By Doug Porter
You’ve probably seen stories in the news over the last few days about this wonderful couple from Texas putting up a cool $10 million to keep Head Start centers in six states open during the government shutdown.
John Arnold, a former hedge fund manager and wife Laura are reportedly worth more than $2.8 billion. It may well be that this donation has something to do with a spate of bad publicity that Arnold & Co. have been getting recently.
They’ve been called out by investigative reporters recently as being involved with what could be called a shell game being used to fleece taxpayers in the name of rescuing them from odious public pension obligations. And their next target is California.
How John Arnold came about seed money for his fortune is intricately tied to the rise and fall of energy giant Enron.
Rolling Stone recently published a terrific expose on all the scams being run in the name of rescuing public pensions. From Matt Taibbi’s account:
As Enron was imploding, Arnold played a footnote role, helping himself to an $8 million bonus while the company’s pension fund was vaporizing. He and other executives were later rebuked by a bankruptcy judge for looting their own company along with other executives. Public pension funds nationwide, reportedly, lost more than $1.5 billion thanks to their investments in Enron.
In 2002, Arnold started a hedge fund and over the course of the next few years made roughly a $3 billion fortune as the world’s most successful natural-gas trader. But after suffering losses in 2010, Arnold bowed out of hedge-funding to pursue “other interests.” He had created the Arnold Foundation, an organization dedicated, among other things, to reforming the pension system, hiring a Republican lobbyist and former chief of staff to Dick Armey named Denis Calabrese, as well as Dan Liljenquist, a Utah state senator and future Tea Party challenger to Orrin Hatch.
Soon enough, the Arnold Foundation released a curious study on pensions. On the one hand, it admitted that many states had been undercontributing to their pension funds for years. But instead of proposing that states correct the practice, the report concluded that “the way to create a sound, sustainable and fair retirement-savings program is to stop promising a [defined] benefit.”
Taibbi’s story is chock full of truly scary accounts about ways that public pension funds have been looted and manipulated by unscrupulous politicians. But the most eyebrow raising part was this:
Via Emily’s List
In fact, Baker said, had public funds during the crash years simply earned modest returns equal to 30-year Treasury bonds, then public-pension assets would be $850 billion richer than they were two years after the crash. Baker reported that states were short an additional $80 billion over the same period thanks to the fact that post-crash, cash-strapped states had been paying out that much less of their mandatory ARC payments.
Earlier this week The Sacramento Bee reported on a shadowy Texas group looking to get involved in a 2014 state initiative to alter California’s constitution so that state and local governments could lower pensions prospectively for current employees, while keeping their earned benefits intact.
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.
Union interests are howling that San Jose Mayor Chuck Reed, a Democrat pushing a controversial idea to dial down government retirement benefits, asked a Houston-based group 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.
The Texas organization, Action Now Initiative, is a 501(c)(4) group (a reference to the applicable IRS code) that can raise and spend unlimited money, tax-free, without revealing donors.
Action Now’s gift revives memories of an Arizona nonprofit that last year put $11 million into defeating Gov. Jerry Brown’s tax initiative and to support another ballot measure to hobble union-dues collections. The group had connections to the Koch brothers, but we still don’t know who gave the money. When a court ordered disclosure, the organization pointed to two other faceless out-of-state nonprofits.
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.”
Salon.com’s David Sirota has also been casting a suspicious eye on the subject in a separate account this week, saying:
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….
… 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.
Here in California we have an estimated $6.1 annual shortfall in pension contributions projected for the next 30 years, according to the Pew Charitable Trust, which is doing all the ‘research’ for pension reform outfits.
The strategy in selling this next batch of pension reform will be to wail about overpaid employees and the certain financial doom facing California taxpayers. Ignored will be the $45 billion annually in tax breaks given to various corporate entities. And, yes, they’re connected.
The pitchman for this campaign will be termed-out San Jose Mayor Chuck Reed. Think of him as Northern California’s answer to Carl DeMaio. He’s one of those “nominal” Democrats like education reformer Gloria Romero who get trotted out by big bucks campaigns to prove their bi-partisanship support.
If both of these names ring a bell, it might be because they both been invited guest authors for UT-San Diego’s Fixing California series, a joint collaboration with the Koch Brothers funded Franklin Center for Government and Public Integrity.
Reed’s got a history of donating to conservative GOP candidates, sought to eliminate caps on local campaign contributions, blocked a city council resolution opposing the notorious Supreme Court decision in the 2010 Citizens United case, opposed gay marriage and fought a local attempt at raising the minimum wage in one of the most expensive cities in California. But, hey, he’s a Democrat, right?
His real claim to fame is the “pension reform” package passed in an election with a 37% turnout. It’s tied up in the courts (as is San Diego’s). In case you haven’t noticed, “reform” packages are usually placed on ballots in elections where low voter turnout is expected.
The San Jose reforms came about after Mayor Reed wooed (and delivered) public employee unions with increased pay and benefits. Not long thereafter San Jose police officers found themselves accused of riding a taxpayer funded “gravy train”. Over 250 officers have left the force and crime is on the rise.
Chuck Reed is in Washington DC this week looking for support in his effort from U.S. Congressman Paul Ryan, who’s been busy proposing cuts to Social Security and Medicare this week as a condition for reopening the Federal government.
California pension reform advocates like Reed are going to need a large injection of cash and celebrity endorsements if they are to succeed in 2014. A Field Poll taken following the San Diego and San Jose elections in the summer of 2012 found state voters not terribly interested in benefit cutting schemes. While 37% of those surveyed thought pensions were too generous, 36% said they were fine as is and 17% thought they should be higher. (10% had no opinion)
Back to the Sacramento Bee:
Meanwhile, Reed has about a month to file ballot initiative papers, said Mike Arno, head of Arno Political Consultants, “and ideally you have money, leadership and a coalition before that.”
Then Attorney General Kamala Harris will give the measure its ballot title and summary by the end of this year. Proponents of a pension measure failed to get their proposal before voters last year, they said, after Harris skewed the language and killed their fundraising.
Assume that doesn’t happen again. Reed raises a couple million bucks. His group collects 1.3 million signatures. The state certifies them around the end of June.
Reed raises $10 million to $20 million from deep-pocketed donors. His campaign cites Stockton,San Bernardino, Vallejo and Detroit as proof of flawed pension math. Mayors from other struggling cities ask, What will it be? Pensions or police services? Pensions or parks?
Do we need to overhaul pension plan funding mechanisms? Yes we do. We just don’t need the same sorts that dug that financial hole telling us how to get out.
Abortion Access in California Expanded
Nine states around the country have passed legislation restricting access to abortions in recent months. Hardly a day goes by when I don’t get a letter from some activist group or another denouncing yet another whack-job scheme.
In some states wingnuts are seeking legislation requiring vaginal ultrasounds. The Teahadists in Congress would like to take this struggle to the next phase and start placing restrictions on birth control.
Yesterday California took a big step in the opposite direction as Gov. Jerry Brown signed a bill that expands women’s access to abortion. UT-San Diego publisher and very Catholic overlord Papa Doug Manchester already has his editorial minions hard at work looking to drum up The Fear, via today’s editorial cartoon.
Assemblywoman Toni Atkins (D-San Diego) introduced AB 15,4 allowing nurse practitioners, nurse midwives and physician assistants to perform simple first-trimester abortions without a doctor’s supervision. She introduced the measure in response to concerns that there are not enough physicians, especially in rural areas, to meet the needs of women who desire an abortion.
More than half the counties in the Golden State have no abortion providers or only clinics that charge fees out of the reach of low-income women.
Following a study of 11,000 abortions sponsored by the University of California, San Francisco, researchers found scarcely a difference in the rate of complications between first-trimester vacuum aspirations performed by experienced doctors and those done by skilled non-physicians.
The Governor also signed AB 980, introduced by Democratic Assemblyman Richard Pan, dumping sections of the California Building Standards Code that treat primary clinics which provide abortion services differently from clinics that don’t.
Drunk Dial Congress
Has the government shutdown got you down? Can’t stand another John Boehner photo op?
Have we got a deal for you!
Courtesy of the interwebs, mix up a bunch of whatever floats your boat (or drink Bud Light, we don’t care), pull out that cell phone and let’er rip. Cause nothing says concerned citizen like a string of invectives left on your elected representative’s voicemail!
On This Day: 1957 – President Dwight D. Eisenhower apologized to Komla Agbeli Gbdemah, the finance minister of Ghana, after the official had been refused service in a Dover, DE, restaurant. 1965 – The Supremes made their first appearance on the “Ed Sullivan Show.” 1997 – The Guggenheim Museum in Bilbao, Spain, opened to the public. Architect Frank Gehry designed the 450 ft. long and 98 ft. wide building.
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Doug Porter
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This column is a keeper, Sir Doug. I’ve got an archive
place for it, right between DeMayonnaise and Enron.
In fact, I think I’ll enter it twice, under both.
Readers, think about Social Security and the fact that
the Teahadists and Paul Ryan are proposing reductions
in that federal program, so that billionaire freaks like
Arnold can hold mom and dad’s nest huevos in their own
corporate hands.
The GOP has seen too many horror movies.
“funneling pension cash to Wall Street hedge fund managers” Look, a public bank would solve this problem. Instead of investing in Wall Street junk and giving guys like hedge fund managers access to pension fund cash, it would be invested in our own public bank of San Diego where it would be sealed off from hedge funds and Wall Street. The dividends would wipe out any present day pension fund shortfalls. Why is this such a difficult thing to see?
Pension funds have been Wall Street targets for years. Look at Orange County going bankrupt a few years back because their manager went for a bunch of fancy derivatives and lost their shirt. Because savings accounts yield no interest (thanks to the Fed), pension fund managers think they are forced to invest in derivatives. A San Diego public bank could pay a good rate of interest obviating the need to go to Wall Street hat in hand.