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Pension reform is lucrative for former Capitol insiders

The consulting company hired by Republican lawmakers known as the “GOP 5” to do research on reforming public employee pensions signed a similar but much larger contract with a conservative pension reform group last month.

The company, Capitol Matrix Consulting, is headed by Mike Genest, who served as finance director for former Gov. Arnold Schwarzenegger. Matrix’s other two principals, Brad Williams and Pete Schaafsma, also are well-known in the Capitol as top-level financial analysts.

All three men, incidentally, have state pensions worth more than $100,000 a year — though Genest points out that he spent years working for pension reform when he was a capitol staffer and still “a long way from my own pension.”

There is no impropriety in their arrangement, although the irony of would-be pension-cutters themselves drawing big pensions is clear to some.

Capitol Matrix signed a $20,000 contract with the Senate Rules Committee last month to work on pension changes and a spending cap, two issues frequently mentioned as possible bargaining chip when it comes to getting needed Republican votes to approve a budget deal that would put tax extensions in front of voters. The contract was approved by Senate Pro Tem Darrell Steinberg, D-Sacramento, who chairs Rules, on behalf of five Republican Senators who have indicated they would be willing to negotiate. Those negotiations, however, have since broken down.

Genest said he took lead on pension issues, while Schaafsma worked on the spending cap portion. They didn’t produce a report on the subjects, but instead reviewed potential bill language and held extensive discussions with legislators and others – tasks he said were very much like high-level legislative staff work.

According to a copy of the contract acquired by the Capitol Weekly, the company was to be paid $10,000 at the outset and another $10,000 at completion. They were also paid for travel, including air fare, mileage and living expenses “not to exceed maximum employee per diem rates.” Both Genest and Schaafsma confirmed that the contract concluded earlier this month and was not renewed.

“My understanding is that it’s not usual,” for one of the legislative houses to approve such a contract, said Steinberg spokesman Mark Hedlund. He pointed out that at the time the contract went through, Senate Minority Leader Bob Dutton was pressuring members of his caucus to vote against the tax extension initiatives and push for an “all-cuts” budget.

Capitol Matrix signed another consulting contract in mid-February. This one was for $150,000 with the California Foundation for Fiscal Responsibility (CFFR), according to the group’s president, Marcia Fritz. CFFR publishes the website CaliforniaPensionReform.com, and the contract called for a wide-ranging report for ways to save money by reforming public pensions.

Fritz said that Capitol Matrix’s work for the Senate does not violate the contract they signed, but she said the deal still caught her by surprise.

“There’s total overlap,” Fritz said. “They’re able to give to the GOP 5 on our dime.”

“There’s overlap in terms of the experience and the information you’re after,” Genest said. “But they’re entirely different projects.”

The CFFR is ongoing and far larger, he said. It will result in a written report at the end, and they’ve hired several subcontractors, including a retired actuary and PhD. candidate research assistant.

Fritz and her group considered two bids. The other, from the RAND Corporation, was for $300,000. Capitol Matrix, she said, was able to do the work for less because of their intimate institutional knowledge about the state’s pension systems.

Much of the choice of Capitol Matrix came down to Williams, she said, who spent over a decade as chief economist for the Legislative Analyst’s Office and knows the nuts and bolts of pensions. The three men confirmed that Williams did not work on the GOP 5 contract, despite being the lead on the CFFR contract.

Meanwhile, there has been some speculation about where Fritz’s group got the money for the contract after she got up at a pension reform conference hosted by the Bay Area Council on March 10 and mentioned a “large out-of-state donor.” She declined to identify the donor.

Genest left the Schwarzenegger administration in late 2009 and founded his own consulting business at the beginning on 2010. He joined with Schaafsma and Williams in January to form Capitol Matrix in January.

Since leaving his state job, Genest has jumped into some contentious issues. For instance, in February 2010, he produced a report for the California Tribal Business Alliance, stating the state would lose $365 million a year if it legalized online poker because the practice would violate exclusivity in tribal gaming compacts, leading tribes to withhold those payments. The Business Alliance has been critical of an effort led by the Morongo Band of Mission Indians to create an online poker system in the state.

On March 3, Capitol Matrix delivered a report claiming that a proposal to dissolve the city of Vernon would cost 11,620 jobs and $42 million in local and state revenue.

Disincorporating Vernon has been a pet cause of the leader of the other house, Assembly Speaker John Perez, D-Los Angeles. Perez put forward AB 46, which would dissolve any city with fewer than 150 residents — and Vernon, population 95, is the only city in the state that fits that description. Perez says Vernon, which is in his district, is a mainly industrial town that has been dominated for decades by a single family, resulting in inflated salaries, voter fraud and other abuses.

Meanwhile, for weeks there have been rumblings around the Capitol, disagreements between Democrats in the Senate and Assembly, with some on the Assembly side feeling that Steinberg is giving away too much too fast in negotiations.

Perez spokeswoman Shannon Murphy would not comment on the different approaches between the houses. But she was critical of the Capitol Matrix deal.

“It’s ironic that the Republicans who want to slash pensions are more than happy to use tax dollars to line the pockets of their cronies who are in line for fat pensions of their own,” Murphy said.

CalPERS records show that Genest is receiving $125,549.76 in annual pension. Schaafsma is getting $137,354.69 and Williams $109,313.76. Schaafsma’s final year salary  was $161,124 as a chief GOP fiscal consultant in the Assembly. Genestmade $177,448 as Finance Director in 2008, but only $148,000 in his final year due to furloughs. His final year payout for 2009 was $211,788 after he was paid for unused leave time.

However, Genest also pointed out: “We could have made a lot more money in the private sector. We are making more money.”

Indeed, Schaafsma has one of the more lucrative degrees one can have: an MBA from Stanford University. Genest has served in a number of high level roles in state government, including one as Director of the California Senate Republican Fiscal Office and a long stint at the LAO. Any of the three could have cashed out long ago.

But that doesn’t mean they should get to do it with taxpayer money, said Steve Maviglio, a spokesman for Californians for Healthcare and Retirement Security: “Someone who was paid by the taxpayers to advance Republican policies is now being supported by taxes to continue to advance Republican policy. I don’t know if that passes the smell test. They’re clearly not bringing independent advice to the table.”

Maviglio also worked for years in the Capitol,
including a time as deputy chief of staff to then-Speaker Fabian Nunez, D-Los Angeles. He retired with a salary of $175,000 and also benefitted from a deal given to 55 Assembly staffers that extended their official years of service. His pension, incidentally, is $18,216 a year after 8.5 years working for the state.

Meanwhile, other former Capitol insiders are doing similar work. Former Democratic Assemblyman Joe Nation recently delivered a report on the San Francisco pension system for city public defender Jeff Adachi and Sequoia Capitol venture capitalist and political donor Mike Moritz. It claims that within five years, that city’s pension obligations will explode.

Nation, incidentally, just finished teaching a class at Stanford with David Crane, a moderate Democratic former advisor to Schwarzenegger who has been a major voice in favor of reforming public pensions.

“By 2016, San Francisco will be spending more on pension and retiree health care than they’re spending for police, fire, the district attorney, public defenders, adult probation, juvenile probation, and every single public safety department,” Nation said.

[Editor’s note: Story updated March 25]


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