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  #1191  
Old 06-16-2019, 08:35 PM
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Mary Pat Campbell
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ILLINOIS
SPIKING

https://chicagocitywire.com/stories/...their-pensions

Quote:
Roll Call: Turner votes for allowing teachers to “spike” their pensions

Spoiler:
State Rep. Arthur Turner (D-9) on May 31 voted for a $40 million budget package that included a hidden gem for teachers -- the removal of a 3 percent cap on end-of-career pension spiking for Illinois educators.

Signed into law by Gov. J.B. Pritzker on June 5, Senate Bill 262 included a provision that effectively doubles the cap for four years. If a school district increases a teacher’s salary by 6 percent each of those four years before he or she retires, the pension payout from the Teachers Retirement System (TRS) also increases by more than 24 percent.

The average Illinois teacher saves about 3 percent of what they will eventually collect in retirement, or $30,000 for every $1 million in pension benefits. The difference is picked up by taxpayers.

With TRS only 40 percent funded and currently holding $75 billion in debt -- the most of all five state-run pension funds -- analysts say higher property taxes will result from the pension spiking.

A report by independent research firm Wirepoints.com calculated that Illinois teacher pension benefits have grown 1,092 percent since 1987, or about 10 times inflation.

District 9 includes all or parts of the Near North Side, North Lawndale, the Near West Side, Old Town, Little Italy and River North in Chicago.


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  #1192  
Old 06-16-2019, 08:49 PM
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BEAVERTON, OREGON

https://www.oregonlive.com/education...e-straits.html

Quote:
$12 million accounting error, soaring pension costs put Beaverton schools in dire straits

Spoiler:
Three hundred and eight.

That’s how many faculty and staff positions Beaverton schools officials announced they’d lose over the summer when they rolled out a budget proposal to mitigate a $35 million shortfall.

Grotting’s proposed $500 million budget represented an increase of $11.7 million over this year’s.

Community members were incensed, filling school board meetings to demand answers why a district with a steadily increasing budget was making such deep staffing cuts and pulling $9.7 million out of its rainy day fund. At the Capitol, school advocates cited Beaverton’s budgetary straits as evidence the state’s $9 billion school funding plan wasn’t generous enough.


But it turns out that a $12 million chunk of the district shortfall for the coming year was a result of several accounting errors from the 2018-19 budget that will carry into next year.

After those realizations dawned, the district found other sources of money and different ways to deploy its funds to lessen how dramatically it would cut teaching positions to balance the books.

Officials in the budget office, then led by Chief Financial Officer Claire Hertz, who was since hired away by Portland Public Schools, built the current budget using an assumption new hires would come in at the bottom of the pay scale. They also miscalculated average salaries, which led to a faulty estimate of how much benefits would cost in the coming year.

Those three mistakes combined meant the district had to spend $8 million more than it had budgeted.

Miscalculations in enrollment figures cost another $1 million, while officials in the finance office underestimated how much the state’s new pay equity law would require in salary adjustments to the tune of another $1 million.

Beaverton schools officials originally planned to cut 308 faculty and staff next year. Now, those cuts will be closer to 115.
Oregonian file photo by Stephanie Yao Long, 2016

Beaverton schools officials originally planned to cut 308 faculty and staff next year. Now, those cuts will be closer to 115.

“We were one of the first districts to dig in and comply with Oregon’s new pay equity law,” Superintendent Don Grotting said. “And we discovered it was going to cost us a significant amount of money.”



In order to maintain programs and staffing levels at this year’s level in 2019-20, the district would need $35 million more than they have to spend. So, they have to find something to cut.

More than half of why the district needs to spend so much more — about $17.9 million —is the much-higher required contributions to public employee pensions and rising healthcare costs. Both obligations have risen over the last few years as the district’s spending on salaries has only modestly increased.

In fact, the district's contributions to the Public Employees Retirement System relative to salaries will top 27 percent next year.

“There’s no doubt that the PERS cost increases in the last two years have been a significant problem for schools,” Grotting said.

The district’s new chief financial officer, longtime district finance official Gayellyn Jacobsen, submitted her resignation letter to Grotting on May 8, effective immediately.

A $12 million accounting error and about $19 million in increases in employee benefits made up the majority of the district's shortfall.
Oregonian file photo by Stephanie Yao Long, 2016

A $12 million accounting error and about $19 million in increases in employee benefits made up the majority of the district's shortfall.

The document, obtained by The Oregonian/OregonLive through a public records request, contains three sentences.

“I am resigning my position effective May 8, 2019," Jacobsen wrote. “It has been a joy to serve the Beaverton School District for the last sixteen years. I truly believe it is the finest district in the state of Oregon.”


Gotting recruited Jim Scherzinger, a retired money expert who ran Portland Public Schools’ budget and served as the state human service agency’s budget director during his career, to replace her on a temporary basis.

District officials have revisited their financial plans since state lawmakers approved $9 billion education spending for the coming two-year budget cycle, about $100 million above what top legislators proposed earlier in the year.

That boost provides just over $493,000 for Beaverton schools. The district also plans to pull another $1 million from its rainy day fund — for a total of $10.7 million — to lessen proposed teacher job cuts.

And, most significantly, the new budget plan will cut all employees’ days worked – and thus their pay – to preserve teaching positions. The revised budget includes the loss of five teaching days and nine work days for classified employees to save $9.6 million.

Grotting has also proposed an additional $4.6 million in spending reductions at the district’s central offices.

Under his plan, up for a school board vote this month, nearly all those adjustments —$15 million worth – will preserve teaching jobs to stabilize class sizes.


That would reduce the total number of staffing cuts to make next year to about 115, district officials told The Oregonian/OregonLive. That’s roughly one-third as many as Grotting originally proposed. But that doesn’t mean more than 100 employees will necessarily lose their jobs.

Grotting said a layoff announcement, if there is one, is still a few weeks away. The district always loses educators to retirements or to jobs elsewhere, and it remains to be seen how those numbers will shake out.

“It’s hard to say right now, how many people we are having to walk up to and say they don’t have a job next year,” Grotting said. “We could very possibly and might likely be going out to hire in some positions.”

District officials will present the revised document to the district’s budget committee — made up of board members and citizen volunteers — on Monday. That proposal will include a new $7.3 million expense not included in current budget documents: A 2.5 percent cost-of- living increase for the district’s teachers, a result of union negotiations that just closed.

That additional money will also come out of the district’s rainy day fund, Scherzinger said.

Although Beaverton schools in the end appear to have staved off the deep cuts that made headlines earlier this year, the district’s lobbyist worries that could be undone if voters strike down a $1 billion-a-year corporate tax package passed by state lawmakers’ at the ballot box.


Although the first $1 billion won’t reach school budgets until 2020-21, $200 million in proceeds from the tax is baked into the $9 billion state funding package for the coming school year as well as the next.


--Eder Campuzano | 503-221-4344

Do you have a tip about Portland Public Schools? Email Eder at ecampuzano@oregonian.com or message either of the social accounts above.


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  #1193  
Old 06-16-2019, 08:54 PM
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CALIFORNIA

https://www.dailydemocrat.com/2019/0...ht-new-budget/

Quote:
Pension relief, special ed funding highlight new budget
Governor gets most of his requests for educational funding

Spoiler:
Gov. Gavin Newsom’s first education budget, which the Legislature passed on Thursday, remains his budget. After negotiations with legislative leaders, Newsom’s spending priorities remain largely intact and signal the directions his administration will take over his first term.

“The governor successfully held true to principles he laid out in January and got significant wins across the board,” said Kevin Gordon, president of Capitol Advisors Group, an education consulting firm. “He found creative ways to address crucial issues that educators statewide are articulating.”

Funding for K-12 schools and community colleges is determined by a complex formula laid out in Proposition 98, which voters passed in 1998. It’s roughly 40 percent of the state’s budget, varying a bit from year to year.

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Newsom funded the minimum increase required by Prop. 98, which will raise the level by $2.9 billion, to $81.1 billion in 2019-20. For additional money, Newsom turned to the General Fund, where K-12 had to compete with health care, housing, homelessness, and legislators’ own priorities.

The final budget provides about $3.5 billion beyond Prop. 98. By far the biggest piece is the $3 billion that will relieve districts from escalating school pension costs. Next is $300 million in one-time money to fund facilities for districts to transition to full-day kindergarten — half of what Newsom had requested.

But Newsom also turned to the General Fund to address issues that State Board of Education President Linda Darling-Hammond and others have pressed for: $90 million in tuition fellowships for aspiring teachers who commit to teach subjects with chronic teacher shortages — special education, science and math, and bilingual education — and about $35 million more in training for administrators and teachers.

“We’re glad to see the teacher shortage and building a teacher pipeline addressed,” said Elisha Smith Arrillaga, executive director of Education Trust-West, a nonprofit that focuses on equity for underserved students.

Newsom also turned to the General Fund to follow through on a campaign pledge to vastly expand early childhood education, including a long-term plan to implement universal preschool. The $1.8 billion in new money will take the state partway there, with substantially more seats in preschool for low-income 4-year-olds and subsidized care for infants and toddlers.

Smith Arrillaga credited Newsom for keeping the commitment to the Local Control Funding Formula, the finance system that former Gov. Jerry Brown championed that steers more money to low-income students, English learners and foster students while giving districts more authority over spending decisions. About two-thirds of the $2.9 billion increase under Prop. 98 for K-12 will be cost-of-living increases for the funding formula.


“For a first budget, I give him an A, for holding true” to the funding formula and special education — “areas where we needed more money,” said Dennis Meyers, assistant executive director for governmental relations for the California School Boards Association.

Special education, however, turned out to be the biggest area of disagreement between Newsom and the Legislature. Not over the level of funding, which educators universally praised, but over how Newsom wanted to spend it.

The state’s share of funding for students with disabilities has declined significantly over the past decade, leaving districts to absorb an increasing portion of rising costs. Recognizing districts’ complaints, Newsom proposed a 21 percent increase in special education funding. But he wanted to channel the money only to a fraction of districts —those with both an above-average proportion of low-income children and with a higher than average percentage of students with disabilities.

District and special education leaders opposed the idea, and, in the budget conference committee, leaders from the Assembly and the Senate countered with a different plan. They proposed equalizing the funding rates for special education, which vary greatly across the state. And they proposed covering costs for 3- and 4-year-old students with disabilities, which the federal government mandates but the state has not funded.

Newsom capitulated, agreeing to move halfway toward full funding equalization and adding nearly a half-billion dollars to help districts pay for special education costs for preschool-age children. Newsom did get one concession: Funding beyond next year would be contingent on a plan to ensure academic and other outcomes improve for special education students.

The final agreement includes a few more noteworthy changes to Newsom’s budget:

Pension relief: The $3.1 billion in pension relief for districts will be apportioned differently than Newsom had proposed. Instead of all if it going to reduce districts’ rising costs of teacher and administrator pensions through the CalSTRS pension fund, $900 million will go toward cutting the higher costs of pensions for other school employees, such as bus drivers, secretaries and teacher aides, through CalPERS, a separate pension system. That’s a victory for unions representing those workers, who may be in a better position to bargain for higher wages.

There will be both short- and long-term pension help. In the short run, the reduced payments to CalSTRS and CalPERS will free up $850 million for districts to spend however they want during the next two years.

After-school funding: Newsom initially called for no increase to the current $600 million in funding for the state’s after-school programs, which 400,000 students attend. But responding to pleas that state minimum-wage increases could force some providers to close, the Senate proposed $100 million more, and the Assembly wanted to add $80 million. Newsom agreed to $50 million more.

With votes of 60-15 in the Assembly and 29-11 in the Senate, the Legislature passed the budget two days before the June 15 statutory deadline. But there’s still work to be done nailing down details in several “trailer bills” that will be decided in the next two weeks. Newsom assumed the state would change its tax code to conform with actions by a Republican Congress in 2017 in closing some corporate deductions. A failure to follow Congress’ lead could mean a loss of $1.7 billion in revenue, lowering the Prop. 98 total by several hundred million dollars.


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  #1194  
Old 06-16-2019, 08:58 PM
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KENTUCKY

https://www.kentucky.com/news/politi...231573543.html

Quote:
Special session on pension relief may not occur until July

Spoiler:
A Republican House leader said Friday that it appears Gov. Matt Bevin is close to having enough votes to push his pension-relief bill through the House in a special session, but the issue is complicated by finding time to hold the session when most lawmakers can attend.

House Majority Floor Leader John “Bam” Carney, R-Campbellsville, said it’s possible that a special session will not be held until the first week or two of July.

“If you got the votes and the vote is close, you certainly want to be sure they are able to attend a special session,” said Carney in a phone interview. “Various summer events like vacations and other commitments are complicating the scheduling of a session.”

He noted that Bevin and legislators have been working to hold the special session before the state’s new fiscal year begins July 1, “but we may have to hold it in early July and adjust the legislation for that.

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“Of course, having it sooner, the better.”

Senate Majority Leader Damon Thayer, R-Georgetown, agreed with Carney. “There are a lot of logistical problems with having the special session in June but we’ll just have to wait and see.”

Only the governor can call a special legislative session and set its agenda. Lawmakers determine how long a special session lasts.

Bevin’s plan would replace a bill the Republican governor vetoed in April after the GOP-led legislature had ended in regular session.

At issue is financial relief for regional universities and quasi-governmental agencies such as county health departments, rape crisis centers and libraries that face surging pension costs, beginning July 1.

Concern has been expressed that no legislative action would lead to some bankruptcies, elimination of staff and loss of critical services.

Bevin’s plan gives the agencies options: stay with the Kentucky Retirement Systems at full cost; leave the retirement system by paying a lump sum equal to future projected benefits payments; or buy their way out in installment payments over 30 years. It continues a freeze on pension costs for another year.

House Speaker David Osborne, R-Prospect, said earlier this month that some legislators want to make sure that employees of the affected groups keep the option to retain their current benefits if they have been in the state plan since 2013.

Carney said Friday that the governor “probably has a couple more votes than he had a week ago. There may be enough for passage.”

It would take at least five working days to get a bill through both the House and Senate and a special session preferably would start on a Monday, Carney said. The Legislative Research Commission has put the price tag of a special session at $66,434 a day.

“We have had very constructive dialogue with members of the majority party in the House and Senate and are pleased with the positive momentum on this front,” Bryan Sunderland, Bevin’s deputy chief of staff, said Friday night. “There is consensus that we need to offer real solutions, rather than continuing the history of underfunding that has put Kentucky in this situation.”

“I’m optimistic that a special session will be held soon and this issue will be resolved,” said Carney.


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  #1195  
Old 06-16-2019, 09:02 PM
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NEW MEXICO

https://www.wral.com/analysts-say-sc...ions/18450232/

Quote:
Analysts say schools falling behind on pension obligations

Spoiler:
SANTA FE, N.M. — A major credit ratings agency says that pension obligations are outpacing contributions at an unusually fast rate for school districts and local governments across New Mexico when compared with nationwide averages.

Analysts with Moody's Investors Service told a panel of state lawmakers on Thursday that most local governments and their workers in the U.S. are not contributing enough to "treat water" and avoid increases in unfunded pension burdens. They say the difficulties are much worse than average in New Mexico.

New Mexico lawmakers this year increased taxpayer contributions to two major pension plans by 0.25% of annual salaries and delayed the accrual of pension benefits for new school workers.

Moody's analyst Heather Correia says truly tackling pension problems requires significant increases in contributions, reduced benefits or both.


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  #1196  
Old 06-16-2019, 09:08 PM
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NEW JERSEY
HEDGE FUNDS
DIVESTMENT

https://www.bloomberg.com/news/artic...rnd=markets-vp

Quote:
As N.J. Cuts Hedge Fund Ties, Chatham Shows That Can Take Years
By Katherine Burton , Sridhar Natarajan , and Shahien Nasiripour
June 11, 2019, 9:49 AM EDT
New Jersey aims to withdraw about half its cash at hedge funds
Calpers has been waiting to exit Chatham and others for years

Spoiler:
New Jersey’s plan to slash about $2 billion of its hedge fund investments sounds simple: Pick the top managers, ask others for redemptions and collect the cash.

Yet overseers of the state’s pension system can look cross-country to see how long that can take. Five years after California’s biggest retirement plan decided to pull out of all hedge funds, its managers are still waiting to retrieve roughly $150 million from Chatham Asset Management.

Most of the hedge funds that once tended investments for Calpers, as the $360 billion California Public Employees’ Retirement System is known, have returned the pension system’s cash, leaving Chatham with the bulk of money still outstanding. New Jersey, too, has $363 million in a Chatham hedge fund, and while the portfolios are different, they share at least one controversial investment: Holdings tied to American Media, longtime owner of publications including the National Enquirer.




After Calpers asked to withdraw its money from a special fund managed by Chatham, the pension system watched the vehicle’s performance decline. The Chatham fund generated an annualized return of 7.3% in the five years through 2014, when Calpers made its decision to cut ties with hedge funds. But by the middle of last year the lifetime annualized return had slumped to 2.3%, according to the most recent data publicly available.

In 2016 alone, the special fund suffered a 16% loss without any public explanation. The broader high-yield market rallied that year, and Chatham’s main high-yield fund gained 24%. Calpers and Chatham declined to comment on the divergence.

First to Exit
It’s worth watching Calpers’s experience extricating itself from hedge funds because it’s the first major player in its industry to attempt it. The biggest U.S. pension system rattled Wall Street in September 2014 by announcing it would pull every investment in the asset class, deeming them too complex and expensive. Other pension funds have followed.

Officials in New Jersey have yet to say whether they might pull their money from Chatham, among others. In February, they said they were so bothered by Amazon.com Inc. founder Jeff Bezos’s claim that the Enquirer had tried to extort him that they would consider “all available options” for their investment with Chatham. Then late last month, the pension’s council voted to halve its allocation to hedge funds in general. It has yet to decide which firms to cut from a stable that also includes Winton Capital Management, Davidson Kempner Capital Management and Elliott Management.

Read more: Pension overseer says Bezos claim ‘completely unacceptable’ if true

Chatham founder Anthony Melchiorre, known as a bare-knuckled fighter in business dealings, has waded deeper into contrarian bets over the years and stuck by them. His firm has reported significant gains on New Jersey’s $300 million investment from 2014 -- adding $193 million through March this year, according a pension report.

Yet, Calpers’s exit from Chatham illustrates a risk investors face generally when entrusting money to funds that take big stakes in assets that may be hard to sell: Full withdrawals can be slow.

“We have been encouraging the fund to sell for several years now,” said Wayne Davis, a spokesman for Calpers, speaking of its desire to dispose of the remaining positions it has with Chatham. Still, the California fund isn’t a “distressed seller” and doesn’t want to accept a depressed price, he said. Its relationship with Chatham remains good, he said, noting that the hedge fund has signaled it will hand over more money this year.

Not ‘Acceptable’
In a letter to Bloomberg, Chatham’s lawyers said the firm has generated an annualized return of 6% for Calpers when including investments before the special fund was set up in 2010.

By the end of March, they added, the annualized return on Chatham’s special fund was “significantly higher” than the 2.3% reported through the middle of last year. A Chatham spokesman declined to provide a current figure. Given the length of time Chatham has held Calpers’s money, the assets that remained at the end of last June would’ve had to jump significantly in value to bring annualized gains since 2010 to even just 3%.

The 2.3% reported is “not an acceptable return,” said J.J. Jelincic, a former Calpers board member. “Even if there are rational reasons, that shouldn’t be acceptable. Clearly somebody was asleep at the switch,” he said, referring to Calpers’s oversight of its investment with Chatham. The pension system has said its goal was to generate more than 5% on hedge fund investments.

For years, hedge funds focused mainly on liquid markets, such as stocks that are easily bought and sold. But as competition mounted -- including from a growing number of buyout firms -- money managers began hunting opportunities more widely. Now, “part of the problem with the industry is that it has some hedge funds that have private equity envy and get into illiquid investments,” said Jelincic, who worked as an investment professional at Calpers for three decades before retiring. He’s now seeking to rejoin its board.

Read more: At hedge fund that owns Trump secrets, odd bond math

By definition, illiquid assets can be challenging to sell. Ultimately, disposals can help show how well money managers tracked their portfolios over the years.

There are many reasons holdings can be illiquid. Large positions, unusual businesses or investments hinging on complex contracts or that take years to yield profits -- as a few examples -- tend to draw fewer buyers. That can force owners to decide between waiting for an attractive bid or selling quickly at a depressed price. The infrequency of sales, in turn, leaves less data publicly available to set valuations in other portfolios. Calpers’s broad retreat has essentially been testing how hedge funds valued its positions, according to Tim Jenkinson, a finance professor at the University of Oxford’s Said Business School.

“The proof of the pudding is in the eating,” Jenkinson said. “Ultimately when you sell it, an investor gets to see whether you are valuing the assets aggressively or conservatively.”

Chatham’s lawyers disagree.

“The price at which an asset is sold in the future is not correlated to how a party valued that asset in the past,” they wrote in a letter to Bloomberg this week. Chatham, they noted, uses “an independent, well known, third party” to set quarterly valuations for assets that are harder to value because of a dearth of market prices.

The pension system originally expected to complete its pullout from hedge funds in about a year, according to comments it made when announcing the move in 2014. At the time, it had about $4 billion parked with a variety of managers. Its most recent disclosure shows there was $234 million still outstanding as of last June, with about 87% of it at Chatham. That’s enough to meet the annual needs of more than 6,000 pensioners.

Rejecting Offers
One person close to Chatham said the amount still at the hedge fund is now less than $150 million. The pension plan has rejected several proposed sales that would’ve immediately turned its assets into cash, choosing instead to wait to realize better prices, Chatham’s lawyers said. The hedge fund has never shown Calpers a bid below where the assets were valued, they said.

The challenges of investing in illiquid assets became most acute during the 2008 global credit crisis, when buyers flocked to the sidelines. Some fund managers ultimately halted client withdrawals and waited for the turmoil to subside. The experience left many customers wary of less-liquid markets.

“Chatham is proud to have never restricted redemptions, including during the financial crisis,” a spokesman for the firm said. “Since 2017, Chatham’s assets under management have increased by approximately $1.6 billion, 80% of which is in three- to seven-year locked vehicles.”

Read more: Chatham weighs shutting $763 million liquid alts unit


Chatham began attracting scrutiny last year as it became clear that American Media’s chairman, David Pecker, had worked with Donald Trump’s fixer during the 2016 presidential race to head off stories about Trump’s alleged extramarital affairs, a practice known as “catch and kill.” In exchange for its cooperation with a federal probe of Trump’s campaign, prosecutors agreed not to criminally charge American Media so long as it stays on the right side of the law for three years.

That was before Bezos levied his accusations of extortion, saying the Enquirer threatened to publish steamy photos he sent to a woman with whom he was having an affair. Federal prosecutors have said they’re reviewing their deal with the publisher, but no decision has been made public. The company has said it engaged in journalism, not extortion.

American Media said in April it’s selling the Enquirer to James Cohen, the owner and CEO of Hudson Media, who’s done business before with Chatham. They have yet to announce that the $100 million transaction has closed.

New Jersey has the right to liquidate some or all of the hedge fund that Chatham manages for the state around the end of the year. Chatham also manages a $225 million private debt fund for New Jersey that is locked-up for several years.

Early Gains
Calpers first invested with Chatham more than a dozen years ago. In 2010, the hedge fund created a separate portfolio for Calpers called the Chatham Eureka fund. For years, the vehicle reported gains.

After Calpers announced its pullback from hedge funds in 2014, Chatham met part of the redemption relatively swiftly, shrinking the special fund from its peak of about $600 million in assets.

Chatham’s contract to manage the Eureka fund runs out at the end of the year. If the fund still holds securities, the pension plan can choose to take over the investment itself, extend the life of the fund, or even replace Chatham with another manager, according to Davis, the Calpers spokesman.

American Media said the Enquirer sale will help eliminate $100 million in debt. That, in turn, could make Calpers’s investment more valuable and help return the pension system’s money.


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Old 06-16-2019, 09:27 PM
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CALIFORNIA

https://www.sacbee.com/news/politics...231457468.html

Quote:
Gavin Newsom’s budget aims to spare California schools from some pension pain

Spoiler:
Gov. Gavin Newsom’s first state budget frees up hundreds of millions of dollars for financially strapped schools by easing pressure on their pension rates and steering some additional money to them for special education programs.

The agreement won’t necessarily spare distressed school districts like Sacramento City Unified from cuts, but it could help them stave off some hard decisions.


“It’s a stronger budget than we’ve seen in recent years,” said Troy Flint, spokesman for the California School Boards Association. “This budget is helpful for school districts, particularly those in financial peril.”



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The budget framework lawmakers released this week is expected to lower projected pension rates by 1 percent below what schools were projected to pay for teacher retirement plans next year, letting school districts spend money that would have gone to retirement plans on other classroom priorities. The budget aims to lower projected pension rates in the 2020-21 financial year by .7 percent.


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Over the next two years, the budget allocates $850 million to immediately reduce school pension rates by paying a share of what they owe to the California State Teachers’ Retirement System and the California Public Employees’ Retirement System on their behalf.


Separately, the budget sets aside an additional $5.2 billion to pay down long-term pension liabilities for California school employees. Those payments also are projected to lower pension rates for the state and for school districts over time.


“Schools and community college pension contribution rates are still rising,” said Kenneth Kapphahn, a policy analyst at the office, “But this rate relief means they will rise more slowly.”


All together, lawmakers are ready to spend $101.8 billion on K-12 schools in the next budget year, a $4.6 billion increase over the education budget that former Gov. Jerry Brown signed a year ago. The Legislature is expected to vote on the budget this week.


Some education advocates had hoped for more funding in the final budget released this week, particularly because Assembly and Senate budget proposals included more money for pension relief, career technical education and special education programs.


“The governor gets credit for trying to thread the needle on everybody’s different wishes,” said Kevin Gordon, a lobbyist whose firm, Capitol Advisors Group, represents school districts.


California’s long economic expansion filled the state budget with a surplus that’s projected to approach $22 billion, but some local school districts are struggling.


Teachers this year went on strike in Los Angeles, Oakland and Sacramento, demanding wage increases to help educators keep up with the state’s high cost of living.


Sacramento City Unified, meanwhile, is still in danger of a state takeover because of projected deficits.


“We appreciate Governor Newsom’s continued commitment to increasing resources to fund public education in California,” said David Fisher, president of the Sacramento City Teachers Association. “If we had sound fiscal management in our district, we would be able to vastly improve services to students.”


A spokesman for the school district said the administration had already accounted for Newsom’s pension relief following the release of his May budget update. The numbers released this week are not significantly different from last month’s proposal.


The governor’s budget also included a $645 million increase in funding for special education, “an area where costs have been rising rapidly in recent years,” Flint from the school board association said.


Pension rates at California school districts have been climbing since 2013, when the state began a series of rate increases to pay down long-term debts in the California State Teachers’ Retirement System.


That year, districts paid 8.25 percent of teachers’ wages toward educators’ pensions. That rate has nearly doubled to 16.3 percent and it was scheduled to climb to 18.1 percent in July.

The pension relief included in the state budget is expected to put CalSTRS pension rates at 17.1 percent for the coming year. The rate is projected to rise to 18.4 percent in the 2020-21 budget year. It would have been 19.1 percent without the additional payments.


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CALIFORNIA
CALPERS
ESG
DIVESTMENT

https://www.wsj.com/articles/calpers...ey-11560684601

Quote:
Calpers’ Dilemma: Save the World or Make Money?
California’s public pension system wrestles with new doubts about divestments based on social concerns

Spoiler:
The California Public Employees' Retirement System was one of the first public-pension systems to tie its investments to social activism. Now it is having second thoughts.

In the last two years, its directors have opposed proposals to sell stocks in private prisons, gun retailers and companies tied to Turkey because of the potential for lost revenue and skepticism about whether divestment forces social change. One of these directors is now urging the system, also known as Calpers, to end its ban on stocks tied to tobacco, a policy in place since 2000.

"I do see a change," said that director, California police sergeant Jason Perez, in an interview. "I think our default is to not divest."

Calpers isn't the only system wrestling with these new doubts. Rising funding deficits are prompting public officials and unions across the U.S. to reconsider the financial implications of investment decisions that reflect certain social concerns. The total shortfall for public-pension funds across the U.S. is $4.2 trillion, according to the Federal Reserve.

New York state's Democratic comptroller and unions representing civil service workers oppose a bill in the Legislature to ban fossil fuel investments by the state pension fund. In New Jersey, Gov. Phil Murphy, a Democrat, vetoed legislation last year that would have forced divestment of state pension dollars from companies that avoid cleaning up Superfund sites by declaring bankruptcy.

There is some evidence that divesting from certain holdings can be costly for systems that oversee retirement savings for millions of public workers. A November 2016 study by the Boston College Center for Retirement Research found average annual returns in states with divestment requirements were 0.40 percentage point lower than plans in states without such requirements.

Divestment mandates "detract from what a retirement fund is for, which is to provide retirement income for public-sector workers," said Anqi Chen, one of the study's authors.

Public-pension funds once gave little thought to the money they might lose from social activism. Many sold investments in South Africa in the 1980s to protest apartheid. Others banned investments in tobacco products in the 1990s and early 2000s.

In the aftermath of the Sept. 11, 2001, terrorist attacks, more than 20 states passed laws that could compel their pension funds to divest from Sudan, Iran or other governments considered by the U.S. to be sponsors of terrorist activity.

Calpers was an early adopter of divestment, selling investments tied to South Africa in 1986 and tobacco in 2000. At the time, Calpers had more than enough assets on hand to pay for future obligations, according to the fund.

Doubts about the strategy rose as Calpers' funding situation worsened after the 2008 financial crisis. A key sign came in December 2016 as retirement-system officials recommended the board drop its tobacco ban, citing the potential money lost. Staying out of the investments for 16 years had cost the fund more than $3.5 billion, a fund consultant calculated.

After a debate, the board not only kept the ban but expanded it to cover investments made by external managers. Three directors dissented from that decision.

Calpers had $366 billion in assets as of Thursday. The fund was $139 billion short of what it needs to fulfill its liability as of June 30, 2017, the latest figure available.

Anti-divestment sentiment gained more momentum in 2017 as new Calpers Chief Executive Marcie Frost cautioned against new divestments during a tour of newspaper editorial boards in California. In 2018 the Calpers board resisted calls to sell more gun-company shares following a deadly high-school shooting in Parkland, Fla.

"Divestment limits our investment options," Ms. Frost said. "With a targeted return of 7%, we need access to all potential investments across all asset classes. Divesting does the exact opposite -- it shrinks the investment universe."

The board now plans a comprehensive review, scheduled for 2021, of all of Calpers' existing divestment policies, which include bans on investments in companies that mine thermal coal, manufacturers that make guns illegal in California and businesses operating in Sudan and Iran. Directors have stated a preference for "engagement," meaning direct communication with portfolio companies.

Leading the internal opposition to divestment is Mr. Perez, a Corona, Calif., police sergeant who decided to run in the 2018 Calpers board election because of frustrations with the pressures pension costs were putting on his department. He handily unseated the board president after promising to keep politics out of pensions.

"It's not that I'm pro-tobacco or pro-firearms or pro-private prisons or pro-fossil fuels," Mr. Perez said. "I'm anti limiting our pool."

This year, the Calpers board opposed two more divestment bills in the California Legislature -- one involving private prison companies and a second for companies tied to Turkey in protest of that country's lack of recognition for the Armenian genocide.

Many California lawmakers are now wary of pushing Calpers to sell investments based on principle, said Democratic state Assemblyman Freddie Rodriguez, head of the Public Employment and Retirement Committee.

California Assemblyman Rob Bonta, a Democrat and sponsor of the private prisons bill, hopes to find enough allies to get the divestment measure approved by January. "I believe we should be investing in things that represent our values," he said.


https://calpensions.com/2019/06/17/c...ment-strategy/

Quote:
CalPERS using more ESG in investment strategy

Spoiler:
CalPERS is stepping up its ESG investment program, despite evidence that funds based only on environmental, social and corporate governance strategies have tended to underperform.

The big pension system, an early ESG leader, is half-way through a five-year plan that includes getting companies to report and reduce climate-changing carbon emissions and using ESG factors to help analyze and select its own investments.

Going beyond a narrow profit-loss focus, the wide-ranging ESG movement pushes changes in companies that can benefit the environment and society, while also helping the long-term “sustainability” of investments, needed in this case to pay for pensions.

It’s an international trend. The UN-backed Principles for Responsible Investing network, formed in 2005, now has 2,250 investors managing nearly $80 trillion signed up to use ESG in investment analysis and owner policies, up from 1,750 and $70 trillion two years ago.

Professional acceptance is growing. The CalPERS board was told in March that the Chartered Financial Analyst Institute “encourages all investment professionals to consider ESG factors, where relevant, as an important part of the analytical decision-making process.”

But among some CalPERS members there is an ESG backlash. In a board election last fall with typically low voter turnout, Jason Perez, a Corona police sergeant, unseated Priya Mathur, who became the first female CalPERS board president early last year.

“Mathur has failed CalPERS and put our retirement security at risk due in part to environmental, social, and governance investing priorities, regardless of the investment risk,” Perez said in the campaign booklet given CalPERS members in local government.

He criticized Mathur, a leading ESG advocate, for being “out of touch, believing her role is to fly around the world, ringing the bell of the London Stock Exchange and hobnobbing with United Nations officials.”

Last month Perez was part of a three-member panel that discussed ESG investing at a forum in Washington, D.C., sponsored by the Institute for Pension Fund Integrity, whose concerns include fossil fuel divestment.

Perez is making his presence felt on the 13-member CalPERS board. In March he made an unsuccessful motion, getting votes from two other members, to consider reinvestment in the tobacco industry, reversing a divestment in 2001.

Tobacco divestment, reconsidered by the board in 2016, had cost CalPERS $3.6 billion as of last year, Wilshire consultants estimated. The CalPERS board usually opposes divestment legislation, preferring to engage companies to seek change as it does on ESG issues.

Last week Perez said five months on the CalPERS board have made little change in his ESG views. He said environmental and corporate management issues need CalPERS attention if they affect investment returns, but social issues should remain in the political arena.

“Our duty is to make the maximum amount of return for our members,” Perez said. “Social issues shouldn’t even be considered.”

On the panel with Perez last month was Wayne Winegarden of the Pacific Research Institute, a conservative think tank, who issued an analysis of 18 ESG funds last month that found only two outperformed a broad market index fund over 10 years.

CalPERS, with a portfolio valued at $366 billion last week, recently had roughly $1 billion in ESG global stock funds. After analyzing about 20 ESG strategies and themes, CalPERS selected two last year for an additional $1 billion each, bringing the total to $3 billion.

The two new funds are being internally managed under license from two money managers, Chief Investment Officer magazine reported, and they could serve as models for other parts of the global equity portfolio if they outperform the market.



Last year CalPERS added a managing director, Beth Richtman, and a staff expected to reach 14 members to a Sustainable Investments program that will integrate ESG into investment decisions, research related issues and be an ESG advocate.

Richtman told the CalPERS board in March that using ESG factors (see chart below) to help analyze investments is still a work in progress, requiring different styles depending on the type of investment.

For example, the sustainability staff can consult with a real estate team considering an investment. But applying ESG factors to the more than 10,000 companies with stock held by CalPERS in various funds requires a quantitative process.

CalPERS is working with Wellington Management and the Woods Hole Research Center on quantitative models and other analytical tools to improve the assessment of climate risk and investment outcomes.

In addition to risk, ESG factors are expected to help identify investment opportunities. An example cited by CalPERS is its Energy Optimization program in real estate, which has yielded profits in recent years and reduced energy use.

As a result of staff research on water scarcity last year, Richtman said, “For the first time the investment team has insight into which industries and asset classes in our portfolio are most exposed to water scarcity risk.”

A program that CalPERS helped launch two years ago, Climate Action 100+, has more than 300 investors managing $32 trillion engaging 161 large companies that produce much of the world’s green-house gas emissions.

CalPERS is on track to comply with state legislation (SB 964) directing CalPERS to report on the climate-related financial risk in its investment portfolio by next Jan. 1, but is having difficulty getting private equity information.

An ambitious goal of the five-year ESG plan launched by CalPERS in 2016 is mandatory corporate reporting of ESG by 2036. CalPERS says it’s working with several standards groups and the Security and Exchange Commission investor advisory committee.

In February, CalPERS responded to a letter from eight U.S. senators, including Elizabeth Warren and Bernie Sanders, about the CalPERS approach to deforestation, the industrial-scale loss of trees. CalPERS highlighted the issue in letters to 60 companies.

“Currently, forests are one of the best available ‘technologies’ to sequester carbon,” CalPERS told the senators. Trees mitigate climate change and protect the CalPERS global investment portfolio.

“Therefore, in addition to our focus on palm oil, we are also looking into other drivers of deforestation across various industries and commodities in our global portfolio,” CalPERS said in a letter to the senators.

At the request of board members, CalPERS staff researched economic inequality with two symposiums at UC Davis and a review of 1,800 academic papers but found “no actionable solutions for an investor.”

Noting the risk to investments from income inequality and political unrest, CalPERS is working with other large investors and industry groups on “adoption of frameworks and standards for reporting on human capital topics, including workforce compensation.”

During public comment at the board update on sustainable investments in March about 20 speakers, several from Fossil Free California, urged CalPERS divestment of fossil fuel holdings, arguing they are now risky investments and climate change must be halted in 10 to 12 years.

A lobbyist for the League of California Cities, Dane Hutchings, followed them with an urgent plea for CalPERS to be “laser-focused” on investment returns and leave fossil fuel regulation to the appropriate government agencies.

“We talk about the next 10 to 15 years of our planet. I’m talking about the next 10 to 5 years where cities are going to be going bankrupt,” Hutchings said, apparently referring to soaring CalPERS employer rates.


Example of ESG factors that might be analyzed

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com. Posted 17 Jun 2019

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Old 06-17-2019, 11:02 AM
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SAN DIEGO, CALIFORNIA

https://spectator.org/sad-dying-gasp...ension-reform/

Quote:
Sad, Dying Gasps of Pension Reform
San Diego’s final capitulation to union demands signals the end of a reform movement that had once showed promise to help fix California’s debt woes. Nothing to do now but wait for a downturn to send cities over the cliff.
Spoiler:
The San Diego City Council’s vote Monday to join the union side in an effort to invalidate a 2012 ballot initiative signaled an ignominious end to one of the most promising pension-reform efforts of the past decade. The city’s modest voter-approved law had offered a roadmap for other cities, but after years of assaults from a union-friendly state agency, that measure now is effectively dead. So too are any hopes to reduce hundreds of billions of dollars in public debt.

The San Diego situation was a perfect example of how the California government is, at every level, rigged on behalf of public-employee unions. It also spotlights the degree to which union priorities almost always win — even when they undermine long-established constitutional rights. In that case, the courts agreed that union demands for city officials to “meet and confer” with them about benefit changes trumps the right of citizens to vote on such matters.

The 2012 ballot measure, Proposition B, shifted most new employees into 401/k plans rather than the costly defined-benefit pensions that are based on guaranteed formulas. For instance, most California “public safety” officials receive what’s known as “3 percent at 50.” They can retire with 90 percent of their final years’ pay beginning at age 50. And that’s before various pension-spiking gimmicks often push their retirement pay above their working pay.


At the time of its passage, the state had been facing $25 billion budget deficits. Although the pension portion of that shortfall was relatively small, the state’s fiscal crisis highlighted soaring pension debts. Local government were — and still are, actually — cutting back public services to deal with the growing costs, driven by a pension-increasing spree sparked by a 1999 law that encouraged localities to retroactively boost pension pay.

Pension reformers saw that crisis as a great opportunity to reform the troubled pension systems. In liberal San Jose, voters approved Measure B by 69 percent to 31 percent margins after pension costs had risen 350 percent over a decade. But that voter measure reduced benefits for current employees, which ran afoul of something known as the California Rule. The courts have interpreted that “rule” to mean that benefits can never be cut for current employees even going forward, unless they received something of equal value in return.

San Jose’s reform was halted after a series of union-backed lawsuits. Proponents of San Diego’s Proposition B, however, took a different tack to avoid any potential conflict with that legal precedent. They limited “pensionable pay,” which means they capped the amount of salary upon which pension benefits could be based. They focused mainly on new hires. They eliminated a city charter requirement that employees vote on any changes to their pension plan. There was no “California Rule” issue, but the unions were able to derail it anyway.

The California Public Employment Relations Board, or PERB, invalidated the measure by claiming that city officials were legally required to negotiate with unions over benefit changes before putting any such measure on the ballot. This was an absurd interpretation of state law given that the city of San Diego did not put the measure on the ballot. Local activists collected signatures and placed it before voters, which is a constitutional right, after all.

However, the city’s mayor and a council member had, in their role as private citizens, supported the initiative effort. But PERB ruled that the mayor had acted as the city’s “agent” when advancing that initiative. State administrative agencies don’t have the power to invalidate elections, but they ruled that the city must pay the unions’ legal costs.

The California Supreme Court ultimately sided with the unions, ruling that PERB is “one of those agencies presumably equipped or informed by experience to deal with a specialized field of knowledge, whose findings within that field carry the authority or an expertness which courts do not possess and must respect.” PERB also is one of those agencies that is largely captive to one particular interest group — and its decision was never in doubt. The high court asked the lower courts to remedy the situation by fining the city or overturning the law.

That led to Monday’s decision, where San Diego city officials threw in the towel and agreed to ask the city attorney to seek the invalidation of the voter-approved law. Because it was approved by voters, they can’t simply vote to overturn it. The city could have chosen to continue to fight, although Prop. B’s proponents are still moving forward with their legal battle. It’s a sad chapter, and one that should have triggered more outrage given the implications of the ruling on Californians’ right to place initiatives on the ballot.

“The power of initiative is a constitutional right, not something for which people must bargain,” wrote former San Diego city attorney Jan Goldsmith in a 2012 San Diego Union-Tribune column. “It is unconditional and nonnegotiable, like the First Amendment.… Never in the history of California has there ever been a requirement to negotiate with labor unions over terms of a citizens’ initiative placed on the ballot by voter signatures.… And the mayor doesn’t give up his constitutional rights simply because he’s the mayor.”

The state Supreme Court has put the kibosh on every major attempt to rein in spiraling pension costs. Many advocates for pension reform, including former Gov. Jerry Brown, had hoped that the court would revise the California Rule after a series of lower courts found that public employees were only owed a “reasonable pension” — and that it was perfectly fine to reduce future benefits to ensure the health of the pension systems.

But the high court thought otherwise. The court was reviewing a lawsuit filed by a firefighters’ union involving a pension-spiking benefit known as “air time.” In its modest 2013 pension-reform law, lawmakers scuttled that benefit, which allowed public employees to buy extra years of service at deeply discounted prices. It was a way to inflate final earnings to permanently boost pensions.

The court upheld that state law, but punted on the broader question. It declared that “[W]e have no occasion in this decision to address, let alone to alter, the continued application of the California Rule.” That was perhaps the last, best hope the state has had to change a rule that makes it nearly impossible for cities and counties to scale back benefits that are consuming their budgets and leading to an endless wave of tax hikes and service cutbacks.

Now, with San Diego’s decision, there is nothing left to do — other than wait until an economic slowdown pushes cities to the brink. California officials have decided that public employees’ right to enjoy millionaires’ pensions is more important than our right to vote or receive decent public services. At least the courts have recognized reality: The public works for the public-employee unions. They are not public “servants” by any stretch of the imagination.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.



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Old 06-17-2019, 03:22 PM
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LOS ANGELES, CALIFORNIA
TRANSPARENCY

https://www.dailynews.com/2019/06/14...yees-benefits/
Quote:
Los Angeles finally discloses how much it actually pays for each employee’s benefits
For more than a decade, the city provided only averages until the Southern California News Group called out the practice

Spoiler:
The city of Los Angeles is disclosing its full employee compensation data for the first time in at least a decade, ending a long-standing practice of releasing only averages for health and benefits packages.

The practice violated a state law requiring public agencies to report the individual cost for each employee annually to the state controller’s office. The offices of City Controller Ron Galperin and state Controller Betty Yee pressured the city to make the changes following a Southern California News Group report earlier this year.

ADVERTISING

In a statement, Galperin said his goal is to make the city’s financial data as open and transparent to the public as possible.

“I’m happy to report we are now updating our salary information quarterly and have added the actual cost of health benefits and pensions for each individual employee as well,” he said. “This has been a priority of mine for some time and I’m confident it will prove more helpful and useful to anyone seeking to dig deeply into L.A.’s government spending.”

In February, a spokesman for the city’s Personnel Department said the city would not release health benefit costs for individuals because the city attorney believed those records were exempt from disclosure.

Nearly every city in California provides this information to the state controller’s public pay database and third-party databases such as Transparent California. State law requires cities to submit “pay and benefit information for every compensated employee who received a W-2.”

The differences between the averages provided in 2017 and the full compensation released in 2018 is dramatic. The median pay and benefits for full-time city employees increased by nearly $50,000 as a result, according to data provided to Transparent California.

In 2017, the city released public information listing Mayor Eric Garcetti’s “retirement and health” compensation as $12,693, the exact same figure used for 25,330 other employees. Garcetti’s benefits jumped to $97,590 in 2018 as a result of the changes in reporting.

Fire Chief Ralph Terrazas’ benefits skyrocketed from $15,793 in 2017 to $168,788 — the most generous benefits package of any city employee — in 2018. As is the case almost every city, most of the top benefits packages in Los Angeles went to police and fire personnel.


Los Angeles did not disclose it was providing averages to Transparent California until last year, after nearly a decade of sending misleading pay data to the nonprofit organization. Robert Fellner, the executive director of Transparent California, said the change in reporting is a welcome development.

“They’re the biggest city, so it is nice to have them on board and providing us, and the public, with a full accounting of their single biggest expense, which is employee compensation,” Fellner said.

The state Controller’s Office notified Los Angeles it was out of compliance earlier this year. The Controller’s Office does not audit the data received from cities and was not aware of Los Angeles’ discrepancies until contacted by a reporter.

“Our team informed the City of L.A. staff that providing averages does not satisfy the requirement of our reporting instructions and they would need to report actual benefit amounts in order to be compliant,” said Taryn Kinney, Yee’s spokeswoman, in an email.

“The City of L.A.’s 2018 salary data (to be released on June 25) is in compliance and appears to provide benefit actuals.”


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