SACRAMENTO, CA - A recent Los Angeles Times article revealed that California State Controller and gubernatorial candidate Steve Westly helped guide $5 million in pension funds to a venture capital firm run by two well-connected campaign contributors. Taxpayers and public employees should be concerned because this quid pro quo is the latest example of how politicians use California's public employee retirement systems to benefit their campaign cronies.

In 2003, Healthpoint Partners LP, a venture capital fund that invests in medical equipment companies, met with the investment team at CalPERS, the $207 billion pension fund that provides retirement security for 1.4 million former and current public employees. Healthpoint's managing directors, Joseph Cari, a Democratic Party fundraiser, and Carl McCall, a former New York State Comptroller and ex-gubernatorial candidate, wanted CalPERS to invest millions in the capital fund.

After CalPERS officials first decided against it, Cari and McCall began to woo Westly, who holds a seat on the board at CalPERS. In 2003 and 2004, Cari and McCall arranged three fundraisers for Westly in Chicago and New York. In total, Westly raked in $50,000 from the fundraisers, including $15,000 directly from Healthpoint. By March 2004, after several meetings between Westly and CalPERS investment manager Rick Hayes, CalPERS chose to invest $5 million in Healthpoint.

Since then Healthpoint has not donated any money to Westly. In 2005, Joseph Cari pleaded guilty to aiding in a scheme that steered $50 million from Illinois' Teachers Retirement Fund to an asset management firm in exchange for hundreds of thousands of dollars in kickbacks. Cari is currently working with federal investigators and awaits sentencing.

This public revelation could not have come at a worse time for Westly, who is in a virtual dead heat for the Democratic nomination for governor against State Treasurer Phil Angelides. Pundits say this might tip the balance toward Angelides, another CalPERS board member with a history of playing with pension money.

According to Hoover Institution fellow Peter Schweizer, since 2002, Angelides has channeled $116 million towards the Yucaipa Corporate Initiatives Fund, an investment fund run by Angelides donor and billionaire Ron Burkle. The Yucaipa fund is designed to empower "low-income urban and rural communities,'' but in reality the fund's recipients are a who's-who of wealthy Democrats. Some of the fund's investments include: a cable channel run by former Vice President Al Gore and former DNC Finance Chairman Joel Hyatt, and a clothing line run by
hip-hop music star Sean "Diddy'' Combs. Schweizer reports that CalPERS' return on these ventures is a measly $56,000.

Unfortunately, such pension meddling is common at CalPERS. It has gained a national reputation for rewarding political allies and penalizing enemies. Each year it takes on a handful of companies in order to promote policies deemed as helpful to rank-and-file employees. But much of the time, these corporate takeovers are retributions against businesses who fail to follow the activist agenda of the CalPERS board. The actions of Angelides and Westly are par for the course.

Sadly, this political manipulation hurts the very people CalPERS exists to help: public employees. Every dollar doled out to political cronies is one taken away from a sound investment for a worker's retirement. Taxpayers should be angered as well, since poor investments by CalPERS means additional tax dollars will be needed to cover the state's pension obligations.

While the short-term fix would be to remove those responsible for the mismanagement, the only long-term solution is to de-collectivize the pension fund. Until California adopts a pension system that permits public employees to control their own retirement accounts, the state's pension fund will continue to be used by politicians bent on enriching themselves.

Anthony P. Archie is a public policy fellow in Business and Economic Studiesat the Pacific Research Institute. He can be reached via email at aarchie@pacificresearch.org.