The State Worker

Before CalPERS can save the world, public workers want it to save their pensions

Police Lt. Jim Auck makes a regular 400-mile trip to Sacramento delivering a message to the state’s biggest public pension fund.

He says his department can’t hire more cops in part because investment misses at CalPERS require cities like his to chip in more taxpayer money for public employee pensions.

That’s why he’s been urging the California Public Employees’ Retirement System at its monthly meetings to resist a recent wave of appeals for it to divest from politically unpopular industries, such as fossil fuels and firearms.

“We cannot afford to lose funding for law enforcement officers in exchange for a socially responsible investment policy,” Auck, treasurer of the Corona Police Officers Association, told the CalPERS’ Board of Administration at a May meeting.

His recent appearances at CalPERS meetings are signs that some law enforcement and labor organizations are speaking up against proposals that would force the retirement fund to withdraw its investments from specific industries.

The International Union of Operating Engineers, which represents some 12,000 state maintenance workers, is another organization urging CalPERS to focus on making money.

“It’s time for CalPERS to re-evaluate their investment strategies and focus more on improving their investment returns and less on ‘socially responsible’ investments,” said Steve Crouch, its director of public employees.

Opponents to divestment say those decisions are costly. CalPERS has missed about $8 billion in potential earnings because of its divestment choices dating back to the 1980s, according to a February report by Wilshire Associates.

That matters because both CalPERS and the California State Teachers’ Retirement System are badly underfunded, with each holding assets worth about two-thirds of what they’d need if they had to pay all of the benefits they owe immediately. If the funds don’t catch up, taxpayers eventually could be forced to make up the difference.

“The CalPERS board has a fiduciary responsibility to the membership to deliver the best returns possible,” Auck said. “While we don’t necessarily promote tobacco or some of the issues that they’re divesting from, they’re legal. Whatever is delivering the return they need, that’s where they need to put our money.”

Calls for divestment at CalPERS are not new to the fund. It pulled out of South African investments in 1986 as a statement against apartheid. It sold its tobacco stocks in 2000.

But the pace of divestment requests has increased recently.

In 2015, the Legislature approved a bill calling on CalPERS and CalSTRS to reconsider their coal investments. CalSTRS subsequently divested from coal; CalPERS next month is expected to release its decision.

The most prominent proposal this year would have compelled CalPERS to divest from companies that do business with the Dakota Access Pipeline, the controversial 1,200-mile pipeline opposed by the Standing Rock Sioux tribe in South Dakota. Assemblyman Ash Kalra, D-San Jose, later modified his bill to require CalPERS to publish a report on its pipeline-related investments.

Another bill would force CalPERS to cut its investments in Turkey. One more would have triggered divestment from businesses that work on the Trump administration’s proposed border wall.

Those proposals all have passionate supporters.

Dozens of Dakota Access Pipeline opponents packed CalPERS’ February meeting, where they implored the board to shed its investments in the pipeline’s builder. Many of them were retired public workers and teachers, who viewed global warming as a greater threat to their retirement security than CalPERS’ unfunded pension obligations.

“You have my permission to divest,” retired teacher Martha Dragovich, 74, told CalPERS in February.

Some major labor organizations also favor divestment.

State government’s largest union, Service Employees International Local 1000, is one of them. Theresa Taylor, one of the local’s vice presidents, is a member of the CalPERS Board of Administration.

Local President Yvonne Walker said she’d support divestment from fossil fuels in general.

“We all understand the need to make profitable investments but fossil fuels pose a threat to everyone. We’ve learned this lesson before – placing dollars over principles is one of the key factors in today’s income inequality. We can’t change the past, but let’s make the right decisions for our future,” she said in a written statement.

CalPERS has sent its lobbyist to the Capitol repeatedly this year to argue against divestment. The pension fund contends that banning certain investments increases risk for the overall fund and diminishes its voice on corporate boards as a shareholder.

CalPERS has been nudging companies to disclose climate risks with shareholder votes this year, including major oil producers like Exxon Mobil and Chevron. It advertises those votes to demonstrate its impact on social and environmental issues.

State Controller Betty Yee, who has a seat on both CalPERS and CalSTRS, has made that case at public meetings where activists press the funds to divest from fossil fuels. But she joined CalSTRS last month in voting to cut its last investments in foreign coal companies.

“I consider divestment proposals on a case-by-case basis and CalSTRS’ divestment from non-U.S. thermal coal was clear-cut because the holdings were minimal, returns inadequate, and liabilities and risks significant,” she said. “With a fiduciary responsibility to keep retirement benefits funded, I believe full divestment from fossil fuels is not yet feasible. Even as we depend less and less on fossil fuels, the sheer volume of energy and magnitude of pension assets that need to be replaced is still too big.”

Most of the state’s unions have been trying to convey their worries about divestment while maintaining relationships with the Democratic leaders behind the proposals. Senate President Pro Tem President Kevin DeLeon, D-Los Angeles, backed the 2015 coal divestment bill, for instance.

Unions held back on Kalra’s Dakota Access Pipeline bill until he rewrote it in a way that did not force divestment. The new version, which simply requires disclosure of pipeline-related investments, cleared a Senate committee last week with endorsements from the powerful California Teachers Association and the state’s largest firefighter union, California Professional Firefighters.

California Professional Firefighters spokeswoman Carrol Wills said the union usually does not take positions on divestment proposals.

“We think the practice of direct engagement, currently employed by CalPERS and CalSTRS, is the appropriate way to effect change without sacrificing its fiduciary responsibility to act in the best interests of beneficiaries and employers,” she said.

Members of Auck’s police union in Corona of Riverside County plan to keep showing up at CalPERS meetings. Auck, 60, said officers followed news about the divestment proposals and decided to dip into their union funds to pay for the travel, worrying that CalPERS would hear only from people who favor divestment.

The department has about 30 fewer positions for sworn police officers than it had a decade ago, he said. The city expects to pay more money to CalPERS every year for pensions since the fund in December voted to lower its investment rate forecast, a decision that requires governments to kick in more money up front for their workers. That leaves Corona less room to bring back some of those law enforcement jobs, Auck said.

“We’ve lost billions of dollars because of divestment. That’s billions of dollars we could have had. Maybe we’d still have these same issues, but we don’t know that,” he said.

Adam Ashton: 916-321-1063, @Adam_Ashton. Sign up for state worker news alerts at

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