The California State Teachers’ Retirement System is now planning to formally define the term “diverse manager” and adjust their definition of “emerging manager.” Though the two categories overlap, they are not identical.
The term “emerging manager” is based on the following criteria, according to CalSTRS: “the amount of assets under management; fund lifecycle of funds; firm legal structure; non-employee ownership percentage; and other various factors including track record, private placement memorandum.”
The term “diverse manager” will refer exclusively to the diversity of the firm’s ownership. The term will be defined in a tiered way such that if a firm is 25% to 49% owned by women, ethnic minorities, and/or LGBTQ individuals, it will be labeled as “substantially diverse.” A firm would be labeled as “majority diverse” if it is more than 50% owned by women, ethnic minorities, and/or LGBTQ people. Ethnic minorities include all non-white groups listed on the census.
On Feb. 3, 2022, the state of California finally produced its audited financial statements for its fiscal year that ended June 30, 2020. The filing, known as an annual comprehensive financial report, was over a year late and came with an unpleasant surprise in the form of a qualified audit opinion.
State and local governments are normally expected to produce financial statements within six-to-nine months of the fiscal year’s end. California has now missed the nine-month municipal bond market filing deadline for three consecutive years. And, with less than two months to the deadline for its fiscal year 2021 financial reports (for the fiscal year that ended June 30, 2021), another late filing seems inevitable.
California’s financial reporting performance compares poorly with most other states. According to data from Truth in Accounting, the median U.S. state produced its 2020 annual comprehensive financial report 184 days after the end of its fiscal year. By contrast, California took 583 days, nearly 20 months, to file its annual comprehensive financial report for fiscal year 2020. For added perspective, it is worth noting that the Securities and Exchange Commission gives large corporations just 60 days to produce their audited financials.
Insurance giants Chubb, Liberty Mutual, and AIG are three of the biggest insurers of fossil fuel infrastructure around the world. But thecompanieshave just announced plans to scale back their homeowner coverage in California, where they insist future climate-related losses will likely prevent them from turning a profit.
The coverage withdrawals may soon ignite a big money battle in the state’s legislature, pitting insurance giants against lawmakers trying to preserve coverage for their constituents. Meanwhile, climate campaigners are decrying what they say is a fundamental hypocrisy.
Last year, Chubb’s chairman and CEO Evan Greenberg said the company was reducing its coverage in parts of the state that were “both highly exposed, and even moderately exposed, to wildfire” because it was unable to obtain an “adequate price for the risk, and not by a small amount” due to both the costs of wildfires and California’s regulatory climate.
A main solution proposed by industry is that they be allowed to use “catastrophic modeling,” a method where rates are set based on predictions of future losses, rather than recorded past losses, as is currently the case. All other states allow the use of this technique in at least some cases.
In a video released online, Republican State Sen. Brian Jones used grains of rice to break down the projected budget surplus which, as of January, was estimated at $45.7 billion.
“If each grain of rice is $100,000, that means California’s $45 billion surplus is taxes over-collected by this much,” Jones explained as he shifted the large pile of rice around with his hand.
So what to do with all that money?
According to the state senator, the amount is enough to send every Californian a tax rebate of $1,125, or $4,500 for a family of four.
More stimulus checks are a possibility because the surplus is likely to exceed California’s constitutional limit as set by the voter-approved Proposition 4, or what’s more commonly known as the “Gann Limit“. That essentially restricts the amount of tax revenue the state can spend while giving lawmakers options on what to do with the leftover funds — including giving it back to taxpayers in the form of a rebate.
The city of San Diego will be offering retroactive defined benefit (DB) pension benefits to thousands of city employees who were previously only offered defined contribution (DC) plans.
The decision comes after the California Supreme Court overturned 2012’s Proposition B, a law that was passed after being voted on by the public. Proposition B shifted all city employees except police officers away from pensions to DC plans. The law was in effect from July 2012 through July 2021.
Proposition B was controversial and was ultimately deemed to have been illegally placed on the public ballot. The total amount of funds owed to city employees will be approximately $73 million in retroactive pension accruements. The payments will go to approximately 3,850 workers who began working for the city after July 2012.
California’s climate-conscious policies aren’t matched by the investment choices of its largest public pension funds, according to a report from two environmental groups.
Of the 14 top U.S. pension funds analyzed by Stand.earth and Climate Safe Pensions Network, California Public Employees’ Retirement System, known as Calpers, and California State Teachers’ Retirement System, known as CalSTRS, were the largest investors in fossil fuel companies, with $27.1 billion and $15.7 billion, respectively, according to findings published Wednesday.
The two combined hold about half the fossil fuel assets for the entire group, according to the study. Calpers also came first in fossil fuel holdings as a proportion of its total assets under management, at 6.9%.
The New York State Teachers’ Retirement System had the second-largest share of its portfolio invested in fossil fuels, at 6.6%.
When CalPERS does something as obviously nonsensical as planning to dump $6 billion of its private equity holdings, nearly 13% of its $47.7 billon portfolio, when it just committed to increasing its private equity book from 8% to 13%, it’s a hard call: Incompetent? Corrupt? Addled by the latest fads (a subset of incompetent)?
And rest assured, the harder you look, the more it becomes apparent that this scheme is as hare-brained as it appears at the 30,000 foot level. But unlike another recent hare-brained private equity scheme, its “private equity new business model,” beneficiaries won’t have the good luck of having it collapse under its own contradictions. CalPERS has loudly announced that Jeffries & Co. will be handling these dispositions, so they will get done….at least in part. But the fact that CalPERS’ staff has gone ahead and merely informed the board, as opposed to getting its approval, is yet another proof of how the board has abdicated its oversight and control by granting unconscionably permissive “delegated authority” to staff.
The one bit of possible upside would not just be unintended, but the result of CalPERS acting in contradiction to its expressed objectives: that its allocation to private equity would undershoot its targets by an even bigger margin than otherwise.
It’s hard to say which of these is the “worst,” but the 2.3 percent gross receipts tax sticks out. That gross receipts taxes are an awful way to structure a business tax is one of the few things that tax policy experts across the political spectrum almost universally agree on. That’s because they make no allowance for the large variance in profit margins that different types of businesses make—whether a business has a profit margin of 0.1 percent or 10 percent, it would still have to pay the same percentage of its total revenues.
That’s a problem with any gross receipts tax, but California’s proposed tax would exacerbate this inherent problem with a rate that is three times the level of the nation’s current highest. The higher the gross receipts tax rate, the more low-margin businesses that could be put in a position where operating in California would lose them money.
Almost as bad is the proposal to institute a payroll tax on businesses with 50 or more employees. Not only are payroll taxes a regressive tax (even if the tax is imposed on the employer, it would be passed on to employees in the form of lower wages), but the 50-employee threshold would create an obvious disincentive for businesses to hire their 50th employee.
A new analysis shows the city of San Diego’s pension system is in strong financial shape compared to similar systems across the state and the nation.
While the city’s pension debt is nearly $3 billion, most pension systems face similar gaps between their investment assets and long-term projections of what they will owe employees when those employees eventually retire.
The comparative analysis, which was presented to the city’s pension board Friday, shows that San Diego has been in the top half of the nation’s largest 175 pension systems for “funded ratio” every year since 2013.
And the city’s ratio, which just climbed from 70.2 percent to 74.3 percent thanks to the robust stock market, has been in the top quarter of those national pension systems several times in recent years.
The city’s pension system, formally known as the San Diego City Employees Retirement System, also has among the most conservative policies regarding projections of long-term investment returns.
San Diego’s projected rate of long-term investment growth is 6.5 percent, which is at the very low end of the group of 175 pension systems.
Despite a 32% investment return in the last fiscal year, Marin County’s public pension fund is playing it safe.
The board of the Marin County Employees’ Retirement Association decided to factor in the extraordinary gain over four years rather than immediately when assigning annual employer contributions.
The association includes Marin County and eight other public entities. Its net investment return was $829.8 million for the fiscal year that ended June 30.
Last year, when the association’s board voted to cut the fund’s assumed annual rate of return from 7% to 6.75%, Block advocated reducing it to 6%. At that time, the association also lowered its assumed annual rate of inflation from 2.75% to 2.5%.
The Cheiron actuaries, however, said the association’s assumptions regarding inflation and the annual rate of return remain valid.
California’s two biggest pension funds have invested a staggering $43 billion in fossil fuel companies, and their opposition to divesting from the industry — including fighting legislation that would have stopped them investing in firms involved with the controversial Dakota Access Pipeline (DAPL) — has cost retirees and taxpayers billions, research shows.
The findings hammer home the fact that the divestment movement isn’t just about protecting the planet from the worst effects of climate change. With the oil, gas, and coal industries all on the decline, pension funds’ refusal to divest from fossil fuels is also endangering the retirement savings of teachers, government employees, and other rank-and-file public workers who have paid into these funds.
While it is common knowledge that fossil fuel stocks have underperformed the broader stock market, large bank stocks have been lackluster as well — including the banks that helped finance DAPL.
If CalPERS and CalSTRS had not opposed the original DAPL divestment legislation, they could have instead put pressure on the companies involved not to move forward with the pipeline, and such efforts might have been enough to stop the project, given the pipeline project’s turbulent history.