California State Teachers’ Retirement System

CalSTRS Set To Receive Last $15 Million Payment from Congress

CalSTRS has received $315 million from the U.S. Congress since 1999.

In 2015, the pension fund will receive one final payment from Congress totaling $15.6 million.

What’s the purpose of the payment, and why are they stopping?

The California State Teachers’ Retirement System (CalSTRS) will receive its final $15.6 million payment of compensation from the 1997 sale of the Elk Hills Naval Petroleum Reserve as part of the $1.1 trillion budget appropriation bill passed by Congress Saturday.

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The federal government began making payments to CalSTRS under a settlement agreement two years after the Elk Hills land was sold to Occidental Petroleum in 1997. The annual payments, each of which was subject to an annual Congressional appropriation, compensated CalSTRS for its interest in the state school lands that were part of the Elk Hills Reserve.

The petroleum reserve sits on 47,000 acres near Bakersfield, and the two tracts of state school lands in it were dedicated to California’s schools by the federal government upon statehood in 1850. It became a Naval Petroleum Reserve shortly before World War I, about the same time as California established the Teachers’ Retirement System in 1913.

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“This final payment is welcome support to California’s retired educators, the oldest of whom greatly benefit from these proceeds, which support efforts to safeguard retiree pensions from the erosive effects of inflation,” said CalSTRS Chief Executive Officer Jack Ehnes. “State law directs any proceeds from state schools lands, on which the petroleum reserve sat, to support retired teachers’ pensions when they fall below 85 percent of their original purchasing power.”

CalSTRS manages $190 billion in assets.

Photo by Stephen Curtin

Improving CalSTRS Funding Comes at Cost for School Districts

California lawmakers acted earlier this year to improve the funding status of CalSTRS.

That means higher payments from school districts – and recent budget forecasts are forcing schools to examine how these payments will strain their budgets.

From the San Diego Union Tribune:

A state-mandated sched-ule for replenishing California’s cash-strapped teachers’ retirement fund means school districts will see their pension contributions triple by 2021 and remain high for decades, according to budget forecasts released this month by several local districts.

Administrators say they’re at a loss for how they’ll come up with the cash, which for some districts could be tens of millions per year. The forecasts come just six months after a legislative deal was struck by Sacramento lawmakers to recover billions of dollars for the California State Teachers’ Retirement System, or CalSTRS.

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Administrators said that in the coming fiscal year, they may be faced with tough decisions to cut instructional programs, cut professional development or delay technology infrastructure improvements at the expense of paying their share of unfunded pension liabilities — totaling $74 billion statewide.

Officials in districts throughout California are talking about forming a coalition to explore ways to fix the teacher retirement system without cutting into their own school programs.

As the pension contributions grow, “the things you want and need for educational purposes will take a second seat to funding this retirement system, or paying for utility bills,” said Gary Hamels, assistant superintendent in charge of business services with San Marcos Unified School District.

“It’s going to hit the fan because you’ll have to make a decision — I have to pay this so you can’t buy that,” Hamels said. “We’ll have a situation where there’s demand for some academic improvement but this is where the money is going first.”

The business model to get CalSTRS on solid footing is based on economic assumptions that will force each of the area school districts to cough up tens of millions of additional dollars for decades to come, said Lora Duzyk, assistant superintendent in charge of business services for San Diego County’s Office of Education. Teachers also will see their CalSTRS contributions rise, though not as fast as school districts.

“I think you will hear moaning and gnashing of teeth from all kinds of people,” Duzyk said. “The money to pay for this are new costs that come right off the top of anything you get (from the state).”

Details on the repayment schedule are outlined in a school funding law passed in June by California’s legislature, and signed by Gov. Jerry Brown, a Democrat who marched into office in 2011 vowing to pull the state out of its budget crisis.

CalSTRS was 66.9 percent funded as of June 30, 2013.

Photo by Stephen Curtin

As Demand for Green Bonds Grows, So Does Desire for Transparency

There is growing demand for environmentally friendly investments, and as a result, “green bonds” have become an increasingly popular investment vehicle.

For proof, look no further than CalSTRS, which increased its purchases of “green bonds” by 300 percent in 2014.

But with increased popularity comes increased demands for transparency: what exactly qualifies as a “green” investment?

From Institutional Investor:

With green bonds’ rising prominence comes a need for a single set of clear and science-based criteria for what constitutes “green.” Nuclear power is low carbon, but some would balk at calling it green. And the coal industry would like investors to count fitting a coal-fired power plant with technology to reduce carbon emissions as a clean energy project, although fossil fuel consumption is hardly carbon neutral.

“When you get into the corporate space, you’re dealing with a large number of companies, and transparency is not always as good,” says Colin Purdie, head of global investment-grade credit at London-based asset management firm Aviva Investors.

None of this means Aviva wouldn’t invest in a bond because it doesn’t qualify as “green.” It just means the firm wouldn’t call it that. And therein lies the conundrum. A lot of these bonds would hit investors’ desks even without the green label. If the market is to grow into the large liquid powerhouse its proponents want, it needs a significant roster of corporate issuers to issue green bonds.

Also at issue are third-party verifications proving that issuers are spending funds on the environmentally friendly projects the bonds were designed to finance. This has begun to happen already. More than half of the green bonds issued in 2014 included an independent second opinion on their environmental credentials, from watchdogs such as the Center for International Climate and Environmental Research in Oslo and Vigeo in Paris, according to data from the Climate Bonds Initiative.

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“I think the biggest concern right now is trying to grow the market and getting more issuers to issue bonds,” says Catherine DiSalvo, investment officer at the California State Teachers’ Retirement System. “We do support third-party verifications. The only problem is that it adds to the expense of issuing a green bond.”

Read the whole piece on green bonds here.

Photo by penagate via Flickr CC License

CalSTRS Loses $125 Million on Florida Industrial Land

CalSTRS revealed Thursday it had lost $125 million on an investment – reportedly written off since 2009 – in a piece of industrial land in Florida that lost much of its value when land values went bust just over a half-decade ago.

CalSTRS had been waiting for the price of the land to recover a bit before selling – and the fund did recover some of its losses.

But the time to sell was now given the fund is restructuring its real estate portfolio.

More details from the Sacramento Bee:

CalSTRS said Thursday it lost around $125 million on the sale of some Florida real estate […]

The California State Teachers’ Retirement System confirmed that one of its investment partnerships recorded a $132 million loss on the recent sale of a swath of industrial land in Florida’s Palm Beach County.

CalSTRS spokesman Ricardo Duran said the teachers’ pension fund owned 95 percent of the investment and took 95 percent of the loss.

The deal was first reported by the Palm Beach Post and South Florida Business Journal.

Duran said CalSTRS wrote off the investment entirely in 2009, so the sale price represents a partial recovery of its losses. The sale price was nearly $3 million higher than CalSTRS valued the land in the third quarter of this year.

CalSTRS decided not to wait any longer for land prices to recover, however. “The likelihood of getting what we paid for it anytime soon is pretty remote,” Duran said.

Besides, CalSTRS wanted to unload the property as it implements a restructuring of its real estate portfolio, moving away from speculative land deals in favor of leased-up, income-producing properties. “This is part of our de-risking,” Duran said.

CalSTRS manages a $189.7 billion portfolio.

Photo by Stephen Curtin