BY JAMES BURGER CALIFORNIAN STAFF WRITER email@example.com
Kern County's employee pension system board voted against earmarking $60 million for investment in local business and industries Wednesday.
Staff of the Kern County Employees' Retirement Association said creating a preference for local investment could compromise the board's fiduciary duty to plan participants and that there wasn't enough opportunity in Kern to justify that much of an investment.
But Kern County Supervisor David Couch, who brought the idea to his peers on the KCERA board, swore he wasn't giving up.
"If the board doesn't want to go forward with it, I will proceed with it myself and I will bring it back to the board and put it on the agenda," he said. "I'm not going to give up on it no matter what people around me think."
KCERA provides retirement, disability and death benefits for eligible Kern County and special district employees and retirees and their beneficiaries.
Jennifer Zahry, the attorney for KCERA, told board members their first duty under the California Constitution and Internal Revenue Service codes is to those workers and retirees.
"The funds will be held with the exclusive purpose to provide benefits to the plan participants and their beneficiaries," she said.
The only situation in which the KCERA board could consider making an investment decision based on a preference for Kern County businesses would be if the investment opportunity was equally as good as all other options the county had for its money.
The investment is not prohibited "so long as you determine that the investment will provide the same returns for the same risk," Zahry said. "We don't give it a disadvantage. But we don't give it an advantage."
Kern County Public Defender Konrad Moore asked if the trickle-down economic benefit of investing in the local economy could be factored into that equation.
"Trying to quantify the trickle-down benefits would be very difficult," said KCERA investment consultant Scott Whalen of Wurts & Associates.
KCERA Chief Investment Officer Peter Tirp said that Kern County's economy is not diversified and there aren't enough investment opportunities here -- of the kind KCERA invests in -- to justify a $60 million investment.
"If oil prices drop $50 tomorrow and stay down for two years, we don't want to just be in petroleum," he said.
A Standard and Poors analysis of the past five years of deals in Kern County, Tirp said, showed only nine of 93 deals fit KCERA's profile. And that makes it hard to have a diverse pool of investments.
Couch said outsiders don't understand what opportunities exist here.
"I believe what you said is true. The people you talked to don't believe (Kern County has value)," Couch said. "Some day the guys from New York are going to be back with bags full of money. I'd like to be one of the 'dumb' local guys that sell it to the 'smart' guys for 10 times what we bought it for."
And Moore argued that California's high-speed rail system, when built, will send a flood of Los Angeles commuters over the hill to Bakersfield looking for cheap housing near the rail system.
KCERA, he argues, should be poised to benefit from that boon.
Tirp said KCERA can and does review local investment opportunities when they come along.
Board member Dominic Brown, audit chief for the Kern County Auditor-Controller's office, made the motion to accept the recommendation of KCERA staff to drop the issue for now.
Only Couch and Moore voted against the motion.
"I'm unconvinced this is something we should run forward and do. Where are we going to find dirt that gets us 7.75 percent a year, every year for the next 50 years," he said, referring to the 7.75 percent return on investment that is KCERA's target earning rate.
Brown pointed out the fact that KCERA's one foray into real estate investing -- the organization's office building off Stockdale Highway in southwest Bakersfield -- hasn't gone so well.
The building, which cost $5.5 million in 2010, is now worth $4 million, Brown said.