The CalSTRS board held its first meeting in a new $265 million showcase building on the Sacramento River not with balloons and champagne, but amid worry about budget cuts and criticism of public employee pension funds.
A governor’s order imposing a 14 percent pay cut through three furlough days per month is said, in the case of CalSTRS, to be sapping morale and causing some employees to leave without helping the red ink-ridden state general fund.
The board members also talked about ways to let the public know that CalSTRS, unlike some other public employee retirement systems, acted “responsibly” and did not lower retirement ages and boost pensions that threaten to drain government budgets.
CalSTRS has been around since 1913.
But the move from a modest three-building complex in the suburbs to a prominently located sleek high-rise tower, topped by a “CalSTRS” sign, is a symbolic coming of age for what has become the nation’s second largest public pension fund. (To see a CalSTRS photo essay of the new building, click here.)
The new home of the California State Teachers Retirement System is a contrast in conspicuous consumption to the low-rise headquarters of the nation’s largest public pension fund, the California Public Employees Retirement System, located across the river.
A new CalPERS building that opened in 1986, shrouded in shrubbery, was only identified by a sign out front saying “Lincoln Plaza,” until a $265 million annex opened in 2005 with a modest street level sign identifying the occupant.
The new CalSTRS building, “green” with energy-saving devices and recycled material, came in on time and under budget. Officials said in January that the annual CalSTRS operational and rent expense will increase from $6.8 million to $22.9 million.
The large new CalSTRS building, a 13-story office tower on top of a five-story garage, has a comparatively small board room. The CalPERS board meets in a large auditorium with theater-style seating.
About half of the CalSTRS board room is occupied by the dais where the board members sit and staff desks. For the audience there are about 60 high-end folding chairs with writing surface extensions. More chairs are stacked along the walls, ready if needed.
The CalSTRS board room has sophisticated audio-visual equipment. Sound can be picked up throughout the room. Board meetings are televised, but only to staff within the building.
The CalSTRS board, concerned about inhibiting discussions, decided to stream only live audio of board meetings over the Internet. Video recordings of meetings will be available to the public at the CalSTRS building.
A number of state and local government agencies routinely offer live and recorded Internet video of meetings. Still, CalSTRS is providing more public access than CalPERS, which does not offer either live or recorded versions of board meetings.
At the first meeting in the new building, the CalSTRS chief executive officer, Jack Ehnes, told the board yesterday (Aug. 12) that the cost-cutting furloughs ordered by Gov. Arnold Schwarzenegger have “taken an ugly turn” for CalSTRS.
He said several employees, including skilled accountants, have been hired or “poached” by the state treasurer and controller. Those offices are held by elected officials who rejected the governor’s furlough order, but have made other budget cuts.
In addition, said Ehnes, the furlough pay cuts are an issue as CalSTRS conducts a national search for two high-level investment positions in private equity and mortgage-backed securities.
He said member calls not answered on furlough Fridays create a backlog on Mondays, some investment officials on “self-directed” furloughs are owed 46 days off that will be disruptive at some point, and lengthy projects are one to three months behind.
“The most important of all is just the morale,” said Ehnes. “There is no doubt having us open this headquarters in July was a lift to our spirits — having great food (new cafeteria) alone was good for all our spirits — but this is bittersweet.”
CalSTRS operates with its own special funds. The estimated $9.4 million in annual savings from the furloughs helped produce an $18 million surplus for CalSTRS, but did not help the deficit-ridden state general fund.
“From our vantage point since the savings don’t accrue to the general fund it’s obviously causing a friction in the system,” Ehnes said. “From the other vantage point, it is obviously a share-the-pain philosophy.”
He suggested that legal action might be discussed in a closed-door session. The furlough order was defended by board member Tom Sheehy, the governor’s chief deputy finance officer.
Sheehy said the governor expects to prevail in lawsuits to impose furloughs for the offices of the treasurer, controller and attorney general. Meanwhile, he said, the offices only have a limited number of vacancies.
Exemptions from the furlough order can be requested for the two investment positions intended to be filled by a national search, he said, and a number of other states have their own budget problems, including New York.
Sheehy said furloughs for most special fund agencies help provide money that the cash-strapped state can borrow internally, reducing borrowing costs. But the state cannot borrow from CalSTRS.
He said that furloughs for all state agencies also prevent the kind of pay advantage, cited by Ehnes, that apparently caused some CalSTRS employees to move to the treasurer and controller offices.
“CalSTRS is not an island,” said Sheehy. “I’m sure morale is real. It’s unfortunate, but this is the life we chose and this is the boat we are in — and we are going to be in this boat for awhile.”
Several board members, citing their hometown newspapers, said they were concerned that CalSTRS may be unfairly included in broad criticism of public employee retirement systems that have lowered retirement ages and boosted benefits.
Some systems took “contribution holidays,” putting little or no money into the pension fund when investment earnings soared, and others granted retroactive benefit increases for which contributions had not been made.
In contrast, some of the story the board wants told about CalSTRS members: 71 percent are female, they do not receive Social Security, they do not receive retiree health care from employers, they work an average 29 years as educators, and the median pension replaces 62 percent of pay.
Like other pension funds, CalSTRS is underfunded, particularly after the stock market crash. But unlike nearly all California public pension funds, CalSTRS cannot set its own contribution rates, needing legislation instead.
The board members urged Ehnes to prepare “talking points” that can be used to make the case for CalSTRS in public forums and on the CalSTRS website.
“I think the story we have to focus on is that we have been responsible,” said Sheehy. “I don’t know the politically correct way to say that, but we do get dragged down by all the other public pension funds that are out there when they do irresponsible things.”
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at https://calpensions.com/ Posted 13 Aug 09