How to overfill prisons: Have SEC look at CA school districts
March 20, 2013
By Chris Reed
The federal indictments this week of CalPERS’ former president and his alleged briber show that the federal government does occasionally notice the outrageous behavior of our state government. But what about the Securities and Exchange Commission? It went after the state of New Jersey in 2009 for pension deceptions. It went after the state of Illinois last week for pension deceptions. When is it going to come after CalPERS for its 1999 campaign to give away retroactive pension benefits costing billions to state workers with the insane argument that it would cost taxpayers little if any money?
Stephen Malanga of the Manhattan Institute has some interesting, and disturbing, insights into how the SEC operates:
“Unlike its investigations into corporate issues, the SEC’s probe of the states seems largely limited to what you could learn by reading newspapers and perusing bond documents. As legal scholar Philip Grommet observed in a 2012 Journal of Legislation article about the New Jersey case, which the SEC initiated after reading about the state’s suspect disclosure practices in the New York Times, ‘This antifraud action was hardly the result of an in-depth investigation.'”
SEC ignores California’s scores of outrages
But the SEC doesn’t even necessarily to read the media when it comes to our pension outrages. What Malanga writes about Illinois — which was targeted by the SEC — largely applies to the Golden State as well:
“State officials consistently tout their dubious achievements in ways that would get a corporate executive whose firm is in registration for an offering in trouble. In its complaint against Illinois, for instance, the SEC notes that the state stopped misleading investors and took remedial actions to fix its bond documents in 2009. But in a June of 2010 roadshow presentation for potential investors, state officials were ballyhooing recent pension legislation as a significant reform and cost-savings even while the press and independent budget experts were deriding the changes as insignificant. Today, Illinois continues to have one of the worst-funded pension systems in the country, evidence of how little improvement the so-called reforms touted by the state achieved.
“These kinds of omissions and misleading statements by municipal issuers are especially pertinent now because of the ways that state and local governments are using debt. As Grommet points out, whereas once states and cities used the bond market principally to raise money to build roads and bridges and other capital projects, increasingly governments are employing borrowing to plug budget shortfalls, sometimes with creative forms of debt that stretch the limits of what states’ own laws allow. This makes state and local debt increasingly ‘intertwined’ with the ability of some municipal issuers to pay their basic operating bills.”
Ring a bell? If California school districts’ financial integrity were investigated by federal regulators with one-tenth the rigor the SEC employs with Fortune 500 companies, scores of superintendents and school board members would be heading off to jail.
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