Sacramento — In its argument in the U.S. Supreme Court’s Janus case, which challenges the right of unions to collect union dues for collective-bargaining purposes, the American Federation of State, County and Municipal Employees argues that collective bargaining is not inherently political.
But the plaintiff Mark Janus, an Illinois state employee, argues that everything a union does – even bargaining for worker protections or pension benefits – is inherently political. Ironically, a recent fracas on the board of administration for the California Public Employees’ Retirement System makes clear that Janus is right. When it comes to public employee pensions, everything is political because pensions involve public dollars and union efforts to control how those dollars are spent.
The highly publicized dispute between CalPERS board members might at first sound like the antics at a small-town City Hall – or something out of a college student-council spat. The matter, however, is worth a close look because it reinforces that political aspect of the system and sheds light on the inner workings of the nation’s largest pension fund, which manages nearly $350 billion in public assets.
As the Sacramento Bee reported, a newly elected CalPERS Board of Administration member could not open her office door during a break from an April board meeting after the digital lock didn’t recognize her badge. Margaret Brown then “recorded herself failing to open the door, shared the video with a friendly financial blog and allowed it to be posted on YouTube under a headline calling the incident an ‘illegal lockout.’” She hired an attorney to communicate with the board and says she is being denied documents she needs in order to review the history of many board decisions.
Board President Priya Mathur has reportedly “disciplined Brown for bringing a friend into a restricted area in the CalPERS headquarters and enacted policies that effectively limited Brown’s ability to read confidential information,” the newspaper explained. The context: Brown is viewed as an outsider and watchdog candidate who beat an incumbent who was backed by almost all of the other board members. The long-simmering spat, despite its seemingly personal nature, raises several important issues about the pension fund.
As that friendly blog, Naked Capitalism, reported, Brown “has been given the runaround for months” after she requested a full year of closed-session transcripts. Frankly, it’s hard to believe these people are in charge of hundreds of billions of dollars and have a claim on every California taxpayers’ wallet. But the bigger issue is that CalPERS officials don’t seem to like when people challenge the status quo.
The fund’s apparent treatment of Brown is ironic given that CalPERS always is pushing for greater “diversity” on corporate boards. The CalPERS board is itself one of the least diverse boards imaginable. It’s dominated by government employees, retirees and politicians elected with the support of public-employee unions. The kind of diversity CalPERS pushes is of the ethnic/racial diversity variety, not of the “diversity of viewpoint” kind.
Yet so many of the pension-fund’s problems stem from its adherence to the union line. The agency manages pensions for the state’s government workers. These are funded by taxpayers through public salaries and pension contributions. California taxpayers contribute additional dollars whenever there are budgetary shortfalls. Likewise, taxpayers suffer when unfunded pension liabilities – that’s debt, to you and me – force cutbacks in public services. Government employees reap the benefits of good decisions, and the broad base of California taxpayers pay for any shortfalls or mistakes. Economists refer to this as “privatizing profits and socializing losses.” This also explains why CalPERS is, fundamentally, a political agency and not just a pension fund that manages investments.
Private investment funds aren’t political. They invest clients’ money and try to get the largest rate of return possible. If returns are good, clients get more. If they are bad, they get less. Government pension funds, by contrast, are “defined-benefit” programs, which guarantee employees a pension based on a formula. If investment returns are good, the size of the public debt that backs them goes down. If they are bad, the debt goes up. The retiree, however, receives the same promised pension no matter what. Taxpayers fund any shortfalls. In fact, pensions are senior obligations of the state government, meaning they must be paid before almost any other debt.
So at CalPERS, it’s all about politics. The unions that run the show want to downplay the size of the pension debt by keeping predictions about future earnings as high as possible. When earnings are high, there’s more appetite for government agencies to dole out more generous pension benefits and less pressure to tighten the belt.
For instance, a 1999 law (Senate Bill 400) created the current pension crisis because it set off a wave of 50-percent retroactive pension increases across the state and ushered in the “3 percent at 50” retirement formula for most police and fire officials, which allowed them to retire at age 50 with 90 percent or more of their final pay. That proposal was pushed by CalPERS, which argued that it would pay for itself because of booming stock-market earnings. But the stock market didn’t cooperate. The system now is poorly funded and awash in debt.
CalPERS continues to impose new fees on local governments to pay for its debts, which means cuts in public services, which leads to political debates at the local level, also. CalPERS also controls the size of the cost-of-living adjustments received by retirees. No wonder, as the Sacramento Bee reported last September, that “California public employee unions aren’t taking any chances with an obscure statewide election … (and) are throwing their weight behind two candidates vying for seats on the CalPERS Board of Administration.”
One of those incumbent candidates was defeated by Margaret Brown, which might explain what’s going on here. This isn’t anything new. CalPERS’ board has regularly been the focus of union activism given the ongoing battle over whether to fess up about the size of the state’s pension debt – or whether to kick the can down the road for another few years. Furthermore, unions have been able to use the CalPERS board to use its investment clout to push private companies into adopting more union-friendly policies and to make more “sustainable investments.”
That’s why even on a board that’s skewed to represent union and government-retiree interests, there’s so much political drama involving open board seats – and such apparent concern about an outsider board member who might ask uncomfortable questions. And the bigger point is that it shows that everything unions do is political, which strongly backs the case made by the Janus plaintiffs.
Steven Greenhut is contributing editor for the California Policy Center. He is Western region director for the R Street Institute. Write to him at firstname.lastname@example.org.