MOORLACH UPDATE — Marcie Frost — September 14, 2018

The joys of having a legislative job overseeing a corporate structure with what seems like nearly 300 agencies (see and a workforce and payroll compensating more than 200,000 employees (see, it takes time to build relationships with key managers.

After eight years as a County Supervisor, I felt as if I was just getting to the comfort level of actually knowing the names of key second-tier department managers. But, once you have developed the necessary relationships, term limits kicks in and forces you out of the door. Only to be replaced by someone who will need the same eight years to get up to speed and also be summarily shown the door.

But, I digress.

In spite of limited time, and what is clearly a bureaucracy that is too large to manage, I have built a relationship with Marcie Frost, the Chief Executive Officer of the California Public Employees’ Retirement System (CalPERS). In fact, since Ms. Frost’s hire in October of 2016, I have built some public history with her, as can be seen by the UPDATE links provided here (including two pieces from Naked Capitalism):

* MOORLACH UPDATE — CalSTRS vs. CalPERS — July 24, 2018

* MOORLACH UPDATE — David Kiff — July 13, 2018

* MOORLACH UPDATE — SB 1297 – COO — April 19, 2018

* MOORLACH UPDATE — Public Pension Management Concerns — March 7, 2018

* MOORLACH UPDATE — Incentivizing Mediocrity — November 1, 2017

* MOORLACH UPDATE — OC’s Newest Landmark Plaque — September 20, 2017

* MOORLACH UPDATE — OC’s Newest Landmark Plaque — September 20, 2017

* MOORLACH UPDATE — Taken to Task — August 23, 2017

Therefore, it is hard to be overly critical of someone with whom you have a rapport. But the Sacramento Bee and the Merced Sun-Star provide a review of Ms. Frost’s formal educational credentials, or lack thereof. From what I understand, she had a family to raise while making it to one of the top jobs in the public institutional retirement system industry. I thought that seeing women succeed in such endeavors would be a priority for our state.

But, I digress.

The author of the Naked Capitalism piece is justified in criticizing the Board of CalPERS. As two-thirds of the Board’s membership is comprised of public employee union representatives, I will tell you that these individuals do not necessarily represent the requisite brain trust to be running the largest pension system in the nation. I can provide video clips or give you links to articles to prove my point.

But, I digress.

The subject made me wonder how much better Bill Gates would have done if he had not dropped out of Harvard, to co-found Microsoft Corp., and had only stuck it out until he graduated. Would he still have attained the notoriety at one time in recent history of being considered the world’s richest person?

Or Steve Jobs, who graduated from high school in 1972, one year ahead of me, and started at Reed College, only to drop out in 1974. Would I still have an iPhone if he had stuck it out and finished college first?

But, I digress.

CalPERS hired a CEO without a college degree. Now the public pension fund is explaining why


Marcie Frost did not claim to have a college degree when she applied to lead the California Public Employees’ Retirement System in 2016. She emphasized it in blue ink, writing “not degreed yet” in a box that asked about her education.

But two years after she got the job, Frost is under fire with a financial blogger alleging that she mischaracterized her education in her application and in a subsequent press release by implying she was further along in obtaining a degree than she actually was.

The report from blogger Susan Webber now is raising questions among retirees who are learning for the first time that the CalPERS chief executive officer did not graduate from college. Webber’s reporting this year has already led CalPERS to oust a chief financial officer and she has a dedicated readership among people who pay close attention to the fund.

“We are surprised. You just assume in today’s market if you’re going to be CEO of the nation’s largest retirement system that you’d have some kind of degree,” said Tim Behrens, president of California State Retirees. He added, “I don’t think anything happened badly because of her lack of a degree.”

The questions date back to the CalPERS Board of Administration’s decision in 2016 to select Frost as the successor to Anne Stausboll. Board members said they chose Frost because of her commitment to engaging with retirees and public employers, as well as her track record leading Washington state’s public pension fund, the $90 billion Department of Retirement Systems.

CalPERS did not list a college degree as a necessary qualification for the job when it began searching for Stausboll’s successor. Frost said she told the board and a headhunting firm that she was interested in pursuing degrees at The Evergreen State College in Olympia, Washington, but board members did not ask her to complete a program when they hired her.

Frost, 54, said her career accelerated first in Washington state and then at CalPERS since she first took classes at Evergreen in 2010. She did not enroll in a class after that year, although she said she still intends to complete a degree some day.

“It’s something that I will finish in my life but this position at CalPERS is the most important thing I’m doing today,” she said.

Frost’s salary in her last full year in Washington state was $139,000. She earned $387,000 at CalPERS last year, according to state salary records.

No ambiguity, board members say

Five board members told The Sacramento Bee that there was no ambiguity about Frost’s education in her application or in her interviews. They said they chose her because they believed she was someone who could work with a public governing board and bring together people with strong and opposing opinions about CalPERS to advance the fund’s goals.

“It was very clear (Frost) did not have a degree,” CalPERS Board of Administration member Dana Hollinger said. “We were told she was not a college graduate. It never got more nuanced than that.”

Theresa Taylor, another CalPERS board member, said Frost closed her interview by reminding board members that she did not have a degree. Taylor said Frost told the board she was interested in obtaining one and she would make it a priority if the board asked her to do so. The board did not direct her to earn a degree.

“Quite frankly it’s not a piece of paper. It’s about somebody who can do a job. She presented herself as the best person who could do the job in that interview,” said CalPERS Board of Administration Vice President Rob Feckner. He described Frost as “up-front, very forthcoming” in disclosing that she did not have a college degree.

The chief executive is not the highest paid position at CalPERS, or the post that recommends major investment decisions for the fund. That position is chief investment officer, a position that has mandatory education requirements in its job description. CalPERS is recruiting a new chief investment officer, and Frost will oversee that position.

She rose up the ranks over 30 years in Washington State government and held a series of leadership positions at its pension fund between 2000 and 2016. She said she began working for the state on a 30-day temporary clerical contract as a young mom. That led to a nine-month contract, and eventually full-time work.

“I think that 30-day (contract) really illustrates what I did throughout my career. I work very hard, I get completely consumed by that job, and I want to build capacity in that job,” she said.

Washington State Gov. Jay Inslee, who appointed her to lead his state’s public pension fund, through a spokeswoman told The Sacramento Bee that he would hire her back “and that one of the worst things California has done is taking her from us.”

A problematic press release

The questions about Frost’s education surfaced last month when Webber, who writes for the blog Naked Capitalism, alleged that Frost mischaracterized the extent of her education first in the CalPERS application process and later in a press release announcing her appointment.

Webber pointed to a section in the hiring packet that indicated Frost was pursuing dual degrees at The Evergreen State College in Olympia when she applied to work for CalPERS.

In fact, Frost had not taken classes at the college in years.

Frost told The Bee that she described her educational goals to headhunting consultant Heidrick & Struggles, which CalPERS hired to help it select a chief executive. The firm listed the degrees she hoped to obtain in the information packet it prepared for the board, describing Frost as “currently matriculated in a dual degree program.”

CalPERS included a similar description of Frost pursuing degrees at Evergeen in its press release announcing her hire and in her employee biography. CalPERS has since edited the biography in a way that deleted a reference to Evergreen.

The headline of Webber’s Aug. 27 piece on Frost’s background read, “CalPERS CEO Marcie Frost’s Misrepresentations Regarding Her Education and Work History During and After Her Hiring.”

Webber declined to speak to The Bee by phone. In an email, she said the body of her work on CalPERS speaks for itself.

CalPERS board member Margaret Brown told Bloomberg last month that she wants CalPERS to open an investigation into Frost’s hiring. Brown was not on the board when Frost was hired. So far, she is alone in demanding some kind of action following Webber’s pieces on Frost.

In a follow-up piece on Frost’s background, Webber connected her work this year revealing misleading information in ousted CalPERS Chief Financial Officer Charles Asubonten’s application to Frost’s performance.

“While it may seem pedantic to hector Frost over her error-rife resume, it is actually telling evidence of her failings as a manager,” Webber wrote.

She further criticized CalPERS board members for accepting claims in Frost’s application. “The fact that the board can’t be bothered to do this right says they are not fit to serve and need to be replaced,” Webber wrote.

Webber’s take on Frost’s application resonated with retirees who believe CalPERS withholds public information and suffers from weak leadership.

To them, CalPERS did not have a good reason to describe Frost as pursuing a degree when she was not enrolled in a program and not making progress toward a credential.

“Part of it for me is the pattern of secrecy CalPERS does about everything,” said Tony Butka, a former state labor relations mediator. He wrote a letter to the State Personnel Board this week asking that it investigate Frost’s hiring and discipline board member Richard Costigan. Costigan also is a CalPERS board member who has defended Frost’s hiring in news reports.

“If it was OK to have a high school degree, fine,” Butka said. “But to imply she was working on it when she’s not, that’s wrong.”

Outside groups backing Frost

Outside of CalPERS, lawmakers and advocacy groups have weighed in on Frost’s behalf since Webber began writing about Frost’s education.

“The CalPERS Board of Administration has the appropriate authority to address internal issues should anything be deemed inappropriate. I do not believe that will be necessary in this instance,” said Assemblyman Freddie Rodriguez, D-Pomona, chairman of the Public Employees, Retirement and Social Security Committee.

On the other side of the aisle, state Sen. John Moorlach, R-Costa Mesa, said he appreciated that Frost has been “accessible and she’s been willing to meet, she has experience.” Moorlach is a pension reform advocate who proposes every year to adjust the retirement benefits public agencies can offer.

The League of California Cities, which has been the most outspoken advocacy group raising concerns about CalPERS’ fiscal health since Frost took office, also continues to back her. The league earlier this year issued a report that said CalPERS fees were becoming “unsustainable” for some of its members.

Leaders of the league say Frost has motivated cities to become more active in CalPERS, and kept them informed about important votes.

“From sitting down with the League’s executive officers this last spring, to meeting with mayors and council members from all over the state in June, we have appreciated the efforts of Ms. Frost and her team to listen, actively engage our membership and identify common ground.,” league Executive Director Carolyn Coleman said.

Frost on Wednesday spoke about her background during an all-staff meeting at CalPERS. “I have to stay focused. We have to stay focused. It really is the only way we can achieve the goals we have set,” she said.

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


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MOORLACH UPDATE —Surpluses and Surcharges — July 27, 2018

How about another state tax for a specific service?  Let’s just forget that providing public safety is a core function of government and that projected tax revenues are at the highest level in state history.  All the same, the Governor is guilting the Legislature to cram down yet another tax expansion, making it an urgent requirement before the Session concludes at the end of August.  Call it an urgency for an emergency.

Isn’t it great how government bureaucracies work?  They are not incentivized to keep current with the technology in the marketplace because being competitive is not a requirement.  They realize after many years that telephone land lines are declining and that cell lines are expanding.  Shocking news, right?  So, it’s time to change the formula.

I haven’t received any specific details on how the numbers will play out.  When I talked to the reporter about the Modesto Bee and Merced Sun Star piece below, she had not yet received anything from the Office of Emergency Management or CalFire at the time of our chat.  Last month, I made two specific requests to the Governor’s Emergency Liaison for specific details, to no avail.

The Governor wants to tax an increasing sector for cell phones, yet wanting to tax gasoline by the gallon, a supposedly decreasing sector thanks to his trying to move drivers over to electric vehicles.  Again, no understanding of changing technologies and trends.  But, the bureaucracy finally awakes and demands an immediate tax increase.  It’s a sad mind blower.  It’s always the taxpayers that have to suffer from poor governmental planning and management.

I have a podcast on this proposed cell phone tax increase, which you can listen to, as well as other podcasts I’ve prepared during this Legislative year, HERE.

Governor Brown has lost his supermajority in the Senate and no longer has the 27 Democrat votes necessary to modify this tax.  Sen. Mendoza resigned as a result of the #MeToo movement earlier in the year.  Sen. Newman was soundly recalled for voting for Senate Bill 1, the gas tax increase.  This reverberation is not lost on Republicans and those Democrats up for reelection this November.  Stay tuned.


Cell phones, landlines would be taxed more to pay for 911 upgrade under Jerry Brown’s plan



After raising prices at the gas pump last year, Gov. Jerry Brown wants to increase taxes on Californians again to overhaul the 911 emergency services system.

The Brown administration is asking the state Legislature to erase an existing tax on in-state phone calls in exchange for a flat fee on cell phone lines, landlines and other connected devices capable of contacting 911. The tax, estimated to start at a monthly rate of 34 cents per line, is expected to generate $175.4 million in the first calendar year — more than double the current tax — with the possibility of ballooning to over $400 million based on need in later years.

“It is an increase in an existing surcharge to modernize an antiquated system that is critical to be able to provide timely emergency information to Californians,” said H.D. Palmer, a spokesman for the California Department of Finance. “This falls into a fundamental purpose of government, which is protecting public safety.”

There’s little disagreement that 911 technology desperately needs an upgrade in California. The system dates back to the 1960s and the state admits it’s failed in times of crisis. Five years ago, the California Technology Agency reported that many of the network’s radio parts had been discontinued by the manufacturer.

The new digital system would allow 911 dispatchers to accept calls, texts and video. The Brown administration says it would be more reliable than the existing network, deliver calls faster and allow dispatchers to more accurately pinpoint the location of wireless callers, among other safety benefits.

But Brown’s proposal, wrapped up in Senate Bill 870 and Assembly Bill 1836, would require the support of two-thirds of the members of the state Legislature. Some lawmakers are hesitant to support even modest tax increases in an election year, fearing negative campaign attacks.

The recall of former Sen. Josh Newman, who GOP operatives tied to the gas tax, is fresh in the minds of Republicans and Democrats.

“Someone just got recalled for raising a tax,” said Sen. John Moorlach, R-Costa Mesa. “I will tell you that we’re getting pressure as Republicans to not vote for the tax increase. That’s legitimate.”

Moorlach, like some other Republican lawmakers, questions why the state refuses to dip into its existing treasury to fund a system that Brown argues is critical to public safety. The administration expects a $9 billion budget surplus in the fiscal year that began July 1, and anticipates total reserves to hit $16 billion next year.

“911 services are in jeopardy because their funding hasn’t been made a priority in the budget,” said Sen. Joel Anderson, R-Alpine, in a letter opposing the tax to constituents. “With a $9 billion surplus, I believe the state has plenty of money to fund these important services. The Legislature doesn’t need to take even more money out of our pockets.”

The Brown administration said a fee on lines provides a permanent and more reliable funding stream than the budget, which is susceptible to ups and downs in the economy.

“The 911 system needs to continue operating flawlessly,” said Patrick Mallon, assistant director of public safety communications at the Governor’s Office of Emergency Services. “There is a significant danger in tying the future of the 911 system to a budget surplus we have in 2018-2019. This legislation will last for another 25 years. What if we’re flush this year and not next year?”

Mallon and other supporters say both the 911 system and the model to fund it are outdated.

Several 911 dispatch centers were evacuated last year after the main spillway cracked at the Oroville Dam and high water threatened to flood Butte, Sutter and Yuba counties. Under the existing 911 system, there was no way to automatically reroute emergency calls to other centers.

“For 24 hours, if you lived in that area, you were held incommunicado,” Mallon said. “If you needed to evacuate and needed some help, you called somewhere where there was nobody there.”

A new Next Gen 911 system would be able to automatically send calls to the nearest operable center. The changes would include transitioning the California Public Safety Microwave Network from analog to digital and offer more paths for calls to reach 911 operators if cables are damaged by fires or earthquakes. The new system would also enable live monitoring of outages.

The State Emergency Telephone Number Account, the funding pool for the 911 system, currently relies on a less than one percent tax on the cost of in-state phone calls.

As more cell phone users opt to text instead of call, revenue has dropped an average of 6 percent a year since 2011. The existing tax generated about $80.6 million in revenue for the 911 system last year. Now consumers pay about 14 cents per month, according to OES.
The new tax rate would be determined every October and range from 20 to 80 cents per line per month. The change would not kick in until Jan. 1.

The money would be used to continue the existing 911 system, cover administrative charges and begin the multi-year development of the Next Gen 911 call system and the analog-to-digital conversion of the California Public Safety Microwave Network. With half of the current fiscal year funded from the new tax, the state expects to receive $133.5 million in revenue for the 911 system in 2018-19 and cover an additional $10.3 million in expenditures with leftover money from last year.

Senate President Pro Tem Toni Atkins, D-San Diego, said upgrading and modernizing “California’s 911 system is an urgent public-safety priority” and long overdue. Legislative leaders and Brown are actively discussing the proposal with their GOP colleagues and may need several of their votes to pass the bill after lawmakers return to the Capitol next month.

Rob Stutzman, a Sacramento-based Republican consultant, said of all the two-thirds bills in the current legislative session, the 911 tax “is the most defensible for what it provides.”

Despite targeting Newman over a tax increase last year, he said some Republicans could get away with voting for this one. Opposing it may pose a problem, he said.

“I could see some Republicans feeling the pressure to vote for it because they could be vulnerable to an attack that they didn’t update the 911 system,” Stutzman said. “’Assemblyman so-and-so voted to let your kids sit on the side of the road without the cops being able to find them’ — that’s how it would manifest itself in a campaign.”

Mallon and others said OES has been working on the proposal for some time, but it wasn’t a legislative priority until this year. The California State Sheriffs’ Association, California Fire Chiefs Association, California Chapter of the National Emergency Number Association and others support Brown’s plan.

“This bill is about saving lives,” said Brian Ferguson, a spokesman for Brown in an email. “Enacting this legislation now is critical to sustaining and modernizing our 911 system which Californians expect to work without fail during emergencies. “