Spoils System Basis of Democratic Economic Policy

As Democrats criticize President George W. Bush on economic issues, it is instructive to look at how they manage the people’s finances when they run the government. California Gov. Gray Davis sets the standard in twisting public business for political gain.

Forget his heavy-handed fund-raising that has created the appearance of policy for sale. Instead, look at his handling of the California Public Employees Retirement System (CalPERS), one of the nation’s largest pension funds, with $132 billion in assets for more than 1.3 million members.

Since 1998, every board member-the governor appoints four and influences the election of six others-has been either a Democratic Party or labor union official. Alas, the board’s business acumen has not matched its political connections. Assets have dropped $44 billion-from $176 billion-and CalPERS is underperforming other funds.

In response, CalPERS has hiked health insurance premiums for its employees by 25% and imposed a 2.8% payroll levy on school districts to replenish its assets and finance the $250-million expansion of the CalPERS headquarters. Long the self-anointed scourge of corporate America, CalPERS’s halo has slipped. For instance, some board members were paid consultants for Enron and affiliated with institutions that received donations from the company. In turn, CalPERS invested in Enron stock and the infamous partnerships.

CalPERS proudly undertakes “corporate governance actions” against companies it believes to have misbehaved. However, it ignored Bernard L. Schwartz, chairman of Loral Space & Communications-and a major Democratic Party donor. Loral’s stock price crashed from $30 a share in 1998 to 30 cents last fall because of poor investments and a Justice Department investigation for illegal technology transfers to China.

The fund invested $760 million in the Yucaipa Co., owned by billionaire Ronald Burkle. He donated to the campaigns of Gov. Davis, State Controller Kathleen Connell and Treasurer Philip Angelides, both statutory board members, and San Francisco Mayor Willie Brown, appointed to the board by Davis. Brown also collected $30,000 in legal fees from another Burkle company.

Moreover, CalPERS put $100 million into Premier Pacific Vineyards, whose co-CEO, Richard Wollack, contributed to both Angelides and Connell and is a major Gray Davis fund-raiser.

After a poor investment performance, the board decided to stop releasing its private equity results until sued by the San Jose Mercury News.

Given this record, Gov. Davis should be cleaning up CalPERS. Instead, two years ago he appointed Brown to the board. In January, Davis reappointed Brown. Now Davis wants the board to elect the mayor as its president.

Brown glories in his excesses, on display for the last seven years as mayor and the previous 14-plus as Assembly speaker. Reports Sacramento Bee columnist Dan Walters: “When Brown commanded the Assembly during the 1980s, the house became infamous for its anything-goes attitude. If he didn’t directly participate in the systematic corruption-and no one has yet produced evidence that he did-he certainly set a tone.”

Speaker Brown was even more rigorous than Gov. Davis in shaking down lobbyists and interest groups for campaign contributions. His system of “tithing” forced underlings to raise money for him to distribute.

A five-part San Francisco Chronicle series painted a stunning picture of legal corruption-using government as a patronage machine, funneling government benefits to political loyalists, and squeezing the beneficiaries of mayoral decisions for campaign “soft money.”

This is the man Gov. Davis wants running the state workers’ pension system? Complains California State Assemblyman Ray Haynes, (R.-Murrietta), entrusting “state employee pension money to someone whose major credentials are his political connections sends the wrong message to Wall Street and state employees.”

It’s no surprise that Democrats are challenging the Bush Administration’s economic record. They would have more credibility, however, if their recently re-elected governor of the nation’s largest state wasn’t a poster child for both ethical and financial malfeasance.