HomeMy WebLinkAboutCC RES 81-124RESOLUTION N0. 81-124
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM
DESERT, CALIFORNIA, SUPPORTING A� INVESTIGATION AND
ANALYSIS OF THE INVESTMENT POLICIES OF THE CALIFORNIA
PUBLIC EMPLOYEES RETIREMENT SYSTEM IN AN EFFORT TO
INCREASE THE RATE OF RETURN.
WHEREAS, the California Public Employees Retirement System mem-
bership, as of June 30, 1980, included 357,157 members; and
WHEREAS, nineteen cities of the County of San Mateo, made a
formal presentation to the PERS Board of Administration at its April 22,
1981 meeting, requesting a chnage in PERS investment policies in order to
maximize earnings, and as of this date, no action has been taken by the
PERS Board of Administration to indicate that a change in investment po-
licies is imminent, and short term investment vehicles continue to pay
high interest rate, with PERS failing to capitalize on these investment
opportunities; and
WHEREAS, the 1980 Annual Financial Report, issued by the Public
Employees Retirement System, has revealed that the "Computed Rate of Re-
turn" on the entire $12.85 billion investment portfolio was 7.91%, and
the "Interest Crediting Rate" which member employers and employees were
granted on their accumulated retirement earnings was only 6%, and Federal
Treasury Notes, Federal T-Bills, Certificates of Deposits and Short Term
Commercial Paper has been yielding interest rates ranging from 121 to 20%
over the past 30 months, and 49% of the PERS $12.85 billion investment
portfolio, is placed in bonds, many of which are long term investments,
some yielding as low as 4%, and only 4.11 of the PERS investment port-
folio, was placed in short term investments at a time when many market
funds are earning up to 20%; and
WHEREAS, public agency employers expend from 8% to 12% of their
annual operating budget on PERS employer contributions, and PERS member
agencies are experiencing continuous employer rate increases, and current
PERS investment palicies appear too rigid and unable to respond in a
timely manner with a flexible and aggressive investment policy which can
capitalize on rapidly changing money market investment opportunities; and
WHEREAS, most of the above matters and concerns have been incor-
porated in previous resolutions by the City Managers Associations of San
Mateo County and Orange County; by the Peninsula Division and Orange
County Division of the League of California Cities; the Cauncil of Mayors
of San Mateo County; and similar resolutions adopted by the California
Cities of:
Colma
Coronado
Corte Madre
Daly City
Fairfax
Fountain Valley
Huntington Beach
Los Alamitos
Los Gatos
Menlo Park
Millbrae
Mountain View
Norwalk
Oceanside
Redwood City
San Mateo
Santa Clara
Southgate
Tustin
Villa Park
and the Peace Officers Association of California; the American Society for
Public Administration; and the Los Angeles County Municipal Management
Group; and
WHEREAS, the City of Palm Desert desires to declare its support
of the adoption of the proposed Resolution by the League of California
Cities at its annual conference in San Francisco to be held in October 1981.
�
RESOLUTION N0. 81-'
NOW, THEREFORE BE IT RESOLVED that the City Council of the City
of Palm Desert, California, strongly supports and concurs with the Reso-
]ution adopted by the City Managers Association of San Mateo County, where-
in:
]) The California Public Employees Retirement System (PERS)
is not currently meeting the 2nd and 3rd objectives of its stated,
"Investment Objectives"; and
�
2) That the League of California Cities take appropriate action
to influence the PERS Board of Administration to change its investment
strategy so that a significantly higher percentage of new revenue could be
placed in short-term investments with high yield when market conditions so
justify; and
3) The League of California Cities take appropriate action to
influence the PERS Board of Administration to examine the maturity period
when purchasing new, long term bonds to deiermine whether they should be
shortened; and
4) The League of California Cities aggressively oppose passage
of Senate Constitutional Amendment 21, or any similar legislation, which
would increase the existing 25% PERS portfolio ceiling on PERS stock market
investments, which investments have not provided a satisfactory rate of
return aver the eleven year period ending June 30, 1979. Justification
of this position can be easily reached upon careful review of Exhibit "A"
attached hereto and by this reference made a part hereof, entitled,
"Annuai Equities Transactions, i1 year record" of the Public Employees
Retirement System of the State of California; and
5) The League of California Cities sponsor legislation which
will expand membership of the PERS 8oard of Administration and the PERS
Investment Committee to ensure representation of public agency employers
who are PERS members and that such additional positions be filled by
appoi�ntment of the President of the League of California Cities; and
6) Support be given to Assemblyman Louis J. Papan's Assembly
Committee, which is conducting an investigation of the investment policies
of PERS in an effort to ensure that PERS maximizes its rate of return from
investments; and
7) Encouragement be given to PERS member Agencies, and indi-
vidual members to write letters and to personally appear before the PERS
Board to demonstrate wide public agency and employee support for a full
review of and change, as appropriate, of current investment policies.
PASSED, APPROVED, and ADOPTED on this 27th day of Auqust
1981, by the following vote, to wit: '
AYES: Newbrander, Puluqi, Snyder & Wilson
NOES: None
ABSENT: McPherson
ABSTAIN: None
ATTEST:
�
SHEILA R. GILLI�AN; CITY C— LE��
CITY OF PALM DESERT, CALIFO�DK A
IJ
-2-
RESOLUTION �0. 81-1"
REPORT TO TtiE PERS PUBLIC AGENCY MEMBERSHIP No. 3- 1981
Jake Petrosino, Elected Member, PERS Board of Administration
PERS EQIIITIES INVESTMENT RECORD SHOWS SOME SIGN OF IMPROVEMENT SINCE PURCHASES
INITIATED IN 1968
Approximately 25% of the California Public Employees Retirement System assets
are invested in equities. As of December 31, 1980, the System's equities
portfolio was valued at $740 million more than at date of stock purchase.
This represents a paper gain of 23% for all equities holdings which were
originally purchased at a cost of $3.18 billion since 1968.
Despite these impressive gains, sales of stocks during the past eleven years
show an average loss to PERS of $687,177 per year, with an additional average
of $842,269 spent annually on commissions for equities transactions.
As indicated in the accompanying chart, the yield on all bonds and mortgages
earned an average of So37% annually during that same eleven-year period.
Pension funding has always been perceived by the membership as a concern of
the participating public agencies. However, the stakes are critically high
for the PERS membership as well in this post-Proposition 13 era. Improved
investment returns to the System will allow for both necessary benefit
improvements and reduced pension costs.
A 1974 report for the California Legislature indicated that, "The importance
of earnings on investments to a pension system cannot be overstated. For
instance, a 1! increase in the yield on investments in a funded retirement
system will result in an approximate 24'f savings to the employer (utlimately
the taxpayer) over the funding period of the system."
,
Many pension systems around the nation continue to count on extraordinary •
investment returns on equities "over the long term" promised by brokerage
firms. Many public pension system investment advisors, including those
employed by the California PERS, still remain optimistic about future
equities earnings.
I consider equities a"high risk" investment to be limited to current
restric[ions which allow not more than 25'1, of System assets for that purpose.
The PERS record does not justify an increase in the existing limit.
A move to recommend such an increase was defeated at the January 1981 Board
of Administration meeting in San Franciscoo The PERS record tells me that
continuing visions of huge profits on equities are illusionary. Therefore,
I prefer to look to more conservative investment opportunities which have
a proven record of succeas. PERS monies must be preserved in terms of their
real, undiminished value. As your elected represenCative, I am not prepared
to risk the System's assets {your money) for some promise of large increases
in value at some future date which may never dawn.
Controversy continues to intensify concerning public pension system invest-
ment decisions and who makes them. The federal Pension Task Force was most
critical of the high level of employer control exerted on public pension
plan administration and assets.
In our System, the 5-member Ii�vestment Committee of the Board of Administration
does not have any elected members assigned to that responsibility.
EXHII)IT A
RESOLUTION N0. 81-1�^
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