Initiative Dictates Pension Investments
Michael Lee Madsen Sr. has decided to become California’s self-appointed pension investment czar. He is the author of an initiative for which he expects to start gathering signatures later this month. It would require the state’s public pension systems to invest and maintain at least 85 percent of their assets in California-based businesses.
The California Constitution currently gives the boards of each public pension or retirement system “sole and exclusive fiduciary responsibility” over their system’s assets. Pension board members are required under the Constitution “to minimize the risk of loss and to maximize the rate of return” on investments.
In discharging its fiduciary responsibility, the California Public Employees’ Retirement System has invested 91 percent of its $234 billion in assets outside of the state. The remaining 9 percent has been invested in companies, properties and projects that are “California-based,” as defined by CalPERS.
Included in that total is about $6 billion invested in more than 600 companies with headquarters in California. Combined, those companies employ an estimated 700,000 California residents, according to CalPERS. That amounts to roughly 5 percent of the state’s total workforce.
Madsen, a North Highland activist who lists his activities as “writing scripts and petitions,” would substitute his judgment for that of the CalPERS pension board. Not only would he require the retirement system to increase its investment in California businesses to 85 percent. He also would define a “California-based” business as one where at least 70 percent of employees are working within the state’s boundaries.
That would exclude such California companies as Apple, Chevron, DirecTV, Google, Qualcomm and Safeway, which are among the state’s bigger private employers, but which also are national and international employers. It also would exclude many of the companies in which CalPERS is currently investing.
Madsen’s ballot measure promises to “create employment opportunities and new revenue sources within this state.” However, the state Legislative Analyst’s Office begs to differ.
If the measure were approved by the voters, “it most likely would result in a decline in average annual investment returns for the state’s public pension or retirement systems,” concluded a report issued last week by Legislative Analyst Mac Taylor and Ana Matosantos, state Director of Finance. As to the promised new state and local revenues, the report declared they would “not be significant.”
The most ominous consequence if Madsen has his way is that state and local pension contribution costs could very well increase “by billions of dollars a year,” Taylor and Matosantos warned.
If Madsen were able to make a persuasive case that his ballot measure truly would create jobs, he might fund support among California’s public employee unions. If he could demonstrate how it would create new revenues for state and local government, it might win the support of the state Legislature and city and local governments. And if he could show how it would benefit all — rather than politically preferred — California businesses, he might elicit some support of the state’s business community.
But neither the unions, nor the state and local governments, nor the business community are likely to embrace the proposed Invest in California ballot measure. They all know fool’s gold when they see it.
– Joseph Perkins
May 19, 2013