Evidence keeps mounting for California cities that letting CalPERS manager their pension money is a losing strategy. In December I described an academic study of CalPERS investing which chronicled a series of bad decisions that cost taxpayers hundreds of millions of dollars and led to the giant fund seriously underperforming its aggressive investment targets. Now we learn that the city of Stockton, on the verge of declaring bankruptcy, owes some of its woes to its misplaced faith in CalPERS investing acumen.
Among the many debts facing Stockton are $125 million in pension obligation bonds floated in 2007. Cities and states typically issue these bonds to raise money to put into public employee pensions on the hope that investment managers can get a rate of return on the money that exceeds the interest on the bonds, thereby producing a windfall for the fund. But according to a new analysis of the city's fiscal woes prepared for the city council, CalPERS promptly lost somewhere between 24 percent and 30 percent of the money. In fairness the 2007 offering exhibited horrible market timing.
Meanwhile, the impact on the city budget of the debt payments on the bonds has risen to some $1.2 million annually. And, as I observed previously, 81 percent of city spending is for personnel costs, including pensions and retiree health care. The chart above shows how that breaks down.
Meanwhile, the impact on the city budget of the debt payments on the bonds has risen to some $1.2 million annually. And, as I observed previously, 81 percent of city spending is for personnel costs, including pensions and retiree health care. The chart above shows how that breaks down.
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