The State Worker

Chronicling civil-service life for California state workers

May 10, 2011
Controller John Chiang defends state employee gift limits bill

RP CHIANG TESTIFY.JPGState Controller John Chiang's office contacted The State Worker on Monday with a rebuttal to a statement we published last week by CalPERS board member J.J. Jelincic stating his opposition to Senate Bill 439, which would lower limits on gifts to CalPERS and CalSTRS board members and employees to $50.

Jelincic had prepared the remarks but didn't get to read them at last week's Senate Committee on Elections and Constitutional Ethics hearing. He believes that the measure would force employees to pay for business meals out of pocket, since state per diem isn't enough to cover those expenses and CalPERS' partners or potential partners wouldn't be allowed to pick up the tab.

The measure was put on the committee's consent calendar and moved to the Senate Appropriations Committee on a 5-0 vote without testimony for or against it.

Appropriations is supposed to take up the measure on Monday.

Chiang, who sponsored the legislation, is an ex-officio member of both the CalPERS and CalSTRS boards. Here's his response to Jelincic's criticisms:

I write to respectfully correct the factual inaccuracies contained in J.J. Jelincic's remarks relating to Senate Bill 439 and to re-focus this important public discourse away from how to pay for a four-star dinner in Manhattan and towards the need to reform those practices and institutional feelings of entitlement that spawned the worst ethics scandal to hit CalPERS in its 79-year history.

An outside investigation commissioned by CalPERS recommended a stronger gift limit after documenting that past board members and staff at CalPERS had created a disturbing perception in the investment industry that investors seeking to do business with CalPERS needed to "wine and dine" its top decision-makers in order to gain their favor. Specifically, the investigation exposed how the "apparent desire for free dinners and similar gifts from third parties was known to many outside of CalPERS and harmed the reputation of the institution and . . . seemed to contribute to the view by some external managers that they needed to offer gifts. . ."

SB 439 would impose a stringent gift limit on how much board members can receive from those seeking to do business with California's pension funds, secure outside enforcement by the Fair Political Practices Commission (FPPC), and prohibit firms which violate the gift restriction from doing business with CalPERS and CalSTRS for two years.

Arguing that gifts are the lifeblood of CalPERS or CalSTRS' investment performance is, at best, delusional and, at worst, a lie. CalPERS has banned staff from accepting gifts since November 2009. During this same period, investment return rates have been in the double digits, far exceeding CalPERS's projected return of 7.75%. That certainly doesn't support allegations that SB 439 would harm our pension funds' investment performance.

It's important to note this measure does not, as Mr. Jelincic suggested, affect meals at conferences that CalPERS or CalSTRS has paid for their employees to attend. Nor does it affect the ability of staff to participate in conferences hosted by education institutions and nonprofits with a governmental purpose. Neither of these cases would fall under FPPC guidelines as a "gift."

If a case can be made that partaking in an expensive meal or an exclusive entertainment event is mission critical to the success of our public pension funds, it still doesn't justify the tab being picked-up by those seeking multi-million dollar deals. To eliminate real or perceived conflicts of interests, CalPERS and CalSTRS should reimburse its board members and employees for legitimate expenses that clearly further our fiduciary obligations. CalPERS executive staff already has engaged the Department of Personnel Administration (DPA), the State agency charged with setting per diem rates, in discussions concerning CalPERS's business needs. DPA expressed that the matter would properly be determined first through collective bargaining.

Finally, there is widespread support for this measure, which is being carried on my behalf by Senator Negrete McLeod. Not only has it enjoyed unanimous bipartisan support in the Legislature, but it has been endorsed by nearly every board member at CalPERS and CalSTRS. Highly-regarded good government organizations such as Common Cause and the AARP are strongly urging the passage of SB 439, as well as those groups representing the funds' membership, including SEIU 1000 and the California Retired Teachers Association.

While others may continue to argue the importance of gifts and dinners to the success of our pensions funds, I remain committed to pursuing the reforms necessary to restore public confidence that the investment decisions made at CalPERS and CalSTRS are exclusively based on what is in the best interests of our members and California's taxpayers.

PHOTO: State Controller John Chiang testifies at a committee hearing. Sacraemento Bee file photo.

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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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