California’s state public employee pension systems exist to provide good retirement incomes at the lowest cost to taxpayers.
The fiduciary responsibility of the California Legislature is to ensure that happens. Senate Bill 252, by state Sen. Lena Gonzalez, D-Long Beach, would do the opposite.
According to the text of the bill itself, the proposal “would prohibit the boards of the Public Employees’ Retirement System and the State Teachers’ Retirement System from making new investments or renewing existing investments of public employee retirement funds in a fossil fuel company,” by July 1, 2030.
One reason given, among others, “The combustion of coal, oil, and natural gas, known as fossil fuels, is the single largest contributor to global climate change.”
CalPERS CEO Marcie Frost was right when she said in a statement, “Divestment of these holdings would do nothing to stop climate change. The companies in question can easily replace CalPERS with new investors.”
CalPERS currently invests $9.3 billion of its $457 billion asset value in fossil fuels.
For CalSTRS, it’s $15 billion of $302 billion.
For context, however, according to IBISWorld, the global oil and gas market in 2023 is $4.3 trillion.
Cutting out these investments would be a drop in an oil barrel.
The bigger problem is, if this bill passes, it could encourage further meddling in pension investing.
A study by Wilshire Associates found CalPERS’ 2001 divestment from the tobacco industry cost it $3.6 billion by 2018.
There are risks and potentially deleterious consequences when factoring political considerations into what ought to be an apolitical, pragmatic focus on investments with reliable returns.
Taxpayers already are making up for shortfalls caused by the pension spiking of two decades ago.
Gov. Gavin Newsom’s budget proposal for fiscal year 2023-24, which begins on July 1, pegs $8.5 billion for CalPERS’ and CalSTRS’ existing shortfalls.
According to what’s called the California Rule, state courts have ruled pension deficits must be met by state taxpayers.
Only a federal bankruptcy court can alter that, as nearly happened to San Bernardino after its 2012 bankruptcy.
The pension funds’ professionals are the best judges of how to invest for healthy growth.
Senate Bill 252 is misguided and would endanger the stability of the two major systems on which state retirees depend.
It puts at risk the retirements of public employees so that politicians can issue a press release saying they’ve done something.
And it risks putting taxpayers on the hook of even greater pension crowd-out — with more and more of their hard-earned taxpayer money going to make up the difference instead of staying in their pockets or going toward services they expect from government.
All of this said, Senate Bill 252 should be shelved by Sen. Gonzalez or otherwise rejected.