One common misperception is that State Senators run the various departments of the State of California. Wrong. They don’t. The problem I’ve found is that I don’t know if anyone is actually running this place.
The Board of Supervisors of California’s counties have direct intervention with the department heads on a county’s organizational chart. This is not the case for Sacramento legislators.
We can write bills to tell departments what they should be doing and we can hold a hearing once a year to ask department heads what they’re accomplishing.
For example, Tuesday afternoon I participated in the Oversight Hearing of the Joint Legislative Audit Committee and the Senate Select Committee on Mental Health, titled “Mental Health Services Act: The State Could Better Ensure the Effective Use of Mental Health Services Act Funding.”
It gave me a chance to ask Jennifer Kent, the Director of the California Department of Health Care Services, about the disappointing management report that resulted from the State Auditor’s Report 2017-117 (see https://www.auditor.ca.gov/pdfs/reports/2017-117.pdf). . Observations of her department being ineffective and minimal in its oversight of the Mental Health Services Act needed to be addressed. The reverberations of this revenue source have been rattling Orange County as Judge David O. Carter keeps referring to it.
I informed those present about the Naked Capitalism piece, the first one below. It assumes that, by the readers contacting me, I can do something about an awkward hire to a very serious position with the California Public Employees’ Retirement System (CalPERS). Wrong. But, at least I can rattle the cages in hearings.
Let me explain why the piece below is worth forwarding to you. It shows that embellishment of one’s resume is not a good idea. Someone may just do some fact checking. This was done by LA Times Columnist Michael Hiltzik. Mr. Hiltzik has enjoyed a long relationship with the LA Times. For proof, and a fun read down memory lane, go to MOORLACH UPDATE — LOOK BACKS — December 14, 2009.
Why this long introduction? To make an argument for Senate Bill 1297 (see http://district37.cssrc.us/content/senate-bill-1297-state-chief-operating-officer). This state needs better management and SB 1297 provides for a leadership position that can address matters of this nature. It will be heard in the Senate Governmental Organization Committee next Tuesday.
The second piece, from R Street, provides the details of the four pension bills that I will be presenting in the Senate Public Employment and Retirement Committee on Monday. They are SB 1031, 1032, 1033 and 1433 (also see MOORLACH UPDATE — City CAFR Rankings – Vol. 8 — February 22, 2018, MOORLACH UPDATE — City CAFR Rankings – Vol. 5 — February 14, 2018, MOORLACH UPDATE — City CAFR Rankings – Vol. 4 — February 12, 2018).
The third piece, from Fox & Hounds, addresses SB 1074, which will be heard in the Senate Business, Professions and Economic Development Committee on Monday.
This week I presented SB 1363 successfully to the Senate Appropriations Committee and it is now on the agenda for a Senate Floor Session vote. SB 1463 in the Senate Environmental Quality Committee, not so good. Let the record show that I tried to address the global warming concerns with SB 1463. I would conclude that the state’s efforts to truly address greenhouse gases are, at best, a joke, and at worst, a fraud. Not including the greenhouse gases generated by wildfires and not approving the provision of a simple way to address the hardening of electrical power lines is, in my opinion, legislative malpractice by the majority party.
SB 1325 died in the Senate Health Committee, thus not providing a protocol to address medical emergencies in a mature and cooperative manner for all of the residents of our state.
To give you the rest of my workload for next week and the details concerning the bills that I will be presenting, please see http://district37.cssrc.us/legislation.
SB 1159 will be heard in the Senate Appropriations Committee on Monday. SB 1099 will be heard in the Senate Public Safety Committee on Tuesday. SB 1049, 1395 and 1411 are scheduled to be heard in the Senate Governance & Finance Committee next Wednesday, although I may drop SB 1411 and try it again in the next Session.
I will also be back to the Senate Health Committee Wednesday afternoon to present SB 1206 (De Leon) to address forward movement on “No Place Like Home” initiative.
Presenting more than a dozen bills next week will probably make it the most crazy of the year.
BONUS: Today my third grandchild was born at Hoag Hospital. Welcome to my newest grandson, Koa Keitara Johannes!
The Los Angles Times’ Pulitzer-Prize-winning reporter Mike Hiltzik confirmed our reporting on the misrepresentations and discrepancies in the resume of recently-hired CalPERS Chief Financial Officer Charles Asubonten and called on the board to investigate. If you managed to miss the series, you can find the links to them at the end of this post.
But what is particularly surprising about his article, Questions about new CalPERS CFO’s background and experience should be taken seriously by the pension fund, is that the CEO Marcie Frost and Asubonten spoke together to Hilzik on the phone and yet did not deny any of the issues raised in our series (to be clear, talking around a problem does not amount to disproving or denying it). Hiltzik may have covered more points with them than he discussed in his article; I pinged Hiltzik to congratulate him on the piece and he mentioned not being able to cover certain discrepancies due to space constraints.
It is even more surprising that Frost decided to act as her own flack rather than get a professional involved when neither she nor Asubonten have disputed any of the facts presented in our series of articles (and bear in mind, they had more than a week between when I e-mailed the board with a detailed outline of most of the misrepresentations and when I launched the series.
I urge you strongly to read Hiltzik’s article in full, but in case you are time pressed now, here are the high points.
Frost and Asubonten effectively admitted to resume discrepancies. Hiltzik’s story focused on two of Asubonten’s major claims. One was that he was responsible for what he stated was a 70% CAGR increase in the stock price of Palabora Mining Company. Hiltzik confirmed what we had found, that the stock price was in the upper 40s when Asubonten joined versus the 20s that he had put on his resume, and never fell that low the entire time he was there.
Hiltzik also questioned the premise that any mid-level manager could have the impact that Asubonten asserted that he had. He also mapped Palabora’s stock price against the price of copper, showing that the commodity price moves alone largely explained changes in Palabora’s stock price.
The second major claim that Hilzik investigated was one that both Asubonten and later CalPERS made, that he had been the managing director of a private equity firm. Frost in attempting to defend Asubonten admits that our assessment was accurate, that Asubonten was never a private equity professional, as in employed in an asset management firm that was investing money on a discretionary basis. Frost stated that Asubonten’s company was a consulting firm.
As we pointed out more than once, consultants to investors, including very prestigious ones like McKinsey, BCG, and even ones whose business is primarily that of consulting to investors like Houlihan Lokey never call themselves private equity firms. Even worse, Frost said that per Hiltzik, “her understanding” was that Asubonten’s firm was a consulting firm that advised international investors. That strongly suggests that even in the face of the controversy over Asutonten’s truthfulness, Frost has made no effort to make any independent verification of the questionable claims on his resume, and on top of that, is trying to rationalize ones that clearly were misleading. Hiltzik observed that CalPERS’ parroting of Asubonten’s dodgy “private equity firm” claims would probably not pass muster with the SEC if CalPERS were a public company.
Asubonten made a new claim that does not match up against public information. Marcie Frost told JJ Jelinic that Asubonten admitted to a period of unemployment, which we had assumed was after he was terminated from Palabora Mining Company at the end of 2009 through at least the end of 2010, since according to the suit he filed against Palabora in South Africa, he was looking for a job then.
This is what Asubonten told Hiltzik:
He said the employment gap on his resume covered a period in which he was working with a consortium on an ultimately unsuccessful effort to buy the copper mining company.
That does not hold water. As you can see on the resume embedded at the end of the post, at the top of the second page, he depicts himself as having been involved in his private equity activities staring in 2010 to 2012. Asubonten told the Los Angeles Times that that “employment gap” was occupied by working with unsuccessful bidders to buy Palabora.
But Palabora was not put up for sale until early September 2011. Moreover, having participated in mergers and acquisitions at Goldman, later running a mergers and acquisitions business, and subsequently worked regularly with investors, typically on the buy side, it is clear that Palabora’s majority owners Rio Tinto and Anglo American put the company up for auction, which is how companies are sold to get the best price.
Mind you, virtually all divisions of large companies are sold via auction. The only time a seller, particularly a seller that is a public company, might deviate from that practice is if a public sale could damage the value of the asset, if there were some critical senior executives who might bolt in the event of a public sale and would therefore have a major say on who the new company owners would be. or there were competitive considerations. None of these would apply to a relatively small, non-strategic operation like Palabora.
It is similarly inconceivable that Rio Tinto would have been engaged in any serious discussions with potential buyers prior to putting the company up for sale. It’s too well demonstrated that auctions yield the best price for corporate seller to engage in a preliminary time-wasting exercise when a property eventually be sold publicly in a highly structured process. Similarly, any serious buyers would know they’d at best be setting up a public sale if they were to approach a possible seller. Thus, the usual practice among possible purchasers is simply to let a potential seller to be sure to include them in any future buyer solicitation rather than put any energy into putting together an offer.
Having said all of that, it is credible that Asubonten did get himself a consulting assignment with one of the groups that was kicking Palabora’s tires. As a former CFO of the unit, Asubonten could present himself as having inside information about the operation and knowing its cost structure particularly well. But even with established clients (as in they know my price and terms and have accepted my standard agreement), I’ve never had it take less than a week and a half to firm up arrangements on an assignment. So charitably, the earliest Asubonten could have been engaged to work on a purchase of Palabora would have been mid September 2011. That leaves a full 20 1/2 months of unemployment in 2010 and 2011.
Hiltzik dings the board for behaving “childishly” and shirking its duties. From the close of his article:
…the board has shown itself to be one of our less impressive public bodies. Just a year ago, as I reported, the board was bogged down in intramural bickering and attacks on one of its most tough-minded members, J.J. Jelincic.
As recently as last month, this behavior surfaced again, when board President Priya Mathur locked board member Margaret Brown out of CalPERS premises over what appeared to be a minor infraction. Moreover, according to a letter sent to Mathur last Friday by James Moody, an attorney for Brown, and reported by Webber, Mathur or CalPERS staff under her direction have been diverting mail addressed to Brown at CalPERS—and apparently to other board members as well—and in at least some cases not sharing its contents with the addressee….
All this suggests that the CalPERS board members need to be given something serious to work on so they have less time to act childishly. A good place to start would be to inquire just how one of the system’s most important executives was recruited and hired, and whether he’s everything his CEO says he is.
Since as Hilzik points out, neither Marcie Frost nor the board seem inclined to ask the questions they ought to be asking about Asubonten, CalPERS beneficiaries and California taxpayers need to give them a nudge
Here are the members of the Senate Standing Committee on Public Employment and Retirement:
Here are the members of the Assembly’s Public Employees, Retirement, and Social Security Committee:
And here are the contact details for the two elected state officers who also sit on CalPERS’ board:
Mr. John Chiang
California State Treasurer
Post Office Box 942809
Sacramento, CA 94209-0001
Ms. Betty Yee
California State Controller
P.O. Box 942850
Sacramento, California 94250-5872
Naked Capitalism reader have have an impact when snail or e-mailing California state officials on CalPERS matters. I hope you’ll rise to the occasion again.
If any of the legislators above represent your district, I would write them expressing your concerns about governance at CalPERS. Or you could write all the members of both committees and tell them you have friends and family in their districts and plan to call their attention to the festering problems at CalPERS. If you are a CalPERS beneficiary, be sure to mention that.
If CalPERS can’t respond properly to the LA Times saying that its CFO’s resume doesn’t add up, and is not even allowing board members to get its own mail (link to our post yesterday), how can it possibly be up to the challenge of handling its underfunding crisis? Tell them the board governance is so clearly inadequate that they need to create an inspector general for CalPERS to provide badly-needed supervision. Copy Yee and Chiang, who as statewide officials are also sensitive to constitutent letters.
Thanks so much for your interest and efforts!
Pension bills are common sense –
yet have little chance of passage in
Western Region Director, State Affairs
The California Public Employees’ Retirement System’s report released last week touts all of the pension fund’s good news, which it says “has built a solid path forward for the long-term future of the fund.” But as longtime pension reporter Ed Mendel pointed out in his recent blog, the pension fund’s future is still quite troubled. Apparently, myopia reigns at CalPERS.
Consider this fact, raised by Mendel: Despite earning more than double its predicted returns during a bull market last year, CalPERS’ funding levels only increased by a blip, from 67 percent to a meager 71 percent of the funds needed to pay its future costs. Pension experts say that 50 percent funding is the likely point of no return – if a pension fund’s assets fall below that level it will be nearly impossible to ever recover to a healthy funding level.
Meanwhile, California cities continue to struggle with service cutbacks as CalPERS wallops them with increasing fees. The term is “crowd out” as cities cut “core services, including higher education, social services, public assistance, welfare, recreation and libraries, health, public works, and in some cases, public safety” to pay their CalPERS bills, according to a Stanford Institute for Economic Policy Research report last October.
CalPERS isn’t facing the death spiral of, say, New Jersey’s pension funds, which are funded at a frightening 31 percent. But the problem should not be taken lightly. The stock market is at record heights. If there’s a downturn – and, as Gov. Jerry Brown likes to point out, there always are downturns – local budgets, the state budget and retiree earnings could all be at risk.
Enter state Sen. John Moorlach. The Costa Mesa Republican, best known for predicting the 1994 Orange County bankruptcy, has introduced four relatively modest pension reform bills that could help CalPERS get control of its liability problem. They are scheduled for an April 23 hearing in the Senate Public Employment and Retirement Committee. They have little realistic chance of passage in the Democratic-controlled, union-friendly Legislature – but it’s still worth proposing sensible, constructive measures to highlight the extent of the state’s pension problem. When the problems become too severe to ignore, at least CalPERS and legislators will know what approaches they have available to tackle the mess.
Senate Bill 1031 would “amend California Government Code to temporarily freeze cost of living adjustments (COLAs) when a public retirement system investment fund drops below an 80 percent funded status,” according to the senator’s office. That is a simple approach to ballooning pension costs. California public-employees already receive exceedingly generous pension benefits. It’s absurd to keep giving them raises given the fiscal situation.
Senate Bill 1032 is more complex but potentially more significant. It should be called the Terminator bill because it would, well, terminate something known as the Terminated Agency Pool, or TAP. Currently, CalPERS invests all its retirement contributions in a general pool that has a predicted rate of return of 7 percent annually (down from 7.5 percent). The higher the predicted return, the lower the predicted funding problem. Most experts believe that return rate has been set too high over the long term despite the great returns from last year.
However, when a government agency shuts down, as something called LA Works has done, or chooses to exit CalPERS because it can no longer afford to make CalPERS’ payments, the pension fund sticks them in a separate pool. That pool, the TAP, has a low-risk expected rate of return of 2 percent. In the general pool, taxpayers are on the hook for any shortfalls. When agencies unlock themselves from CalPERS’ golden handcuffs, only CalPERS is responsible for paying them off.
So the fund assumes a return that is basically a risk-free return – and is more reflective of the realistic rates that would exist sans all those taxpayer subsidies. Moorlach wants to put an end to that shell game. It would be a significant reform because, by eliminating TAP, more local governments would feel free to pursue options outside CalPERS. Currently, they can’t leave CalPERS because they’ll be hit with an enormous financial penalty for doing so. For instance, Calimesa was able to start its own fire department (with a 401/k retirement plan rather than a defined-benefit pension) because it was not burdened by all those penalties.
Senate Bill 1033 requires agencies that contract with CalPERS “to bear full financial responsibility for actions that would increase actuarial liability for a member’s pension contributions,” according to the senator’s statement. If they boost pension payments, they should bear the full costs of that decision. That’s a simple matter of fiscal responsibility.
Finally, Senate Bill 1433 restricts counties or districts from newly participating in a Defined Retirement Option Plan, or DROP. DROPs are such a taxpayer giveaway that they were targeted by the governor’s own pension-reform legislation in 2013. A DROP allows public employees to collect their full pension and receive their full salary, too, which they get in a lump sum upon their actual retirement. The existence of these programs is proof that the state’s retirement systems are much too generous.
Police and firefighters can retire at age 50 with 90 percent of the average of their final years’ pay. Many want to keep working and their agencies want them to keep working. But because the “3 percent at 50” retirement plan is so lush, they would be working for little or no pay if they stayed on the job past the young age of 50. Instead, they get paid almost double. These programs were supposed to be cost neutral, but have cost billions of dollars because they were underpriced.
Los Angeles’ DROP program is particularly controversial. The program “received a flood of new enrollees in February,” according to the Los Angeles Times. This “coincided with a Times investigation in February that found the program, which was created in 2002 to keep veteran officers and firefighters on the job, allows participants to file workers’ compensation claims and then take extended injury leaves at nearly twice their usual pay.” This has cost more than $1.6 billion, with the average participant walking away with an extra $434,000, per the Times.
Given the pension funds’ fiscal condition, it’s hard to understand any serious opposition to these modest measures. When the health of the system is on the line, why wouldn’t the state want to clamp down on costs? Stay tuned for the hearing, even though the Legislature has yet to show any interest in reining in pension costs.
By Ronald SteinFounder of PTS Staffing Solutions, a technical staffing agency headquartered in Irvine
Fuel prices in California are among the highest in the country, as a result of some of the highest taxes in the country, plus the costs associated with compliance with various State environmental laws, which trickle down to the consumer, resulting in Californian’s paying as much as $1 more per gallon than most folks in the country. A bill currently working its way through Sacramento is SB 1074 (Moorlach) “Transparency in fuel taxes”.
Most everything that is bought, from clothes, computers, vehicles, etc., are based on price plus tax, except one item – transportation fuels, as the posted price includes everything.
Case in point was SB1 for Transportation Infrastructure funding that is targeted to raise $52 billion for infrastructure projects, added 12 cents to gasoline and 20 cents to diesel on November 1, 2016. With California already having some of the highest fuel taxes in the nation, the cost of those fuels did not change last November, but the posted price at the pump did change, but was not transparent to the public as to why fuel prices went up.
Low Carbon Fuel Standard (LCFS) compliance is getting tougher to meet each year as well as more costly each year. Today, the California Energy Commission (CEC) shows that the LCFS adds 10.1 cents per gallon for gasoline, and 6.8 cents for diesel. Those costs trickle down to the consumer and are hidden within the posted price of fuel at the pump.
The CEC also shows that Fuels Under the Cap (FUTC) i.e., the “boutique” fuel standards for gasoline and diesel required by the Federal Clean Air Act and the California Air Resources Board (CARB) to meet the state’s fuel blending requirements for reformulated gasoline standards accounts for 11.9 cents per gallon for gasoline, and 14.5 cents for diesel. Again, those costs trickle down to the consumer and are hidden within the posted price of fuel at the pump.
Cap & Trade revenues are funding the High Speed Bullet train as well as many other “green” projects. Within numerous state government agencies, there is a feeding frenzy on getting a piece of those lucrative cap and trade “fee” revenues for their projects. Again, those costs trickle down to the consumer and are hidden within the posted price of fuel at the pump.
The CEC shows that California fuel consumption is at the highest level since 2007. Fuels consumption for California’s 35 million registered vehicles in 2016, of which more than 90% were not EV’s, was 52 million gallons per DAY of gasoline and diesel. Sounds like a lot of fuel, but it’s only about 1 plus gallons per day per vehicle, resulting in refueling requirements every week or two.
With numerous incentives, 50% of the EVs in the nation are in one state-California, but they only represent about 7% of the 35 million registered vehicles. With the other 49 states accounting for the other 50%, it appears that nationwide, they are not endeavored by the EVs.
On a go forward basis, internal combustion engines appears to be the choice of citizens. The California economy is heavily driven by affordable transportation. Yet, Californians pay more per gallon of gasoline and diesel due to costs that are not transparent to the public.
A Yes vote on SB 1074 would expand transparency at the pump by creating a Quick Read (QR) Code that directly links the consumer with updated costs of taxes and regulated costs associated with the production of each gallon of fuel purchased would demonstrate that our elected representatives favor transparency of the costs that are included on the posted prices for fuel at the pumps to show the public why Californians are paying as much as $1 more per gallon than the rest of the nation.
On the contrary, a No vote on SB 1074 would demonstrate that our elected officials do not want the public to know why our fuel costs are among the most expensive in the country.
This e-mail has been sent by California State Senator John M. W. Moorlach, 37th District. If you no longer wish to subscribe, just let me know by responding with a request to do so.