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Dissent on Divestment in LA

The purpose of a pension fund is to invest money and turn a profit for pensioners. That seems obvious to our readers, surely, but it’s apparently not so clear to the overseers of California’s biggest funds. The LA Times editorial board explains:

The day he was sworn in to the California Assembly, freshman Bay Area Democrat Ash Kalra filed his first piece of legislation: Assembly Bill 20, which would force the state’s two largest public employee retirement funds, CalSTRS and CalPERS, to divest from companies involved in building the disputed Dakota Access pipeline.

The bill, if it were to become law (and it shouldn’t), wouldn’t stop the project from being completed. The Army Corps of Engineers has already given final approval to the remaining section of the pipeline. It would, however, blow a multibillion-dollar hole in the pension funds — and the public pocketbook, because state and local taxpayers would be left to fill that hole.

[…]

Even those who opposed the Dakota Access pipeline, such as this editorial board, must recognize that AB 20 is a flawed and dangerous bill. For one thing, it is overly broad, requiring divestment from a company that operates multiple oil and natural gas lines as well as from major national banks that finance not just the pipeline’s construction, but also many of California’s businesses. California Public Employees’ Retirement System staff estimate that cutting investment in these companies would cost it at least $4 billion. California State Teachers’ Retirement System staff is still evaluating what divestment would cost that fund.

It would be one kind of irresponsible if CalPERS and CalSTRS were meeting their target returns. But they aren’t, and they’re massively underfunded in the first place. So it’s a whole new level of dereliction to limit the investment universe (and thus make it harder to earn money) in the name of some high-minded ideals. As the editorial board rightly notes, it’s not even likely that divestment will have any serious political impact. All it will likely do is impoverish pensioners.

We’ve long been on the record criticizing California for divestment; the real story here is that the LA Times is on board. It’s good to see that they get it. We hope this will prompt them and other pundits to consider the reality that, by underfunding pensions and prioritizing idealistic rhetoric over concrete results, governments in California and across the country are failing to meet their obligations to their constituents. In fact, we’d venture to guess, that might partly explain why so many people are mistrustful of government right now, and of state and local Democrats in particular.

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