San Jose Mayor’s incompetence cost $94 million dollars

The Mayor of San Jose, California Chuck Reed’s mismanagement and neglect of the San Jose pension systems has cost taxpayers and system members well over $94 million dollars the past three years.

Submitted by Douglas Rose

San Jose Mayor Chuck Reed, who has been busy lecturing everybody in the state on how to operate their pension systems, has quite a problem on his hands. Reed’s mismanagement and neglect of a major problem in the San Jose pension systems has cost taxpayers and system members well over $94 million dollars the past three years.

Reed has long been aware of this problem, having been told both in person and in writing. In November, 2011, the Federated Board and Police/Fire Board wrote separate letters to Reed and other city leaders documenting the impact on investment results due to lack of staff. The Board indicated that investment staff shortages had left the plan un-invested in asset classes and had literally cost the City and the Plans tens of millions of dollars in the last quarter.

In no uncertain terms, the Board that the inadequate staffing problem would result in an increased cost to San Jose taxpayers that “could be tens of millions of dollars annually.” The letter concluded with a plea to fix the problem and save the City money it desperately needs.

San Jose has two separate pension systems with their own Board of Trustees: Police/Fire for public safety employees, the Federated System for general employees. The two systems share one investment staff whose compensation is set by the city, not the pension boards. Half the staff positions have been continually vacant the past three years as investment staff left, and replacements could not be hired, due to below market salaries set by Reed and his city council. The staff shortages in turn have led to poor investment performance because asset allocations could not be fully implemented.

The staffing shortage was not fixed, despite the stark recitation of losses and warnings of future losses in the letters. The funds underperformed their policy benchmarks—an investment loss by a combined $94 million dollars from 2010-2013. And the staffing problems actually increased. The Chief Investment Officer (CIO) left in July 2012 and this critical position remained vacant for the next twenty months because no qualified candidate would take the job at the sub-par salary. Today only one investment officer remains on who was there at the time the letters were written.

When a problem of this magnitude surfaces in a city, the Mayor has a duty use all resources available to solve the problem. In San Jose, Mayor Chuck Reed could have spent his time and political capital these serious issues with his own pension program but he chose not to. Today, San Jose taxpayers now have over 94 million reasons to wish that rather than scampering all over California telling others how to run their pension systems, Chuck Reed had spent more time in San Jose doing one thing – his job.

Douglas Rose is a President of the State Association of County Retirement Systems, and a Trustee serving on the San Diego County Pension Board. The opinions expressed are his own.