Hear-no-evil Senate rejects pension fund dissident

Sacramento Bee, 6/13/06.

By Daniel Weintraub — Bee Columnist

Few Californians will ever know or care about David Crane and his short, tumultuous tenure on the governing board of the pension fund that manages retirement benefits for the state’s public schoolteachers.

But Crane’s story is instructive, because it shows just how difficult it is going to be to fix not only the teachers’ retirement system, but all public employee retirement funds in California, which together are facing tens of billions of dollar in unfunded liabilities.

Gov. Arnold Schwarzenegger appointed Crane to the California State Teachers’ Retirement System board a year ago. Last week, he was knocked off the board when the state Senate refused to confirm him.

Crane is a self-made millionaire who spent 25 years as a partner with Babcock & Brown, an international financial firm based in San Francisco. During his time at the company, it grew from four to 400 employees. He is a longtime friend of Schwarzenegger and serves the governor as an economic policy adviser.

Although Crane is a Democrat, he was dumped by the Democrats in the Senate because he was not sufficiently protective of the status quo, a condition that has put the teachers’ retirement fund more than $20 billion in the red. He was not exactly a crusader for change. But he did raise questions that some people would rather not have to answer just now.

Crane’s greatest offense, according to his critics, was voting to keep the board neutral on a proposal to reform public pensions in California for future government employees. The majority of the pension board voted to oppose the legislation. Crane argued that the board should take no position on the bill. But even that mild dissent from the prevailing doctrine was too much. He had to go.

The bill would create hybrid retirement plans for all new government employees in California. Part of the benefit would be a guaranteed pension, similar to what most public employees get now, only smaller, and most employees would not be eligible for a full pension until age 65. The other part of the benefit would be an individual account into which both the employee and the employer would contribute. It would be invested in stocks and bonds and would be owned by the worker.

An analysis of the proposal for the pension board found that it would give teachers who worked until age 65 a pension within the range of what experts believe a person needs in retirement. Some teachers who came to the profession late in life or left early might actually do better than similarly situated employees today, because they could take their individual retirement account with them.

Again, this would be for new employees only. No current employee or retiree would be affected at all by the proposal. Their benefits are guaranteed by contract and are an obligation of the taxpayers.

But the teachers unions and some members of the pension board who opposed the reform on ideological grounds argued that it would harm current members because it would deprive the pension fund of new blood by diverting future hires to a different system. That was probably a misreading of the proposal. But even if it were true, it wouldn’t matter. The taxpayers are still obligated to pay all the pension benefits already promised to current and retired teachers. No bill passed by the Legislature or the voters can change that.

The board, citing this threat, voted to oppose the bill. Crane and one other member voted to remain neutral.

But while that vote was cited as the reason for Crane’s removal from the board, the real issue is much larger than Crane, bigger than one vote on one bill. It’s the question of how and when California’s public agencies are going to come to grips with retirement benefits, not only pensions but also health care, that have outstripped the taxpayer dollars set aside to fund them.

This is not so much a question of whether future public employees deserve the same level of benefits already granted to current employees. It’s a question of whether we can afford to continue to make that level of commitment, and if so, what we are going to give up in order to do it.

Senate President Pro Tem Don Perata called Crane a “tremendously creative” and “very talented” financial entrepreneur. But in opposing his confirmation, Perata said Crane’s “high-octane” qualifications were too much for the low-key pension board. He said the bigger issues Crane worries about were not the concern of the board but more properly the province of lawmakers and the governor.

“He’s got a lot of views that would not make a lot of people in that fund very comfortable,” Perata said. “It’s just a bad fit.”

It’s well past time for everybody involved with public pensions to get a little bit uncomfortable. If Crane made people squirm, that seems like a good reason to keep him on the board, not a cause for his dismissal.

Silencing people who are willing to confront difficult problems is not going to make those problems go away. It might even make them worse.