When members of a government board take a vote that brings them personal financial gain, that’s generally called unethical, or even illegal.
But on California’s public-employee pension board, it’s standard procedure, practically guaranteed by the makeup of the board — and required by the state Constitution.
Gov. Jerry Brown, who came into office this year with pension reform as his top priority, announced a plan Oct. 27 that might be a game-changer. Although State Senate Republican leader Bob Huff introduced legislation Feb. 22 encompassing Brown’s plan, the bill faces daunting legal and political obstacles, however – the fiercest posed by public employees themselves.
Understanding how the California Public Employees’ Retirement System, (CalPERS), operates can go a long way toward devising solutions not only at home in the nation’s largest pension system, but across the country.
inewsource, a journalism nonprofit based at San Diego State University, delved into the legal and practical intricacies of the pension system and found that while some reforms have been implemented over the years, built-in conflicts of interest can only mean bigger bills for the taxpayers now and in the future.
“What the boards have been doing is sugar-coating the risk and the cost of benefits in order to encourage the highest benefits possible to members, and then when things go awry, they do a tap dance,” said Marcia Fritz, a C.P.A. and president of the pension reform group California Foundation for Fiscal Responsibility.
Most people didn’t pay a lot of attention to public pensions when the funds were flush. But since the bottom fell out of the economy starting in the fall of 2007, it’s tough to find anyone in California who doesn’t know the taxpayers are in a deep hole. The unfunded liabilities for pensioners are an estimated $181 billion.
A lot of people are piping mad about the debt, scandals and sky-high pensions some individuals are collecting.
The state’s political watchdog fined 16 CalPERS officials on Sept. 22 for failing to report gifts. That paled compared with the state Attorney General’s $95 million lawsuit against former CalPERS board member Alfred J.R. Villalobos. It accused him of securities fraud for hiring former chief executive Federico Buenrostro, Jr., to pressure the board to invest in companies Villalobos represented, collecting more than $70 million in fees as a placement agent. A report for CalPERS in March said the two were still under investigation on possible criminal charges.
Finally, stoking the taxpayers’ ire is the list of people collecting pensions of $100,000 or more. The top figures are so dazzling that it’s difficult to see that the average retired state worker lives on a pension of about $26,400 a year.
Only 2 percent of public employee retirees get more than $100,000. However, that 2 percent collect 7 to 9 percent of the benefits.
Colossal gains
Even after taking a haircut in 2007 and 2008, CalPERS remains the 500-pound gorilla of pension funds, able to move markets with more than $236.5 billion in assets serving 1.6 million members, including many local as well as state government workers, as of Feb. 28. Next in line: California State Teachers Retirement System, (CalSTRS), which reported a $148.9 billion fund and more than 852,000 members on Jan. 31.
But both state pension funds face gaps in funding for pension payouts now and for years to come. How this happened can be explained only in part by the bursting of the real estate bubble and the stock market crash.
It can be traced back to 1984, when voters passed Proposition 21.That removed restrictions that said the pension funds had to maintain 75 percent of their investments in bonds. Suddenly, all bets were on, and the funds rode the stock market with impressive results.
The surplus at CalPERS caught the attention of politicians coping with a state budget deficit. “They’ve got green eyes,” longtime board member Robert Carlson told Pensions & Investments in 2007. He was there in 1991, when then-Gov. Pete Wilson tried to raid the pension funds. Labor unions reacted by successfully backing Proposition 162, which in 1992 made beneficiaries the pension board’s priority.
“Prior to that there had been a balance, where they were supposed to protect taxpayers and also supposed to protect the members,” said Ed Mendel, who developed expertise in the state’s pension funds through covering California government for nearly three decades and now reports on them in the Calpensions blog. “What Proposition 162 said was, from now on, first and foremost you protect the members.”
That legal change protected pensions from a governor’s hungry eyes and would maximize pensioners’ benefits, but it meant that nobody on the board had the taxpayers’ backs. Six of the 13 board members are current or former public employees elected by their peers, and they’re present or future beneficiaries of the system. The rest are appointees, or they serve because of their job or elected office.
Joe Nation, a professor in Stanford University’s Public Policy Program and a former state Assembly member, is among those questioning the makeup of the board. He said he’s heard about the conflicts of interest first-hand.
“I will tell you what staff members have whispered to me on a couple of occasions: ‘Look, we’re trying to do the right thing here, but we have a board that doesn’t always let us …’ ”
For example, Nation said staff members told him that the board in March 2011 projected a higher rate of return on investments than the staff believed was realistic.
“And part of the reason they did it, I believe,” Nation said, “is the board has a large number of public employee representatives, and they are directly impacted by what the predicted rate of return is through the contributions they have to make.” In other words, the bigger the yearly estimate of how much investments will grow over time, the smaller the amount workers and their employers (the state or other government entities) have to contribute to the pension fund each month.
But if reality falls short of the predictions, the taxpayers have to fill the gap. That void is estimated at $4 billion this fiscal year.
Fritz believes that if more board members were independent, they would see their obligation as ensuring the long-term health of the funds, “not ensuring the highest possible benefit is awarded to every member.”
Benefit boosts and scandals
In 1999, the legislature passed a bill that increased pension payments. California Highway Patrol officers got a 50 percent boost, and other changes enabled some workers to retire at age 50 with pensions amounting to as much as 90 percent of their last salaries.
The bill, which initially provided for a modest increase in benefits to widows and orphans of state workers, slipped under the radar, passing easily, with assurances from CalPERS.
“They said it was going to cost nothing — zero dollars,” recalled Dede Alpert, who represented the San Diego region in the state Legislature from 1991 to 2004. “I’m not an expert, but I’ve seen the economy go up and down … To think it would always be rosy — we must have been crazy.”
At least lawmakers weren’t voting in their own interest, she noted. Those elected from 1990 on lost their generous pension and health benefits when term limits were established.
Scandals in the pension system prompted reforms, such as legislation requiring placement agents like Villalobos to register as lobbyists. That legislation, Assembly Bill 1743, took effect Jan. 1, 2011.
On Oct. 7, Gov. Brown signed legislation that extended a cooling-off period from one year to 10 years for former pension board members and executives who might get paid as placement agents for CalPERS or CalSTRS.
One avenue for potential influence that hasn’t been closed is campaign contributions. In particular, unions have donated to campaigns of board member candidates elected from the ranks of workers and retirees as well as the two elected state officials serving on the board: State Controller John Chiang, who got relatively low amounts of campaign money from unions, and State Treasurer Bill Lockyer, whose contributions from unions were substantial.
Mendel, the Calpensions blogger, said CalPERS deserves some credit for toughening certain restrictions and for releasing – without a fight — information about its top pension recipients.
Risky bets
In addition to problems of its own making, there have been others beyond the pension system’s control. One is higher salaries. Another is state workers retiring younger and living longer. That not only extends the period when they collect pensions; it increases health insurance costs substantially until they qualify for Medicare. CalPERS provides generous health plans that might cost $24,000 a year for a worker and a spouse in their late 50s or early 60s.
These rising costs in a difficult investment market have led CalPERS to make higher-risk investments in search of greater growth in the funds. In the past year, the fund’s chief investment officer, Joseph A. Dear, has spoken openly about the pressure to deliver profits that far exceed recent market returns.
As part of its new strategy, CalPERS is not only turning to riskier private equity and hedge funds but also investing farther from home. Not surprisingly, international investments make sense to Laurence Fink, who heads a global investment management firm that manages $1 billion in assets for CalPERS.
However, that means the biggest investment fund in the country will be putting its money to work creating companies and jobs overseas when nearly one out of 10 Americans can’t find work, he told Moneynews in September. “Is that good for the U.S.?”
Many questions about pensions for state workers are up for debate now that Brown has revealed his plans for narrowing the pension funding gap, and Fritz said taxpayers are eager to weigh in.
“I have been told by pollsters … that they have never seen an issue where people will answer every question, where they will keep the pollster on the phone to talk about it more,” she said. “There’s something going on; the people are very engaged in this.”
inewsource is a nonprofit, nonpartisan newsroom dedicated to improving lives in the San Diego region and beyond through impactful, data-based investigative and accountability journalism.
Our Vision
Betrayals of the public trust are revealed and rectified, wrongdoing is deterred, and inequities are illuminated thanks to inewsource’s deep, dogged, fact-based reporting.
Our Values
Truth: Above all else, we value the importance of a free and credible press. Truth is the cornerstone of democracy and the core value for inewsource.
Transparency: We build trust with our readers by adhering to the highest standards and ethics, and to reporting with facts, precision and context.
Collaboration: Our newsroom prioritizes collaboration over competition. We regularly partner with media outlets on reporting projects and to share content.
Community: Our reporting serves the San Diego region, and we strive to build relationships with our audience by getting out into the community to listen and engage.
Ethics Policy
inewsource will conduct its business with the highest standards of decency, fairness and accuracy. These standards shall apply equally to inewsource employees, freelancers and all others engaged in gathering information on behalf of inewsource. All receive a copy of these ethical standards.
In the course of our reporting, we will consistently:
● Identify our organization and ourselves fully and avoid false representations of any kind to any source.
● Obtain consent from all parties before electronically recording any interview or conversation except in extraordinary cases authorized by the Managing Editor and Editor. If a source refuses to be taped, that must be honored; no recordings are to be made without consent.
● Respect the individual’s right to privacy. inewsource will never manipulate or barter private, personal, health, financial or other extraneous information in the course of preparing its reports.
● Any source we describe or write about in any significant manner must be contacted. The employee should document all efforts to contact the source, and if unsuccessful, should summarize these efforts at contact in the body of his/her writing.
In addition, inewsource follows the Code of Ethics of the Society of Professional Journalists. The latest version, revised in 2014, can be found here.
Our organization retains full authority over editorial content to protect the best journalistic and business interests of our organization. We will maintain a firewall between news coverage decisions and sources of all revenue. Acceptance of financial support does not constitute implied or actual endorsement of donors or their products, services or opinions.
We accept gifts, grants and sponsorships from individuals and organizations for the general support of our activities, but our news judgments are made independently and not on the basis of donor support. Our organization also may consider donations to support the coverage of particular topics, but our organization maintains editorial control of the coverage. We will cede no right of review or influence of editorial content, nor of unauthorized distribution of editorial content.
Our organization will make public all donors who give a total of $1,000 or more. We will accept anonymous donations for general support only if it is clear that sufficient safeguards have been put into place that the expenditure of that donation is made independently by our organization and in compliance with INN’s Membership Standards.
Diversity
Diverse Voices
Inclusiveness is at the heart of thinking and acting as journalists, and it supports the educational mandate of inewsource. Race, class, generation, gender, sexual orientation, ability, and geography all affect point of view. inewsource believes that reflecting societal differences in reporting leads to better, more nuanced stories and a better-informed community.
inewsource is committed to employment equity and diversity.
Diverse Staffing Report
Below is a breakdown of staffing data at inewsource. We determine the composition of our staff by asking them to self-identify. It is based on a newsroom of 11 and a total staff of 15 as of August 2020. Percentages are based on 15 total survey responses. The numbers include full-time and part-time staff, full-time fellows and full-time and part-time interns.
All Staff Percentages are based on 15 total survey responses. The numbers include full-time and part-time staff, full-time fellows and full-time and part-time interns.
Newsroom Percentages are based on 15 completed survey responses to this question.
Business Percentages are based on 15 completed survey responses to this question.
Gender Identity
Gender Identity
Gender Identity
Women
80%
Women
82%
Women
75%
Men
20%
Men
18%
Men
25%
Sexual Orientation
Sexual Orientation
Sexual Orientation
Straight
87%
Straight
82%
Straight
100%
LGBTQ-identifying
7%
LGBTQ-identifying
7%
Not specified
7%
Not specified
7%
Speak a language beyond English at home
33%
Speak a language beyond English at home
18%
Speak a language beyond English at home
75%
Race/Ethnicity
Race/Ethnicity
Race/Ethnicity
White
67%
White
73%
White
50%
Hispanic or Latinx
20%
Two or more races
18%
Hispanic or Latinx
50%
Two or more races
13%
Hispanic or Latinx
9%
Age
Age
Age
20-29
40%
20-29
45%
20-29
25%
30-39
47%
30-39
45%
30-39
50%
60 or older
13%
60 or older
9%
60 or older
25%
* The percentages in the charts have been rounded and may not add up to 100.
Ownership Structure, Funding and Grants
inewsource is a nonprofit organization, whose legal name is Investigative Newsource. It does business as inewsource. The business was incorporated on Aug. 4, 2009 in the state of California. Tax-exempt status as a 501c3 was granted by the IRS on Sept. 15, 2010. inewsource is funded primarily by individual contributions and foundation grants. We are guided by a board of directors.
Editorial independence: Journalists employed by inewsource take no editorial direction from donors whose contributions may support the organization. inewsource will not hesitate to report on its donors when events warrant. Our Editorial Independence Policy details the firewall between journalism and revenue.
To be transparent with the public, inewsourcelists its donors on its website. In cases where a donor is the subject of an inewsource story, additional disclosure will be made.
Financial Documents
We do our due diligence to earn your trust in our reporting, as well as in our governance and financial sustainability. All of our financial documents are made available to view so that our supporters can trust we are sound stewards of your philanthropy. Review our IRS Form 990s, audited financial statements and annual reports:
Transparency is one of our core values. Today, there is a need to build trust with our audience because new media and ways of communicating spread lies and slanted news faster than “real” news. At the same time, this era of new technologies makes it easier than ever for news organizations to be transparent. People don’t just have to believe us, they can investigate our investigations with our source materials.
Transparency is key to building credibility.
inewsource reporters have primary responsibility for reporting, writing, and fact-checking their stories. But before a story is published, the reporter reviews all facts and sources with an editor or another reporter. Facts must be traced to a primary source.
In addition, we “transparify” certain investigative stories. This process involves publishing a version of the web story with hyperlinks to all the story’s facts. This is proof that all facts have been documented with primary evidence. We do this to build trust with our readers and to be as transparent as we hope the public figures and institutions that we hold accountable will be.
Unnamed Sources
Not all sources are created equal. Some sources cannot speak authoritatively, provide proper analysis or speak specifically to every inquiry placed before them. To maintain the integrity of our reporting, inewsource reporters must select sources who can speak with validity to the topic at hand, and avoid presenting unqualified or underqualified sources as experts.
If an interviewed source has a conflict of interest, or whose qualifications may be tangential or limited, reporters will note that within the context of the story.
It is incumbent upon reporters to fully background their sources to uncover conflicts of interest or slant prior to using them in a story.
Unless discussed prior to an interview, all subjects talking to inewsource journalists are on the record. Specifically, the source is identified by name and title, and their exact or paraphrased words are attributed to them for publication. If journalists speak with sources who are not politicians, public figures or those not commonly interviewed by journalists, staff should explain clearly that information discussed will be on the record and for publication.
There are times, however, when information may be critical for a story but cannot be found or verified by other means. For example, a source may be able to confirm specific information about a series of events they may have witnessed, but have legitimate concerns about using their name or title. The repercussions to the source could be legal, job-related retribution or personal safety. The source and journalist must discuss these potential dangers and terms of use should be agreed upon by both parties.
If inewsource publishes information from an anonymous source, inewsource will explain to readers, in as much detail as possible, why we agreed to anonymity.
Corrections and Clarifications
inewsource strives for accuracy in everything we do, which is why we are committed to fact checking our content. But sometimes we make errors. When that happens, we correct them. We also clarify stories when something we’ve written is confusing or could be misinterpreted.
We endeavor to always be transparent about our commitment to correcting errors and clarifying misperceptions. When staffers see, hear or read about a possible issue with the accuracy of any inewsource content, they are expected to bring it to the attention of an editor and the web producer so it can be evaluated to determine how to proceed.
Including the web producer is key because inewsource is a multimedia news organization and shares its content with multiple partners on multiple platforms. The web producer must alert these partners about corrections and clarifications.
Corrections and clarifications should be included at the bottom of stories and dated.
Actionable Feedback and Newsroom Contacts
Our audiences know the region we cover and have a stake in maintaining and improving the quality of life in San Diego and Imperial counties. We know your knowledge and insights can help shape what we cover and how we cover it. We invite your comments and complaints on news stories, suggestions for issues to cover or sources to consult. We rely on you to tell us when we get it right and when we need to keep pushing.
Your comments, questions and suggestions can be sent to the team as a whole at contact@inewsource.org or you can contact a specific member of our staff.
Lorie Hearn is the chief executive officer, editor and founder of inewsource. She founded inewsource in the summer of 2009, following a successful reporting and editing career in newspapers. She retired from The San Diego Union-Tribune, where she had been a reporter, Metro Editor and finally the senior editor for Metro and Watchdog Journalism. In addition to department oversight, Hearn personally managed a four-person watchdog team, composed of two data specialists and two investigative reporters. Hearn was a Nieman Foundation fellow at Harvard University in 1994-95. She focused on juvenile justice and drug control policy, a natural course to follow her years as a courts and legal affairs reporter at the San Diego Union and then the Union-Tribune.
Hearn became Metro Editor in 1999 and oversaw regional and city news coverage, which included the city of San Diego’s financial debacle and near bankruptcy. Reporters and editors on Metro during her tenure were part of the Pulitzer Prize-winning stories that exposed Congressman Randy “Duke” Cunningham and led to his imprisonment.
Hearn began her journalism career as a reporter for the Bucks County Courier Times, a small daily outside of Philadelphia, shortly after graduating from the University of Delaware. During the decades following, she moved through countless beats at five newspapers on both coasts.
High-profile coverage included the historic state Supreme Court election in 1986, when three sitting justices were ousted from the bench, and the 1992 execution of Robert Alton Harris. That gas chamber execution was the first time the death penalty was carried out in California in 25 years.
In her nine years as Metro Editor at the Union-Tribune, Hearn made watchdog reporting a priority. Her reporters produced award-winning investigations covering large and small local governments. The depth and breadth of their public service work was most evident in coverage of the wildfires of 2003 and then 2007, when more than half a million people were evacuated from their homes.
Laura Wingard is the managing editor at inewsource. She has been an editor in San Diego since 2002, working at The San Diego Union-Tribune, KPBS and now inewsource. At the Union-Tribune, she served in a variety of roles including as enterprise editor, government editor, public safety and legal affairs editor, and metro editor. She directed the newspaper’s award-winning coverage of the October 2007 wildfires and the 2010 disappearance of Poway teenager Chelsea King. She also oversaw reporting on San Diego’s pension crisis.
For two years, Wingard was news and digital editor at KPBS, overseeing a team of four multimedia reporters and two web producers. She also was the KPBS liaison with inewsource and collaborated with inewsource chief executive officer and editor Lorie Hearn on investigative work by both news organizations.
Wingard also worked at the Las Vegas Review-Journal as the city editor and as an award-winning reporter covering the environment and politics. She also was the assistant managing editor for metro at The Press-Enterprise in Riverside. She earned her bachelor’s degree at California State University, Fullerton, with a double major in communications/journalism and political science.
Brad Racino is the assistant editor and a senior reporter at inewsource. He has produced investigations for print, radio and TV on topics including political corruption, transportation, health, maritime, education and nonprofits.
His cross-platform reporting for inewsource has earned more than 50 awards since 2012, including back-to-back national medals from Investigative Reporters and Editors, two national Edward R. Murrow awards, a Meyer “Mike” Berger award from New York City’s Columbia Journalism School, the Sol Price Award for Responsible Journalism, San Diego SPJ’s First Amendment Award, and a national Emmy nomination.
In 2017, Racino was selected by the Institute for Nonprofit News as one of 10 “Emerging Leaders” in U.S. nonprofit journalism.
Racino has worked as a reporter and database analyst for News21; as a photographer, videographer and reporter for the Columbia Missourian; as a project coordinator for the National Freedom of Information Coalition and as a videographer and editor for Verizon Fios1 TV in New York. He received his master’s degree in journalism from the University of Missouri in 2012.
Byline Policy
Most of our articles carry a byline to identify the author. In some cases, inewsource will use a brand byline such as “Staff” or “inewsource” for internal or editorial information about the newsroom. In these instances, inewsource‘s Editor and Managing Editor are responsible for content that uses a brand byline.
The Trust Project
inewsource is proud to be a member of The Trust Project and support efforts to increase transparency in journalism by displaying the 8 Trust Indicators on our stories. We launched the Trust Indicators on Sep. 16, 2020.
Privacy Policy
inewsource has prepared this Privacy Policy to explain how we collect, use, protect, and share information when you use our inewsource.org website (the “Site“) or when you use any of our services (the “Services“).
By using the Site or Services you consent to this Privacy Policy.
Log Data
Like many site operators, we collect information that your browser sends whenever you visit our site (“Log Data”).
This Log Data may include information such as your computer’s Internet Protocol (“IP”) address, browser type, browser version, the pages of our site that you visit, the time and date of your visit, the time spent on those pages and other statistics.
Cookies
Cookies are files with small amount of data, which may include an anonymous unique identifier. Cookies are sent to your browser from a web site and stored on your computer or mobile device.
Like many sites, we use “cookies” to collect information. You can instruct your browser to refuse all cookies or to indicate when a cookie is being sent. However, if you do not accept cookies, you may not be able to use some portions of our site.
Certain pages on our site may set other third party cookies. For example, we may embed content, such as videos, from another site that sets a cookie. While we try to minimize these third party cookies, we can’t always control what cookies this third party content sets.
Additionally, we may use third party services — such as those that provide social media conveniences, measure traffic, send newsletters and facilitate donations — that may place cookies on your computer. We don’t have any way of knowing how such services handle the resulting data internally. inewsource makes no claim, nor takes liability for the insecure submission of information via these applications.
Here are the services whose cookies you can find on inewsource.org:
Sharing buttons for Facebook and Twitter. These use the standard scripts provided by each company.
Google Analytics, which we use to measure site traffic. Google Analytics gathers certain non-personally identifying information over time, such as your IP address, browser type, internet service provider, referring and exit pages, time stamp, and similar data. We also use Facebook Pixel to measure, optimize and build audiences for advertising campaigns served on Facebook. In particular it enables us to see how our users move between devices when accessing our website and Facebook, to ensure that our Facebook advertising is seen by our users most likely to be interested in such advertising by analyzing which content a user has viewed and interacted with on our website.
Stripe, which allows us to accept donations through our website.
Salesforce to manage newsletter subscriber, donor, and other identifiable user data.
Mailchimp, to manage newsletter distributions. We collect your email address if you choose to subscribe to one of our email newsletters or email news alerts. Other optional information that you enter when subscribing – such as your first and last names or city are simply so that we can deliver more personalized email newsletters. We DO NOT sell, rent or market your information to any other parties. We retain your information only as long as necessary to provide your service. When we send emails, it collects some data about which users open the emails and which links are clicked. We use this information to optimize our email newsletters and, as aggregate information, to explain what percentage of our users open and interact with our newsletters.
Personal Data
We only collect personally identifiable information such as your name and email address when you sign up for a newsletter, donate to our organization, or otherwise submit it to us voluntarily. We do not share your personal data with any third parties other than some common service providers, whose products use your information to help us improve our site, deliver newsletters, or allow us to offer donation opportunities.
inewsource limits access to all user data for the purposes of newsletter, fundraising, and customer service only. User data is not sold to or otherwise shared with anyone not working with or for the inewsource.
You may unsubscribe or opt-out of our email and mail communications at any time by hitting the “unsubscribe” button in any email you receive from inewsource, or by emailing us at contact@inewsource.org or calling us at 619-594-5100.
Donor Information
The identities of all donors will be listed on our website. inewsource does not share, trade, sell, or otherwise release donors’ personal information to any third parties.
Refunds
If you encounter errors when donating on the website, please contact us at members@inewsource.org. For example, if you submit a donation for an incorrect amount or make a duplicate transaction please email us immediately so we can reverse the charges.
Cancellation of Recurring Donations
You can cancel your monthly recurring donations free of charge by notifying us at members@inewsource.org.
Links to Other Websites
Our site may contain links to documents, resources or other websites that we think may be of interest to you. We have no control over these other sites or their content. You should be aware when you leave our site for another, and remember that other sites are governed by their own user agreements and privacy policies, which should be available to you to read.
Disclaimers and Limitation of Liability
Although we take reasonable steps to prevent the introduction of viruses, worms, “Trojan Horses” or other destructive materials to our site, we do not guarantee or warrant that our site or materials that may be downloaded from our site are free from such destructive features. We are not liable for any damages or harm attributable to such features. We are not liable for any claim, loss or injust based on errors, omissions, interruptions or other inaccuracies on our site, nor for any claim, loss or injust that results from your use of this site or your breach of any provision of this User Agreement.
Contact Us
If there are any questions regarding this privacy policy, please contact us at contact@inewsource.org or call us at 619-594-5100.
To contact the newsroom, email contact@inewsource.org. To contact a specific reporter, see our Staff page. Visit our Byline Policy for more information.
More by inewsource