Pension fund trustee ousted

A Senate panel says no to governor's CalSTRS nominee as tensions escalate.

By Gilbert Chan -- Bee Staff Writer
Published 2:15 am PDT Thursday, April 7, 2005

The leadership of the influential $126 billion state teachers' retirement board took another blow Wednesday with the ouster of a fifth trustee.

An already short-handed governing board of the California State Teachers' Retirement System dwindled to seven trustees after the Senate Rules Committee rejected Gov. Arnold Schwarzenegger's remaining nominee, Kathleen Smalley.

Senate Democrats said Smalley breached her legal responsibility to protect the pensions of the state's 750,000 active and retired teachers and their families.

Senate President Pro Tem Don Perata, D-Oakland, accused Schwarzenegger of injecting politics into the CalSTRS board and said Wednesday's action was a "cause-and-effect" response to the governor's firing last February of his four other CalSTRS nominees who voted to oppose his pension overhaul plan. Smalley, a Los Angeles lawyer and real estate executive, and the governor's Department of Finance representative cast the only dissenting votes.

Administration officials have said the four trustees were not qualified to carry out the governor's overhaul initiative.

"We wouldn't have this happen if it (firings) didn't happen as abruptly," Perata said. "We're in a charged-up environment."

Smalley's lone support from the five-member Rules Committee came from Republican Sens. Roy Ashburn of Bakersfield and Jim Battin of Palm Desert.

"The Democrats ... wanted to send a message. She's victim of politics," Battin said. "She deserved to be confirmed."

Julie Soderlund, a spokeswoman for Schwarzenegger, said Senate leaders bowed to pressure from special interests, especially labor and teachers unions.

"It was extremely unfortunate that the Senate leadership failed to confirm her. Ms. Smalley was a well-qualified and talented board member with a grasp of the complex issues before the board."

The rejection was widely anticipated. Smalley did not attend Wednesday's monthly CalSTRS meeting or the Senate hearing.

Schwarzenegger appoints five of the 12 CalSTRS board members. His finance director also serves on the board.

Democrats, including state Treasurer and CalSTRS trustee Phil Angelides, a candidate for governor, are pressing Schwarzenegger to assure his appointees will be allowed to act independently on the board of the nation's third largest public pension fund.

Indeed, Sen. Debra Bowen, D-Marina del Rey, a Rules Committee member, has introduced legislation to tighten the CalSTRS appointment process. Her measure, SB 1055, calls for the Senate to act on the governor's nominees within 90 days. They would be barred from serving until Senate confirmation.

"The governor effectively has much greater control over the (CalSTRS) board. Appointees ... are not there to implement a mission for reform. They are there to uphold their fiduciary duty to the (retirement plan) members," Bowen said.

Schwarzenegger removed four appointees shortly after they took a stand against his efforts to scrap the state's guaranteed pension program for future teachers and public employees in favor of 401(k)-style private investment accounts.

Trustees said the governor's proposal would threaten the financial security of the fund and its members. Administration officials defended the removal, saying the four weren't suited to implement the governor's agenda to overhaul the pension program.

But labor and teachers unions cried foul and lobbied strongly against Smalley.

"It's a very dangerous precedent that you set if board members have to carry out an agenda," said Jennifer Baker, a lobbyist with the Faculty Association of California Community Colleges.

Smalley, however, told senators last month that her vote was not based on the merits of the pension issue. She said she believed CalSTRS shouldn't take stands on social policy issues. She did not return a telephone message for comment.

Smalley, who described herself as an independent, said her decisions at CalSTRS weren't influenced by politics and that she has had little contact with the governor's office.

Former CalSTRS trustee Mark Battey, who called his removal by Schwarzenegger politically motivated, had urged senators to confirm Smalley. Her record, he said, shouldn't be judged on a single vote.

"It is unfortunate. I'm disappointed," Battey said about Wednesday's decision. "You've lost a whole year of progress (at CalSTRS). It is important before he (Schwarzenegger) appoints anyone else he is clear what is fiduciary responsibility."