This piece was co-authored by Dr. Wallace Walrod, Vice President of Economic Development & Research, Orange County Business Council.
I serve on a local business advisory committee to the South
Coast Air Quality Management District-folks charged with clearing the air for
better health and visibility.
They’ve done a good job over the last 40 years. The air quality of Southern California has
gotten much better even with major population growth and economic
But there is always one more rule to impose, one more
particulate to regulate, one more greenhouse gas to consider-it’s government’s
job to do that-and one more business fails to grow or simply folds under the
weight and cost of compliance. Not just air
quality but add the tens of thousands of regulations, fees and taxes coming out
of numerous local, state and federal agencies today. And millions of folks out of work, a stagnant
economy in California, and a bottom-ranking on any objective list as the
nation’s "worst place to do business."
As a result, California suffers continuing annual $27
billion dollar budget shortfalls, government employees’ pensions at risk of funding
shortfalls, ballot measures, tax-increases/extensions.
You get the picture.
So I asked one government employee the other day, "Do you
know where your CalPERS or CalSTRS pension money is being invested?" "No, never thought about it," he said. "Stocks, bonds, mutual funds, real estate,
investments in BUSINESS," said I. "CalPERS
and CalSTRS are invested in every type of business-from oil to medical
to tech to manufacturing, small and large.
And every time a new regulation or tax is passed impeding business
growth, you inflict another wound to your own personal wealth creation, your
own pension security."
Lost in translation is the fact that CalPERS is one of the largest
investors in stocks of California companies and other California investment vehicles.
As of December 31, 2010, approximately $23.2 billion, or 10.3 percent of
CalPERS total assets, are invested in California. $7.5 billion is
invested in the stocks of California companies, $5.8 billion in fixed
income, $5.4 in AIM (Alternative Investment Management such as private equity
and venture capital), and $4.5 billion in California real estate.
For example, from the CalPERS website: "The CalPERS
Nationwide Single Family Housing Program and Member Home Loan Program, and our
private equity investments through limited partnerships that are either
headquartered in the State or have charters to invest in California, are just a
few examples of programs designed to provide superior risk-adjusted returns for the
System and invigorating support for the State’s economy." (Emphasis
However, due to this state’s miserable business climate and
regulatory environment, CalPERS investments will not generate "superior
returns" in its California equity or real estate investments. CalPERS
recently debated whether to decrease further its projections. While CalPERS unfortunately does not break
out returns on its California portfolio, the likelihood is great that these
investments are producing substandard returns, leading to an overall
underperformance and making the pension gap larger by the day.
A significant part of the solution could simply be fixing
California’s overall regulatory environment and business climate issues,
therefore paving the way to increased CalPERS and CalSTRS returns over the long-term.
A first step would be to perform a study on the actual
investment return/performance of CalPERS and CalSTRS California investments,
and see where opportunities are for improving that performance in our own
When business thrives, it pays taxes, hires folks who pay
taxes, and government receives legitimate funding for its programs, public
employees, and pension benefits.
Everyone wins. California’s
self-inflicting wounds must stop. To
grow business, and directly benefit government employees and their pension
investments, cut those regulations, stop those crazy pieces of legislation, limit
litigation, and incentivize jobs creation for a thriving economy.
Clearing the air in this state could take on a whole new
meaning. How refreshing.