A financial analysis documenting the price that the California Public Employees’ Retirement System has paid for its 15 years of refusing to invest in tobacco shows the sober reality of aligning institutional money with morality.
CalPERS’ 2001 decision to divest itself of stock in 22 tobacco companies cost the fund as much as $3 billion through the end of 2014. We know this because some leaders of the $291.2 billion CalPERS fund are trying to generate support for reinvesting in tobacco stocks, as The Sacramento Bee’s Dale Kasler reported earlier this week.
CalPERS’ governing board should crush the idea like a smoldering butt. The fund undoubtedly would make money by putting civil servants’ money into Altria and other cigarette peddlers. But tobacco is profitable because nicotine is addictive, and smoking remains the leading cause of preventable death.
CalPERS has a fiduciary duty to its beneficiaries. But it’s not just any investment operation seeking to maximize its profits. At least, it shouldn’t be. It is, at root, the creation of the state and owes a duty to California taxpayers, without whom it would not exist.
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For decades, Californians have led the nation in combating tobacco use. In 1987, Gov. George Deukmejian signed legislation banning smoking on intrastate commercial flights. Only later did the federal government catch up.
Voters imposed a tax on tobacco in 1988 that funded a first-in-the-nation anti-tobacco advertising campaign. At the time, almost 24 percent of the state’s residents smoked. That’s down to about 12 percent now. And in 1994, Gov. Pete Wilson signed a landmark law banning smoking in restaurants, bars and other workplaces.
For years, pension fund leaders – and tobacco industry lobbyists – fought efforts to force tobacco divestment, contending legislators were meddling. They were, but only because the pension fund once was perfectly willing to use taxpayer funds in a cold quest for profits, even if it meant putting money into companies that, when their products are used as designed, cause disease and death.
CalPERS is facing pressure to perform, and has serious liabilities. But that’s in no small part because of its own blunders. Although Gov. Jerry Brown has pushed for some changes to reduce future pension costs, CalPERS struggles to meet obligations stemming from the irresponsible decision made by legislators – with CalPERS consent – to pass Senate Bill 400, a 1999 bill that vastly increased pension benefits.
In 2008, when the California State Teachers’ Retirement System contemplated reinvesting in tobacco, then-Treasurer Bill Lockyer issued a statement that summed up why it shouldn’t:
“In this country, the tobacco industry has a history of fraud and disregard for public health. That culture of deception has been exported to Europe, Asia and other parts of the globe, where the industry’s marketing targets children.”
Lockyer won then. His successor, Treasurer John Chiang, is taking the same stand, as is controller and fellow CalPERS board member Betty Yee.
“No public pension fund should associate itself with an industry that is a magnet for costly litigation, reputational disdain, and government regulators around the globe,” Chiang said in a statement. The rest of the CalPERS board ought to follow Chiang and Yee’s lead.
In 2000 and 2001, some people thought tobacco companies would be sued into bankruptcy. That was naive. The companies recovered from national litigation brought by the states, and have outperformed the Standard & Poor’s index by a wide margin, according to an analysis by the publication Pensions & Investments.
CalPERS could make a buck by buying tobacco company stock. That’s a sober reality, also. But we hope it is not that desperate.