-protest past and heed his own words by applying rational logic and understanding to help the state meet its unfulfilled obligations to retirees before he jumps the gun by introducing more ill-considered legislation.
Doing so would hold him to a higher standard, one that included a modicum of empathy and human compassion for the welfare of our state’s loyal past employees.