Not Quite Clean Enough

Of all state officials, those who oversee California’s million-member retirement system hold a special public trust. They must take pains to put themselves above any real or apparent conflict of interest in how they manage the $128-billion fund of the California Public Employees’ Retirement System.

Yet, as Times staff writer Paul Jacobs disclosed in a two-part series this week, some members of the CALPERS board have taken trips paid for by private companies. And they have invested the trust’s funds in firms that personally lobbied them, a practice banned by the State Teachers’ Retirement System. One board member, state Treasurer Matt Fong, has accepted significant election campaign contributions from a firm that wooed and won a $225-million investment from CALPERS.

The questionable judgment of CALPERS officials and of some in the teacher retirement system already has attracted the interest of federal investigators. State lawmakers are proposing corrective legislation, which should be adopted if the agency fails to make changes on its own.

In defense of the trust fund, one board member said the agency was “pretty clean.” But pretty clean is not enough for a bureaucracy entrusted with the retirement savings of state and local government employees. The 13-member board must erect an unmistakable barrier between itself and those who seek its business.

California has relatively tough conflict-of-interest laws, but as is often the case, it’s the loopholes that count. One law prohibits officials from receiving gifts worth $290 or more but trips financed by others are exempted if they are considered a benefit to the system as a whole and not just the individual. Travel may be important for a board that handles a massive portfolio of investments throughout the world, but it should be paid for with state funds. More than mere appearances is at issue there.

Another state law bans contact by the board with firms seeking the board’s investments. But board lawyers contend this provision applies only to business up for competitive bid, not when the agency is negotiating with a single firm. The prohibition should be extended to any contact with any firm seeking to do business with the fund.

The board should also adopt a policy proposed by Fong and Controller Kathleen Connell requiring any firm seeking business with the fund to disclose any gifts or campaign contributions made to any CALPERS board or staff member. There is no excuse for the board continuing to resist such an elementary proposal.

Once those steps are taken, board members can proudly boast that the agency is not just pretty clean but absolutely clean.