A Win for Transparency in California, Part Two

One issue underlying the bill I discussed yesterday is CalPERS long-term solvency. CalPERS has estimated that it has as assets now under management only about 71% of what it will need to make the pension payments due to workers of the state and local governments.

That isn't a disastrous shortfall. After all, the payments aren't all due tomorrow. No 72% of them are due tomorrow. And it has investments out that are earning money as we speak.

What you don't want to happen, of course, is for retirees to get paid by the revenue from today's workers. The retirees should be paid from the invested value of what they paid into the system, and today's workers should be building up their own future returns.

The 71% number is low enough to make managers properly uncomfortable. So it is natural that they look for other avenues to raise money. Even direct non-bank lending.

But here we get to the reason there IS a public records act requiring transparency. It is there out of a sense that sunshine is a disinfectant. If records aren't available to the public, it would very easy for some well-connected person's son-in-law to end up with a large loan from CalPERS.

Who is it who applies for non-bank loans? Chiefly, people who can't get loans from banks! Why can't worthy candidates for such loans, borrowers who are likely to do some good for the retirees of the state, get the loans they want from banks?

The good answer would be, "we can look more closely, in more granular detail, at the merits of a loan applicant that banks can or will do. We can find deserving borrowers who have been turned down."

So: is CalPERS actually in a position to outsmart the banks in a way that would make the underlying initiative here a good idea for retirees? Getting that 71% number up a bit? IF the answer is "yes," then it makes sense to ask, as a follow-up question, whether an exemption from the default principle of transparency is the optimal way to make that happen.

But wait: if the answer to that question were "yes," wouldn't the banks have let us know? If the banks actually thought that CalPERS could outsmart them in the lending market, their lobbyists would have been on AB 386 like white on rice.

The bill sailed through the assembly, where members seem to have thought it was a routine accounting measure, something to be waved through. It ran into opposition in the senate only because a retirees' group had figured out what was going on and mobilized. NOT the California banking industry.

In a hearing of the Senate Judiciary Committee, Sen. John Laird (D-Santa Cruz), who had taken up the cause of the retirees' group, questioned CalPERS’ legislative affairs chief Danny Brown repeatedly about the oversight of such loans. Laird wanted an assurance that the CalPERS board itself would be approving the loans, and not simply signing on to subscription loans.

Brown replied, “For the most part, I would say that is true,” which is a long way from a simple "yes." He acknowledged, as Laird pressed, that CalPERS’ board might not review all loan documents.

Laird was unconvinced, and voted against the bill.

Good for him.

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Jamesian Philosophy Refreshed

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