The State Worker

As The Bee reports today, the state is scrambling to figure out how to reduce its 143,435 prison inmate population by another 10,000 within five months to comply with a court order to ease overcrowding.

We've embedded the state's response to the court below. Be sure to check out the California Department of Corrections and Rehabilitation's useful "Three-Judge Court Decision" website, which is packed with info and graphics that lay out the history of the case, more court documents and video.
California Department of Corrections and Rehabilitation's response to inmate overcrowding order

Our furlough litigation story in today's Bee quotes two academics, Vikram Amar of UC Davis School of Law and Athena Roussos of McGeorge School of Law. We thought State Worker blog users would want to learn more about what these two experts had to say about the governor's plan to file a writ of supercedeas that, if granted, would keep "special fund" state workers on a furlough schedule, despite Judge Frank Roesch's decision Wednesday that the policy must end immediately.

Vikram Amar (click here for his biography)

On the difficulty of getting an appellate court to overturn a trial court's stay decision: In general, it's hard to get an appellate court to grant a writ. You're asking the court for extraordinary relief. You're asking the appellate court to do something more quickly than if you just waited for the normal appeals process to play out.

On the likelihood of Schwarzenegger getting the court to see things his way and overturn Roesch's partial lifting of the stay: Courts rarely do it, but this is an unusual situation. Here's an analogy: You can say that it's rare for a team to make the Final Four (in the NCAA college basketball tournament), but if the team is (basketball powerhouse) Duke, then it's a different story.

Here, you would say that it's rare for a governor to seek a writ of supercedeas. What does that mean? Maybe the governor's average in successful writs might be higher than the overall average. Maybe not.

On Roesch's split decision: It will be impossible to not pay furloughed state workers if (the ruling stands that) furloughs are illegal. But this judge obviously didn't want to get into dictating that the state spend money right now.

On the difficulty of predicting how the courts will rule on furlough litigation: This is a pretty arcane, unresolved area. Everybody's operating in a legal vacuum here. No one thinks about situations like this when they draft constitutions.

Click the following link for comments by Roussos.

Pension expert and State Worker BrainBank member Susan Mangerio riffs today on a weekend story in the New York Times that explains why in the tumbling economy CalPERS must now decide whether to reshuffle its investments.

From the Times report:

Calpers, which will discuss its asset allocation at an investment meeting on Monday, had its portfolio thrown out of whack by the global equity mess. The fund aims to have about 56 percent of its $200 billion in equities, and 9.5 percent in alternative investments. The rest goes to bonds, real estate, inflation-linked assets and cash.

But because equities slid so drastically in the past month, Calpers is now overinvested in these riskier and less liquid alternative assets. Today they account for 14 percent of the portfolio. Since private equity and venture capital firms typically collect money over several years from pension funds -- which make commitments upfront to various funds -- the weighting is likely to increase even further.

The bottom line, according to the Times: This puts the pressure further down the chain, particularly if it forces pensioners to raise their contributions.

Mangerio goes further to explain the choices that CalPERS and many other pension funds face:

We've heard from plenty of plan sponsors that the "stay the course" or bid adieu to alternatives (some or all) is at the top of their decision list. The problem is that exiting a particular private fund may be costly, so much so that the plan sponsor is made worse off in the short- and intermediate-term. Additionally, plan sponsors seldom have the legal right to turn down a request for additional capital from private equity fund X or venture capital fund Y.

You can read the Times piece by clicking here. Then check out Mangerio's analysis on her blog, Pension Risk Matters.

As we reported on Friday, state Sen. Dean Florez sent a letter to Treasurer Bill Lockyer suggesting that CalPERS buy the $7 billion in bonds that the state needs to sell this month to make ends meet. You can get up to speed on Florez' proposal and CalPERS statement about the idea by clicking here.

State Worker BrainBank expert Susan Mangiero , well-known pension consultant and host of the Pension Risk Matters blog, points out that the Florez plan is like one floated in August by the Governor of Massechusetts to get that state's pension fund to buy $50 million in student loan-backed public bonds. You can read here for the details in The Boston Globe's Aug. 7 report.

A week after that story, The Globe reported that the governor's idea was dead:

Two last-minute proposals to assist (the state educational financing authority) were floated last week by Gov. Deval L. Patrick and state Treasurer Timothy P. Cahill, but both appear destined for dead ends.

Patrick had suggested that the state pension fund buy a portion of the planned bond offering. But Cahill opposed the idea, and the rest of the pension board has taken no action. A letter last week from the fund's executive director said buying the bonds directly would violate the $51 billion fund's investment policies.

You can read that follow up piece by clicking here.

CalPERS spokeswoman Pat Macht on Friday left the door open for the fund to buy the state's debt, saying in an email that that CalPERS would evaluate buying California notes just as it would evaluate any other investment.

Has CalPERS set itself up for trouble? The fund's decision on Monday to embrace public-private infrastucture investments has been a hot topic among pension experts, particularly its eleventh hour agreement with the state engineers' union to avoid putting money into projects that could impact public employee jobs.

In an insightful blog entry analyzing CalPERS policy, Susan Mangiero, head of Pension Governance LLC, wonders, "if CalPERS and infrastructure fund managers will soon find themselves at loggerheads."

Mangerio, a charter member of the State Worker's BrainBank of go-to experts, outlines several concerns in the blog, including how the fund will determine whether so-called PPP investments displace public employee jobs, the cost of making those determinations and whether the policy sets up conflict between the interests of the state engineers and all CalPERS members. You can read her analysis here.

It's a complex topic, but one that deserves your attention if you contribute to the fund. Many experts believe that CalPERS and other benefit administrators are moving toward these kinds of investments to further diversify their portfolios.

If you want to get up to speed on CalPERS' new infrastructure investment class and how it reached a compromise with he 13,000-member Professional Engineers in California Government, click here for yesterday's State Worker entry. You can read CalPERS PPP policy here.