There may not be a bounty on his head, but David Crane sits atop the enemies list for California’s public employee unions.
Crane, a wealthy investor and Stanford University lecturer, has for the past decade been highly critical of the state’s fiscal management. He believes that expedient policies, particularly regarding pensions, are time bombs that will explode under future generations.
Unions and their political confederates don’t want to hear it. They want Democrat Crane to go away, which is why the union-friendly state Senate twice rejected him for overseer positions.
In 2006, the Senate refused to confirm his appointment by former Gov. Arnold Schwarzenegger to the State Teachers’ Retirement System governing board, and five years later, the Senate wouldn’t even take up his nomination to the University of California Board of Regents.
“He’s got a lot of views that would make a lot of people in that fund very uncomfortable,” Don Perata, president pro tem of the Senate, said in 2006 as Crane was ousted from CalSTRS. “It’s just a bad fit.”
Crane wears those rejections as badges of honor and continues to hector state officials, most recently when the California Public Employees’ Retirement System reported just a 2.4 percent investment return for the 2014-15 fiscal year, less than a third of its assumed earnings goal.
Crane wrote an open letter pointing out that in economic terms, the earnings shortfall was even worse. Since liabilities also grow at the assumed return rate (7.5 percent), he said, and CalPERS’ liabilities exceed assets, “that means assets have to grow faster than the assumed rate of return in order to keep up with liabilities.”
Crane calculates that CalPERS would have to earn 9.7 percent a year to keep its unfunded liabilities from growing larger.
Crane’s missive earned him a retort from CalPERS – sort of. “His principle is correct,” the pension fund acknowledged, also agreeing that even had the fund achieved a 7.5 percent return, its unfunded liability would still grow.
However, CalPERS complained that Crane didn’t count contributions from covered employees and taxpayers, which would offset some of the additional liability.
That brought forth another Crane analysis, concluding that CalPERS is evidently counting on taxpayers to make up its failure to meet not only the 7.5 percent earnings target but the higher 9.7 percent figure. He called it “another sad example of a half-truth issued by an important public agency.”
This is arcane stuff, certainly, but also important stuff. Officially, CalPERS has less than 80 percent of what it will need to meet pension promises to hundreds of thousands of retirees. But that number is based on the 7.5 percent earnings assumption.
If the real number needed to finance pensions is higher and earnings are consistently lower, it means the unfunded liability is much larger than acknowledged and growing fast – running up huge debts that eventually will have to be paid by someone.