A week after the simultaneous release of my Institute for America’s Future report and Matt Taibbi’s Rolling Stone investigation into John Arnold, huge news hit California: The Enron billionaire whose former company wrecked the Golden State’s economy appears to be using a shadowy Texas front group to now try to loot the Golden State’s public pension system. As the Sacramento Bee reports (emphasis added):
With the first deadline looming for a new public-pension proposal to make the November 2014 ballot, a Texas nonprofit has emerged in a behind-the-scenes battle poised to break into public view next year.
San Jose Mayor Chuck Reed, a Democrat pushing a controversial idea to dial down government retirement benefits, asked a Houston-based group (called Action Now Initiative) to give $200,000 to his local chamber of commerce last summer for “policy analysis for statewide pension reform” according to a report Reed filed in August…
A message left Wednesday with Action Now wasn’t immediately returned, but it shares an address with the Laura and John Arnold Foundation, which was launched in 2008 by a former Enron executive and his wife. Its website lists a number of causes, including “structural changes” to public pensions that are “comprehensive, sustainable and fair.”
Of course, the word “reform,” is now the preferred euphemism for “rip-off scheme.” In the context of pensions, it means pleading poverty to justify cuts to public employees guaranteed retirement income, all while preserving massive corporate welfare and, in many cases, funneling pension cash to Wall Street hedge fund managers.
To paraphrase the Houston front group, such a scheme may be comprehensive, but it is hardly “sustainable and fair” for taxpayers and retirees. Nonetheless, thanks, in part, to Arnold, it has become as much a priority for the Republican Party as for the Wall Street wing of the Democratic Party. Indeed, Arnold bankrolls both parties, and was a key financier of President Obama’s reelection campaign.
As Taibbi’s Rolling Stone piece and my report documented, Rhode Island is the Democratic template for Arnold’s pension-slashing agenda. There, with the backing of Arnold’s cash and the Pew Charitable Trusts, the state’s Wall Street-funded politicians pleaded poverty as a justification to slash retiree benefits. Yet, almost all of the $2.3 billion cut to retirees’ cost of living increases didn’t go to saving the state money; most of it was handed over to billionaire hedge fund managers. Meanwhile, despite the pleas of poverty, the Ocean State apparently had so much cash lying around, reformers preserved the state’s $356 million in annual corporate welfare, including a $75 million headline-grabbing giveaway to former Red Sox pitcher Curt Schilling.
Engineering such a huge and successful corporate heist in the Democratic state of Rhode Island, Arnold now appears to be taking his same road show from the smallest state in the nation to one of the biggest economies in the entire world: the Democratic state of California.
It is a bold move that this young billionaire has been planning for a while. As IRS financial reports show, Arnold has already been funneling money to right-wing groups in California that promote plans to slash retiree benefits. P.R.-wise, the effort has worked; Google “California” and “pension” and inevitably you will be hit with a wave of media sensationalism about how an alleged financial emergency in the Golden State means retiree benefits must be cut (even as far more expensive corporate welfare is preserved). Most of that news coverage doesn’t mention any inconvenient facts that might debunk the hysteria. Here are just three sets of those facts, excerpted from my recent report:
- California’s pension shortfalls were exacerbated not by allegedly unsustainable benefits to retirees, most of whom receive less than $30,000 a year in pension income. The shortfalls happened because Wall Street fraud destroyed the economy, thus driving stock prices — and the value of pension holdings — into the ground.
- Since the financial crisis, California’s pension system has been posting double-digit gains.
- The Sacramento Bee noted in 2011 that compared to other states, California is in decent shape. “With 12 percent of the nation’s population and about that proportion of the nation’s economy,” the paper reported, “(California) had just 6 percent of the nation’s unfunded pension liability.” Meanwhile, state actuaries pointed out that Pew evidently omitted two years of positive investment performance in order to “present a misleading picture of the health of public pension funds.”
Now, it’s true, California’s pensions still have a gap. But even if you assume Pew’s own numbers are correct and that California has a 30-year, $183 billion pension and retiree healthcare shortfall, that’s still only a $6.1 billion annual shortfall.
Before you scoff at the use of the word “only,” consider a few more facts. Arnold, Pew and conservatives are insinuating that their pension-slashing initiatives are necessary because California supposedly doesn’t have that $6.1 billion to fully fund its pension obligations. What they don’t want you to know is that California is each year giving away far more than that to the reformers’ business cronies in the form of corporate welfare.
As the Sacramento Bee reports, the state today spends $45 billion every year on tax expenditures — and as the Los Angeles Times shows, much of that is wasteful handouts to corporations.
Put the pension and subsidy numbers together, and you see the bait and switch. You see that in just five years, California spends more on tax expenditures than the value of its entire 30-year pension shortfall. You therefore see that the pension “reformers’” pleas of poverty are deliberately dishonest. Their propaganda aims to preserve the corporate handouts by pretending the only possible budget solution is one that exclusively slashes guaranteed retirement income. That propaganda forwards the wrongheaded assumption that somehow there’s no possible way to raise public revenues for pension systems by simply reducing the corporate welfare and putting the recovered resources back into the retirement system.
In states where Arnold has operated, the end result is usually that retirement benefits are cut in order to keep financing the corporate subsidies. And in some states like Rhode Island — and now, possibly, California, depending on Arnold’s specific ballot initiative language — reformers additionally press to use some of the remaining pension money to pay newly mandated Wall Street fees for “alternative investments.”
Arnold almost certainly knows that because of the size of its economy, California often sets standards for the rest of the country. He therefore knows that if he can do to California what he did to Rhode Island, it could create a pension-slashing domino effect in other states. And like Enron a decade ago, Arnold and other conservatives also know that with the right scheme in place, California can be a huge private profit opportunity. With a quarter-trillion-dollar pension fund on the line, they are absolutely right.