CalSTRS Forces Sale of Bushmaster Investment—Retains Other Death Holdings

 Image by Mike Licht, NotionsCapital.com

Less than one day after the California teachers’ pension fund, CalSTRS, threatened to cut ties with the private equity firm  Cerberus Capital Management, the company sold off its stake in Freedom Group (see Edsource), which includes Bushmaster, manufacturer of the AR-15 semi-automatic rifle used by Adam Lanza to massacre 26 people at Sandy Hook Elementary School in Newtown, CT.

Cerberus is owned by the billionaire financier Stephen A. Feinberg, who is a gun enthusiast. His father, Martin Feinberg, lives in Newtown, CT. Despite this connection to the tragedy, the firm’s decision to jettison Freedom Group probably has much more to do with profits than either ethics or pressure from CalSTRS. Weapons stocks have been on the decline since the shooting in anticipation of new gun control legislation, while cutting ties with Bushmaster will no doubt improve public perception of Cerberus and make them appear like a good corporate citizen.

CalSTRS has $600 million invested in the Cerberus fund, according to the New York Times, while the California Public Employees Retirement System, or CalPERS, has roughly  $400 million invested in the company. Edsource quoted California Treasurer Bill Lockyer, who sits on the boards of both pension funds: “Our objective is to make sure that both CalPERS and CalSTRS are scrubbed clean of any investment in any company that makes guns that are illegal in this state and expose our communities to violence and death.”

In reality, Lockyer and the CalPERS and CalSTRS boards are only interested in scrubbing their own images clean. They have merely chosen the lowest hanging fruit—the company that manufactured one of the guns used by one psychopath in just the most recent deadly school rampage. CalSTRS continues to maintain holdings in numerous other “merchants of death,” including Smith and Wesson. Indeed, their holdings are a veritable rogues gallery of companies involved in everything from warfare to union busting to ecological destruction. Here are just a few:

Image by Donkey Hotey

• Bain Capital’s role in liquidating businesses and laying off workers was heavily covered by the press during the recent presidential elections. What received much less coverage was the fact that Mitt Romney helped found the company with investments from Salvadoran elites who had ties to their country’s death squads.
• The Carlyle Group is sometimes called the “Ex-Presidents Club” for all the ex-politicians that have served on its board or as company advisors (George Bush Sr., John Major, James Baker, Frank Carlucci). It is the 3^rd largest equity firm in the world and a major player in the military-industrial complex, reaping huge profits from the war on terror and the wars in Iraq and Afghanistan. California attempted to ban CalPERS from investing in companies like Carlyle that are partly owned by countries with poor human rights records, but the legislation was withdrawn (probably due to influence peddling by Carlyle lobbyists).—(Sources: SF Chronicle, The Guardian)
• Chevron is responsible for regular explosions and fires at its Richmond, California plant, sickening thousands of local residents and polluting the air and water, as well as far more extensive and devastating pollution in the Niger Delta and Ecuador. However, Chevron has also been complicit in outright murder in Nigeria and elsewhere. In 1998 Chevron recruited and supplied the Nigerian military in its assault on activists in the Niger Delta that killed 2 protesters and injured several others. (Sources: Democracy Now, SF Chronicle, the Huffinton Post)
• Coca Cola has been accused of contracting and directing the paramilitaries in Columbia in assassinations of union members, as well as the rape and murder of unionists and their families in Guatemala. It has also been accused of pollution in many countries and depleting their water supplies. (Sources: KillerCoke, PBS Frontline, Common Dreams)
• Dow Chemical has a long and sordid history of producing deadly and environmentally destructive products. It was the producer of Agent Orange, which is estimated to have killed 400,000 Vietnamese and maimed another 500,000 during its use by the U.S. military in the 1960s. In 2001, Dow merged with Union Carbide, which was responsible for the 1984 Bhopal gas explosion, which killed as many as 8,000 people within the first 2 weeks and another 8,000 or more since. It was the largest industrial accident ever, exposing over 500,000 people to methyl isocyanate and other toxic chemicals. The ground water is still contaminated and people continue to be born with deformities and suffer illness and debilitation so severe they cannot work or support themselves. Dow refuses to pay compensation to the victims or to clean up the local environment.
• DuPont has a 200-year history of producing weapons and toxic chemicals that are responsible for thousands of deaths world-wide. DuPont began as a gun-powder manufacturer, but has also contributed to the development of chemical and nuclear weapons. The company has been implicated in union busting, environmental pollution and numerous instances of workplace injury and death. (Sources: Corp Watch)
• General Electric is most notorious for its role in manufacturing nuclear weapons. However, the company is also responsible for massive environmental contamination and numerous corporate crimes. Its nuclear waste facility in Hanford, WA, has released more radiation into the environment than the 3 Mile Island disaster. GE was also responsible for the release of 138 million pounds of PCBs into the Hudson River. As of 2001, GE had 78 Super Fund sites and had paid hundreds of millions of dollars in settlements. GE was also involved in gruesome experiments in which U.S. prisoners and other civilians were deliberately exposed to radiation without warning them about the cancer risks. (Sources: Clean Up GE, Multinational Monitor)
• Halliburton is one of the world’s largest oilfield service companies and one of the most viciously anti-union. They have a history of partnering with repressive dictators and complicity in human rights violations, including in Burma, Libya, Iraq, Iran and Indonesia. They were partly responsible for the Deepwater Horizon Oil Spill, the largest in U.S. history and they profited handsomely from the war in Iraq. (Sources: Wikipedia, Corp Watch)
• Lockheed Martin is America’s largest defense contractor, receiving over $29 billion per year in Pentagon contracts. It has produced spy satellites and helped the Pentagon spy on U.S. citizens, provided interrogators (i.e., torturers) for Guantanamo Bay, built military aircraft, and helped shape U.S. foreign policy for decades. Lockheed Martin produces Hellfire missiles, which are the most common missile fired from U.S. drones and which are responsible for hundreds of civilian deaths. (Sources: Prophets of War, Alternet, Salon)
• Nike is guilty of gross labor violations in Latin America and Asia, including the exploitation of children. (Sources: Counter Punch)
• Occidental Petroleum has been accused of funding death squads and a Columbian military unit that assassinated unionists. (Sources: Courthouse News)
• Raytheon is the world’s largest producer of guided missiles. Its missiles were used in several civilian massacres by Israel in Lebanon. In the 1990s, its Patriot missiles were used by the U.S. to slaughter tens of thousands of civilians in Iraq. (They also produce Tomahawk missiles and “bunker buster” bombs). Raytheon admitted using prisoners in California to test a “nonlethal” pain weapon and they have contaminated many of the areas in which their production plants are located with deadly carcinogens. (Sources: Raytheon-Wikipedia, Raytheon 9-Wikipedia, Corp Watch)

CalSTRS is also invested in Bank of America, Walmart, Microsoft, Waste Management Inc., Goldman Sachs, Citigroup, JP Morgan Chase, Honeywell, Taser, Monsanto, Morgan Stanly, Green Dot.

Jerry Brown: Friend to Teachers Dumb Enough to Believe It

Despite ample evidence to the contrary, Jerry Brown continues to be called a friend of labor. This is probably because big unions like the California Teachers Association invested so much money into his campaign for governor that they can’t afford to criticize him out of fear that he won’t pay them back in kind (as if this were ever a possibility).

Some will say that Brown’s attempt to raise taxes and funnel the bulk of the new revenue into K-12 education is a form of payback. However, his plan, even if it is approved by voters, will not restore the more than $21 billion that has been slashed from K-12 education in California over the past three years, let alone bring annual revenues up to the level necessary to hire more teachers, reduce class sizes, offer raises, or rehire counselors, librarians and nurses.

At the same time, Brown has quietly been pushing a pension reform plan that will raise costs and slash benefits for thousands of public sector workers. He has joined the growing chorus of right wing ideologues, fiscal conservatives and millenarian Chicken Littles who are all screaming that the pension sky is falling and workers themselves must pay for it.

According to John Fensterwald - Educated Guess writing in TopEd, the California Public Employees Retirement System (CalPERS), the nation’s largest public pension plan, reported anemic returns of 1.1% last year, while the California State Teachers Retirement System (CalSTRS), number two behind CalPERS, reported a slightly less anemic 2.3%. Both of these are far below the 7.75% rate of return needed to meet payouts to retirees. Furthermore, CalSTRS’ 10-year return was only 5.4% and many financial analysts believe the next decade will be just as bad.

While the economic crisis can certainly be blamed for much of the problem (30% decline in the value of the CalSTRS portfolio), the state itself has failed to make its required payments to the pensions or to responsibly manage them, thus exacerbating the problem. In either case, it is not the fault of public sector workers that the pensions have so much unfunded liabilities (most teachers receive only $3,000 per month), yet they are the ones who will be forced to pay for it by being required to work longer before retiring (the retirement age will increase to 67 for new employees), paying more into the system and accepting smaller payouts.

Thus, in addition to accepting stagnant wages over the past three to four years (most teachers, for example haven’t seen a raise in that time) along with furloughs, layoffs and increased out-of-pocket costs for healthcare, public sector workers will see their paychecks shrink even more, with increased deductions for their pensions.

Virtually absent from the fear mongering and blaming is the fact that CalSTRS is 71% funded, which is actually pretty good compared with other pension plans. Furthermore, only if large numbers of teachers were able to simultaneously retire would the underfunded liability even matter. Only those near retirement age are in any position to take advantage of their pensions and they make up a small minority of those still paying into the system. CalSTRS is not in any danger of going belly up. In fact, it is not projected to become insolvent until 2042, leaving plenty of time to deal with its unfunded liabilities. Even CalSTRS CEO Jack Ehnes criticized the Little Hoover Commission’s recommendations to slash CalSTRS and called many of its suggestions naïve or impractical. He also pointed out that many of its premises are wrong.

Brown to Public Employees: Work Until You Drop!

Your Excellency, Please Let Us Retire (Image by Mike Benedetti)

California Gov. Jerry Brown’s plan to cut pension costs would force new teachers to work years longer before they could retire and give them substantially smaller pensions. Those of us currently employed at schools would have to pay roughly 1% more out of our paychecks toward our retirement, amounting to a 1% cut in take home pay. However, the increased costs for teachers could end up being more than 1% if CalSTRS lowers its expected rate of return according to Topics in Education.

Teachers unions heavily supported Brown’s run for governor, giving him millions to support his campaign. They naively believed he would support their members’ interests, despite a well-documented history of violent union-busting and charter schools promotion as mayor of Oakland. Brown repaid the unions with trivial gifts, like appointing a CTA lobbyist to the state board of education and not slashing education funding as much as he could have. However, his attack on teachers’ pensions and the reduction in living standards it will impose on both working and retired public sector workers should have the unions preparing for a General Strike!

The pension “reforms” would significantly decrease benefits, especially for new workers, and raise the retirement age from as early as 55 for some public sector workers to 67 for all new employees who aren’t involved in “safety” work. The plan would apply to all public employees, including state, local, municipal and education workers.

In a particularly absurd statement, Brown said at a press conference that “The plan will make the pension system more sustainable and fair to taxpayers and the employee.”

The plan would supposedly cut the state’s pension costs by billions of dollars over the next 30 years, according to Topics in Education. However, making people work longer, retire on less, and earn less on the road toward retirement is the exact opposite of fair to employees. To be totally honest, it would screw employees!

As it is, no one can survive entirely on a teachers’ pension in most Californian cities. Thus, most retirees must continue working part time, move to a cheaper part of the world, or be fortunate enough to have other investments or a wealthier spouse or partner. Cutting benefits will only worsen this.

The “reforms” will also drive down living standards for working teachers who have seen their take home pay slashed repeatedly over the last three years in the form of increased healthcare premiums, furloughs and, in some cases, wage cuts. The vast most were not earning that much to begin with. Another 1% reduction in take home pay means that many teachers will have trouble making ends meets and supporting their families.

Furthermore, the less one earns today the smaller their future pension. Since pension benefits are based on an employee’s salary during the final years of employment, and raises build up over time, pay cuts now significantly reduce the potential pay during those final years. Virtually no California teachers have had a raise in the last three years, thus reducing this potential for most teachers, while some of the cuts to take home pay may also contribute to this reduced pension potential.

The plan can hardly be considered fair to taxpayers, either, as the majority of taxpayers are low and medium income workers who contribute a higher percentage of their income toward taxes than do the state’s 600,000 millionaires. Fair to taxpayers would involve the wealthy paying substantially more, which would improve the state’s fiscal health, giving it much more flexibility to deal with its numerous budgetary problems, including pensions. Furthermore, the public sector pension “crisis” is the result of fiscal mismanagement by taxpayer-funded pension managers who continue to bungle on in their current jobs at taxpayer expense, combined with the economic crisis, which was due in part to the illegal activities of bankers and investors who have so far paid nothing in penalties or restitution.

Meanwhile, Brown’s plan would do nothing to address the pensions’ unfunded liabilities, which are entirely the state’s responsibility. If the courts require the state to start pay them down, it could result in an enormous increase in its share of the contributions to public pensions, which would directly affect taxpayers.

Teachers’ Pensions Threatened in California

The California teachers’ pension fund, CalSTRS, has been placed on the state’s high-risk list by State Auditor Elaine Howle, according to a recent article, “State Auditor calls CalSTRS a high risk,” by John Fensterwald - Educated Guess.

The move was largely a capitulation to slash and burn bosses and millionaires who want to preserve their historically low tax rates, business subsidies and lavish lifestyles by imposing austerity on the rest of us. CalSTRS is actually reasonably healthy and able to make payouts to retirees for many years. It is NOT facing an impending catastrophe. In fact, it is not projected to become insolvent until 2042, leaving plenty of time to deal with its unfunded liabilities. Even CalSTRS CEO Jack Ehnes criticized the Little Hoover Commission’s recommendations to slash CalSTRS and called many of its suggestions naïve or impractical. He also pointed out that many of its premises are wrong.

However, this fabricated crisis (or exaggerated problem) is being used to justify benefits cuts for retirees and increased contributions by current employees (equivalent to pay cuts, since they would decrease take-home pay), slashing living standards for both groups. At the same time, these “reforms” would increase income to the state and decrease pressure to increase taxes, something that benefits the wealthy far more than the rest of us.

It is true that there are large unfunded liabilities. However, it is important to understand why and address these fundamental causes, not only to close the gap but to prevent it from growing or returning again later. None of the causes, by the way, has anything to do with teacher greed or luxury. In fact, most teachers receive only $3,000 per month, which is barely enough to live on in most parts of California without other supplemental income.

One major cause was the financial collapse, which resulted in a 30% drop in the value of the CalSTRS portfolio, Fensterwald wrote in his piece. This was an unnatural disaster caused by the greed and, in many cases, criminal behavior of bankers, insurance giants and finance capitalists who, instead of being punished and forced to pay restitution, have received generous taxpayer funded bailouts that have enabled them to grow even wealthier. One obvious solution to any pension woes is to have the rich or, more specifically, bankers and financial giants, pay greater taxes and use the increase revenue to help bail states out of all their financial problems, including their unfunded public employee pensions.

Another major cause of the unfunded liabilities has been states’ refusals to make the required payments on time. Unfortunately, none of the states are in any position right now to pay for their past mistakes (they can’t afford to pay for their current ones). Their biggest mistake was to buy into the anti-tax orgy and allow their own budgets to be decimated through declining corporate and marginal rate personal income taxes.

When we hear pundits demand that the state learn to live within its means, they are implying cuts, and nothing but cuts. However, the metaphor is meant to appeal to working families who must budget according to their incomes. Obviously, when one has a low wage job, one must make many sacrifices at home in order to make ends meet. However, with higher wages or investment income (as is common among the wealthy), one can spend more lavishly and carelessly. The state does not have to slash social programs and job creating spending in order to live within it means. It could (indeed, it must) increase its income, not just to live within its means, but to solve its myriad problems, like funding its pensions, paying decent wages to its employees, improving its schools, caring for its children, elders and infirm.

Pension Reform: A Union-Busting Trojan Horse

Attacking teachers’ pensions is a Trojan horse in the war against teachers unions. Any attack on pensions takes time and energy away from other important battles, of course. However, the attacks also serve to divide and conquer teachers as they generally offer existing and/or veteran teachers a more generous benefit than younger teachers and future hires.

An example of this is SB 27 , which would eliminate spiking – the practice of bolstering employees’ pay in their final year in order to increase their annual pensions. This is generally done by getting a promotion and pay increase or taking on additional work for extra pay. It would also stop double dipping—the practice of coming back to work as a contractor (e.g., substitute teaching) while still collecting a pension.

The bill has passed the Senate, but is being opposed by roughly a dozen public employee groups, including the CalSTRS board and the CTA. They argue that the bill would take away benefits already promised to and earned by existing employees. Proponents say that applying the “reforms” to all employees, current and future, is the only way to get the house back in order. The alternative, which they would probably accept, and CTA would likely concede, would be to apply the new rules only to future employees, effectively creating a two-tiered benefits package in which younger teachers get a much worse stake than their veteran colleagues. This would exacerbate generational tensions that already exist within the union and significantly reduce the chances for effective organizing and mobilization around other important issues.

Pension Reform—Give Everyone A Decent Retirement

Contrary to the myth that teachers are retiring with fat pensions paid for by the taxpayers, a recent study by the California Foundation for Fiscal Responsibility found that California State Teacher Retirement System (CalSTRS) benefits are smaller than those for almost all other public employees, at least the taxpayer portion, the New York Times reported today.  The foundation excluded employee contributions from their calculations, which vary considerably between occupations, thus giving a comparison of what the taxpayers contribute toward their pensions. Compared with other public sector workers, California’s teachers get very little from the taxpayer.

While teachers do pay a relatively large portion toward their own pensions (8% of their paychecks), they are lucky to earn 60% of their working salaries upon retirement. Indeed, the average benefit payment is only $3,300 per month (See CTA website), in a state where rents and mortgages can easily be that much or more. The sad truth about CalSTRS is that almost no one can retire on that alone and continue living in California.

However, rather than calling for better fund managers and increases in state contributions so that benefits could be increased, Gov. Brown has committed to cutting pensions, supposedly to help close the state’s $15 billion deficit. The problem with this strategy is that public sector pensions have hardly any impact on the state budget, especially CalSTRS, where the state only adds an additional 2% over and beyond what the teachers contribute. Furthermore, slashing state contributions would cost the state far more than it would gain—the CTA website says that each $1 in taxpayer contributions to CalSTRS creates nearly $8 in economic output. (Every dollar in a retiree’s pocket is money that can be spent on food, medical care, housing, and leisure).

Ultimately, though, what we should all be demanding is a decent life for everyone, from cradle to grave, including housing, healthcare, good food, and leisure time, especially for our most vulnerable members of society. No one should be forced to move to Mexico or India when they retire just to be able to afford to eat. And no one should be forced to live in austerity now, just to have the chance to retire.

CalSTRS CEO Says: Don’t Mess With Teachers’ Pensions

CalSTRS CEO Jack Ehnes criticized the Little Hoover Commission’s recommendations to slash CalSTRS, the California teachers pension system, calling many of its suggestions naïve or impractical. He also pointed out that many of its premises are wrong. For example, the trouble with the pension has nothing to do with “overly generous” payouts. In fact, teachers are lucky if they get back 60% of what they earned in their highest-earning years of services.

Gov. Jerry Brown (friend of teachers??) has been maneuvering in the back room with several Republican state senators to cut a deal that slashes CalSTRS in exchange for their support in floating a regressive tax extension on the June ballot. The move is completely unnecessary (CalSTRS is NOT in any kind of serious trouble), faces serious legal hurdles, and involves other serious challenges that draw into question its chances of even succeeding.

Brown made a promise to voters (a promise he was in no position to make) that he would hold K-12 funding constant and shield it from further cuts in 2011-2012 IF they approved an extension of current taxes. The problems with this plan are that he needs Republican support to even get the measure on the ballot and then the voters would have to vote for it (which is not a guarantee in these tough economic times). Indeed, voters should NOT vote for it. The plan is regressive and will take a much higher percentage of income from lower income workers than from the wealthy.

For teachers, the plan not only punishes them by cutting into their income (so the rich can continue to enjoy a lower overall tax burden), it also punishes them in the future, by cutting into their retirement. While changes to CalSTRS are most likely to affect new employees more than current employees, there are those who are screaming for across the board cuts to teachers’ pensions.

Another seldom discussed problem with going after teachers’ pensions, especially the two-tiered approach of protecting current teachers while providing decreased benefits to new teachers, is that it weakens the unions. Newer teachers will see how they got screwed and how their unions were complicit in it. They will then be much less likely to support the unions and participate in their campaigns and actions. Two-tiered benefits drive a wedge between workers, creating two different classes, with different interests and allegiances.

John Fensterwald, from the Educated Guess, discusses Ehnes’ critique in the following excerpts from his blog post:  “CalSTRS CEO: Avoid Drastic Change”

“In a letter last week to Daniel Hancock, Little Hoover’s chairman, CalSTRS CEO Jack Ehnes dismissed as “impractical” the watchdog commission’s call for reducing the future benefits of current CalSTRS members and requiring that all public employees join and coordinate their benefits with Social Security.

Both of these ideas have been bandied about in various reform proposals. The five Republican senators [with whom Gov. Brown has been backroom dealing] are reported to advocate requiring new public employees to switch to a hybrid retirement plan similar to one imposed on federal employees a quarter-century ago. It would include a much smaller pension than what current workers receive, accompanied by a 401(k) match of up to 5 percent of their pay and Social Security benefits. Brown is reported to support much milder measures: capping the maximum amount of pensions and banning some of the pension-boosting tricks that have contributed to higher government costs.

Taking a more radical approach, a citizens group, California Foundation for Fiscal Responsibility, is proposing a constitutional amendment permitting the cutting of future pension benefits of current public workers – another of Little Hoover’s recommendations.

Ehnes criticized making drastic changes to all pension systems in response to the problems of a few. The Little Hoover report’s “broad generalizations … do not hold up when applied to specific plans,” starting with the opening assertion that underfunding is due primarily to “overly generous benefit promises, wishful thinking and an unwillingness to plan prudently.” Contrary to being overly generous, Ehnes said, CalSTRS provides “a moderate benefit that replaces approximately 60 percent of pre-retirement income for educators.” (The exceptions, which Ehnes doesn’t mention, are the 2 percent of members – administrators and superintendents – who get pensions of more than $100,000. That’s who Brown is targeting.)

CalSTRS, which serves 852,000 current and retired teachers and school administrators, is rarely mentioned directly in the Little Hoover report. Its focus is on CalPERS, the nation’s largest pension plan, which serves most state employees, and independent county and city pension plans, some of which – Los Angeles, San Diego, and San Jose – may consume a third, half, or even more of municipal budgets in coming years. However, the report’s broad recommendations are intended to apply to all public employees, CalSTRS included.

Although most state public employee unions and some municipal unions over the past year have agreed to higher employee contribution rates and limits on pay for the purpose of determining pensions, governments face legal hurdles to unilaterally reducing the future benefits of current public employees. And in the case of CalSTRS, courts have raised the bar even higher. That’s because, unlike contracts for other state employee unions, only the Legislature can set contribution rates for CalSTRS. A number of court decisions – cited at length by Ehnes – have ruled that current employees have vested rights in guaranteed pensions. They can make changes only in exchange for benefits of equal value, like pay raises. The only exception, Ehnes noted, would be a temporary freeze on accruing pension benefits because of an economic emergency.

The Little Hoover report acknowledges legal obstacles, but says that they may be worth challenging, because changing only the benefits of future employees will not create enough immediate savings. That’s why the California Foundation for Fiscal Responsibility wants to put an initiative to voters. Ehnes calls ignoring clear court rulings on this issue “naïve at best.”