The State Worker

Chronicling civil-service life for California state workers

August 20, 2008
Preview: Notes and quotes behind The State Worker column

Thursday's column looks at whether CalPERS' compromise with the Professional Engineers in California Government over public-private partnership investments is in keeping with the fund's duty to act in the best interest of its members.

It's a vexing subject: Is CalPERS obligated to protect state worker jobs by avoiding investments that might shove some work, such as road engineering, from the public to the private sector? Or must it go after maximum returns that benefit all its members, even if some member jobs are affected?

On Monday the fund tried to cut the issue down the middle by passing an investment policy that allows PPP investments only if CalPERS members' jobs aren't affected.

The space that we get in the column is precious, and much of what we hear and learn gets left out. But as a visitor to the blog, you get a little something extra here: notes and quotes that column-only readers don't see. A few lines from our notebook:

Pat Macht, CalPERS spokeswoman
Telephone interview, 8/19/08

On how long CalPERS worked on the PPP policy: Staff worked on it for six months. We worked with the unions. We had many meetings with all the stakeholders to make sure that this investment class is congruent with the values of the fund. We met with PECG several times over that period.

On the fund's reaction to the PECG's intent to sue: When we learned of the threat of a lawsuit we met with them to see if we could add language to answer their questions and concerns. That meeting resulted in the policy that was passed on Monday.

On whether CalPERS has any other investments that with similar limitations: The only other outsourcing policy is in private equities. We don't allow investments that would take public jobs and privatize them. (Macht gave two hypothetical examples. The fund would not invest in a concession company, for example, that took over concessions at a public park operated by public workers if those jobs would be taken private. Another example: a transportation company that took over operating a school district bus service and privatized the drivers' jobs.)

On the Professional Engineers challenge to CalPERS' PPP investment policy: The whole model of CalPERS is to develop policies after providing anyone the chance to challenge them.

On what the impact of the public-private partnership investment policy could have: We believe that this could become a model for other pension funds.

On whether the compromise with the union sets a negative precedent: We don't believe that it does, not at this point. But we need some experience with this kind of investing. Hopefully this is a win-win for everybody.

Jason Dickerson, principal fiscal and policy analyst at California Legislative Analyst's Office
Telephone interview, 8/18/08

On CalPERS tension between preserving state engineers' jobs and making the best investments to benefit all members: I think it's an interesting issue. The state Constitution says that the CalPERS board has to put the interest of members above all else.

That sets up a tension: Is the best interest of members for CalPERS to make money on investments for retirement or is it to better their members' lives more generally? The purpose of this discussion, the question is should CalPERS preserve and increase employment of members? This is really a tension about CalPERS' constitutional duty.

Paul Meyer, executive director, American Council of Engineering Companies of California
Telephone interview, 8/19/08

On his reaction to the agreement between CalPERS and PECG: It was a little startling. One would think that with the dire infrastructure needs in this state that PECG and CalPERS would welcome more involvement, not curtail it.

How he believes the agreement will affect CalPERS investment opportunities: If you're putting restriction on how the projects are going to be delivered, that discourages investors. Typically you see multiple investors on these kinds of projects, a lot of competition. But these barriers could narrow the field. PECG has been very aggressive in hamstringing (public-private) projects. That scares investors. PECG will interpret (the CalPERS' new policy) in a way that will not be helpful.

On what he wishes CalPERS would have done: I would have hoped that they would have just explained to PECG, "We're going to invest in new projects, not anything on (any state) project lists. If it's a new project, how can it hurt you? You've already got plenty of work to do. There are a million other issues, go worry about something else."

Bruce Blanning, executive director, Professional Engineers in California Government
Interview at CalPERS headquarters, 8/18/08

On the union's concern over PPPs: We had a real concern that these investments would allow CalPERS to take employees' retirement contributions and use the money to take their jobs. The real issue was should you take employees' retirement money and use it to outsource their jobs?

On public-private partnerships: PPPs are a huge waste of taxpayers' money. It's always twice as much as keeping these things public. (He cited a statistic from a recent state study that found state engineers cost about $121,000 per year, while positions contracted out cost about $217,000.) PPPs have no meaningful oversight, which leads to greater waste.

On recent high-profile public-private partnerships involving C.C. Myers, the company at the center of the I-5 fix: People see the I-5 project, the McArthur Maze project, the Bay Bridge project and say, "Myers did it!" What the public doesn't understand is that CalTrans designed those projects. Every case where projects have been done quickly, public engineers have been involved.

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About The State Worker

Jon Ortiz The Author

Jon Ortiz launched The State Worker blog and a companion column in 2008 to cover state government from the perspective of California government employees. Every day he filters the news through a single question: "What does this mean for state workers?" Join Ortiz for updates and debate on state pay, benefits, pensions, contracts and jobs. Contact him at (916) 321-1043 and at jortiz@sacbee.com.

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