Calpers, the largest public pension fund in the nation, sucks nearly $4 billion per year out of California’s state budget, but it’s still so desperate for cash that it has resorted to suing bankrupt cities.Steven Malanga at City Journal has an excellent piece describing how Calpers went from a prudent and responsible public pension fund to “an outright lobbyist for higher member benefits.” The process was gradual:
As benefits increased, so did pressure to pay for them by boosting CalPERS’s investment returns. The shift started in 1966 when voters approved Proposition 1, a measure, promoted by CalPERS, that let it invest up to 25 percent of its portfolio in stocks. The timing wasn’t ideal, since the long economic stagnation of the late sixties and seventies had left equity markets struggling for gains. But by the early eighties, markets were roaring again, and CalPERS asked for permission to invest up to 60 percent of its portfolio in stocks. Voters rejected that ballot initiative but approved another, Proposition 21, in 1984, which likewise let CalPERS expand its investments —and didn’t specify a percentage limit. Instead, Prop. 21 supposedly protected taxpayers with a clause that held CalPERS board members personally responsible if they didn’t act prudently. The proposition received the enthusiastic backing of government unions and CalPERS board president Robert Carlson, former head of the powerful California State Employees Association. CalPERS’s conservative investment approach, Carlson and other supporters argued, was shortchanging the state’s taxpayers. After all, the better the investment returns were, the less state and local governments would need to pay into the pension fund. […]In 1999, the fund’s board concocted an astonishing proposal that would take all the post-1991 state employees and retroactively put them in the older, more expensive pension system. The initiative went still further, lowering the retirement age for all state workers and sweetening the pension formula for police and firefighters even more. Public-safety workers could potentially retire at 50 with 90 percent of their salaries, and other government workers at 55 with 60 percent of their salaries.
Malanga has done some great investigative reporting on how public pension costs got so out of control. Anyone who can stomach all the gory details should give this piece a closer look.Read the whole thing.