Tag Archives: public pension funds

Arnold So Bad At Governing, He Bungles The Shock Doctrine

Meetings of the Big Five lasted late into the night, and reports are that a deal is very close.  Now, that deal won’t be any good.  The secretive Big Five process, which Democrats actually tried to counteract with 30 hours of public meetings, ends up leading to a deal that nobody reads and gets pushed through in the dead of night.  And the very structure of the California system, with its super-majority requirements, will never yield a good deal for anyone but the well-connected.

Any final deal is expected to include some of the sharpest cutbacks in government services the state has experienced. Programs that have not been cut deeply in years are likely to shrink considerably, with tens of thousands of Californians losing access to programs they have relied on. Some programs may be wiped out entirely. Large numbers of low-income Californians receiving healthcare through the Medi-Cal program are expected to be moved into managed care, and thousands of seniors who receive home healthcare would lose it.

That said, it looks as if the Governor will lose on many of his priorities.  He’ll lay back with a stogie in his Jacuzzi anyway, but he’s not going to get everything he wants.  For instance, a proposal to cut public employee pensions has been scrapped.

California will not impose a two-tier pension system promising lower benefits to future state workers as part of any wide-ranging deal to solve its $26.3 billion budget shortfall, The Bee has learned.

The controversial proposal by Gov. Arnold Schwarzenegger has been shelved in budget talks, but options for cutting pension costs are expected to be discussed again in coming months.

I’d expect that to come up again, but it should not have been wedged into a budget deal when it would offer almost no short-term fiscal benefit.

In addition, the Governor will not be allowed by the courts to slash worker pay for IHSS employees.

A federal judge on Monday ordered California to pay In-Home Supportive Services workers up to $12.10 per hour in wages and benefits immediately, suggesting the state had dragged its feet in response to her earlier injunction.

California lawmakers and Gov. Arnold Schwarzenegger had agreed to drop the state’s contribution to IHSS wages and benefits to $10.10 per hour as part of their February budget deal.

In a lawsuit filed by the Service Employees International Union, U.S. District Court Judge Claudia Wilken in Oakland ruled last month that the state did not analyze the impacts of the wage cut before approving it, running afoul of federal law. She blocked the wage drop to $10.10 that was supposed to take effect July 1.

This saved a pittance of money relative to the overall budget gap, around $100 million, and, you know, violated federal law.

As I speculated yesterday, the Governor’s foregrounding of “no new taxes” in his TV ad, a point already conceded by Democrats, was an effort to claim victory on something as the rest of his shock-doctrine agenda goes down in flames.  We’ll see if the anti-fraud measures stay in there as well.

As I said, this is going to be a horrible budget deal, and under the current system there can be almost nothing else.  But I don’t think the IOU issuance had the desired effect for the Governor.  He ended up having to play defense because his indifference to the state’s plight was seen as cruel.  And just like in 1992, the refusal of bailed-out banks to honor the IOUs led almost immediately to marathon talks arriving at a solution.

Arnold could have avoided all this and saved the state billions of dollars, with almost no difference in the final result.  

The Widening Public Pension Corruption Scandal

Last week, Julio Ramirez, an investment banker and former politico in the LA area (he managed Richard Riordan’s successful LA Mayor campaign), turned himself in to New York Attorney General Andrew Cuomo as part of a widening state pension scandal that has engulfed virtually every public pension fund in America.  The short version of this is that a network of state officials, investment bankers and various go-betweens concocted a scheme where the officials would place their pension funds in the hands of particular firms in exchange for campaign or just personal cash, and the firms who got the contracts would skim a few dollars off the top to give to the “placement agency” who got them the work.  Ramirez worked for Wetherly Capital Group, one of the placement agents, who secured what looks to be billions of dollars in pension fund money for its clients, and received millions back in finder’s fees.  One of them was CalPERS, to which Wetherly delivered about $300 million to its money managers.  

It’s a complicated story, but it comes at a time when CalPERS and other public pensions are struggling with all their stock market losses and increasing burdens as more employees hit retirement.  The sale of access to the pension funds raises all kinds of ethical questions, and has clearly made the middlemen and the controllers of the purse strings for the investments ridiculously rich at state employee expense.  The Carlyle Group, a major investment partner in CalPERS, just settled out of court for $20 million dollars to avoid charges in the probe.

This fits in with the general crisis in confidence that California citizens are having with their government.  Keep an eye on this, because it will continue to reverberate over the next several months.