Wisdom From a Hurricane : Pension fund controversy might actually end up helping the state

A compromise may be emerging in the furious fight over the future of the California Public Employees’ Retirement System--an entity relatively few Californians, except of course state employees, had ever heard of prior to this year’s effort to come up with a budget that would somehow erase a daunting $14-billion deficit.

Now Gov. Pete Wilson might be wishing he too had never heard of CalPERS. For in trying to use funds from the $62.3-billion California Public Employees’ Retirement System to help ease the deficit, he made a move to reconstitute the board of directors that looked suspiciously like a power grab--so much so that state legislators whom the governor had been courting in an effort to get his budget passed raised the roof, and the plan backfired in his face. The result was a public-relations nightmare that drew national attention.

The CalPERS board has, by most accounts, done a good job of fulfilling its fiduciary responsibilities, achieving a healthy rate of return on pension funds. But CalPERS has been subject to controversy and criticism, especially from some business leaders, because of activism in using its investment clout to get corporate accountability on controversial political issues. Wilson may have been trying to clip CalPERS’ wings, but the timing of the effort, in the middle of a heated budget showdown, was ill-conceived.

Now Wilson appears to have given up his effort to pack the board by replacing the current 13-member panel with a nine-member board that the governor would control. That seems wise, mature and necessary. And in return, it is said, a way may be found to tap into CalPERS money--about $1.6 billion that is now used to cover cost-of-living adjustments for current retirees.

Eliminating the board as an issue clears the way for the governor, legislative leaders and CalPERS to come up with a real solution. The $1.6 billion offers a significant piece of change to reduce the deficit. That is in the interest of all parties--and would be good politics and public policy. It just could be that some good will come out of this political slugfest.