John D. Arnold, a former Enron Corp. trader in Texas who became a billionaire by buying and selling natural gas, is bankrolling a group supporting changes to limit California’s pension-fund obligations.
Arnold, who formed hedge fund Centaurus Advisors LLC in Houston after leaving Enron, started a foundation that Meredith Simonton, a spokeswoman, said has given $150,000 to the California group.
The organization set up by Arnold and his wife, Laura, a lawyer, plans to be involved in pension-overhaul efforts around the U.S., Simonton said by telephone from Houston. State and local governments confront “massive financial distress” from the gap between assets and promised benefits, she said.
“Our attention to pension reform is not California-specific,” Simonton said. “We chose to get involved there because there are people who are engaged and choosing to illuminate the problems and address possible solutions.”
The California Foundation for Fiscal Responsibility, the group they support, proposed a 401(k)-style savings plan as an option for future government workers, benefit limits and raising the minimum retirement age to 62, from as early as 50. A California prison guard with five years on the job can retire at 50 and get a pension under current rules.
Enron, the Houston energy company that went bankrupt in December 2001, played a major role in California’s 2000-2001 power crisis, with traders bragging about “stealing money from ‘Grandma Millie,’” according to the state Justice Department. The company paid Arnold, whose trades had little to do with gas bound for California, an $8 million bonus that year, according to a July 2002 article published by the New York Times.
Millions of Californians endured rolling blackouts in 2001 as demand for power outstripped supply, with the disruptions driving Pacific Gas & Electric Co. into bankruptcy and resulting in $9 billion in excess charges to ratepayers, the state said. In 2004, California Attorney General Bill Lockyer sued Enron for its part in manipulating the markets. The natural-gas unit where Arnold worked wasn’t implicated.
The California foundation backed by the Arnolds is headed by Marcia Fritz, a suburban Sacramento accountant and a Democrat, and focuses on educating people and officials. Another organization, California Pension Reform, plans a November 2012 ballot measure to cap government pension contributions at 6 percent of an employee’s salary for all except those working in public safety, for which the limit would be 9 percent.
Libertarian and Democrat
Arnold, 37, is a libertarian while his wife is a Democrat, Fritz said. Simonton said the Arnolds declined to be interviewed on their support for Fritz’s group.
Their foundation, like the one run by Fritz, is restricted from political activities as a 501(c)3 tax-exempt organization under U.S. law.
“I can’t say, ‘Go for this’” proposal because of that tax status, Fritz said Aug. 8. In promoting a bipartisan legislative approach, she said, “I’m looking to avoid the fights we’ve seen in Wisconsin and New Jersey.”
Her organization and the one backing the ballot measure are opposed by a union group called Californians for Retirement Security. Steve Maviglio, a spokesman, has sought to compel Fritz to disclose her foundation’s financial backers.
“Clearly, transparency is an issue,” Maviglio said by telephone last week. “Voters deserve to know who’s paying for their propaganda.”
The Arnolds pledged last year to donate a majority of their wealth, according to Giving Pledge LLC in Seattle. The couple said their foundation would be “an instrument to effect positive and transformative change” in a pledge letter. Similar vows have been made by Warren Buffett and Bill Gates.
The Laura and John Arnold Foundation listed $660.3 million in assets at the end of 2009, according to its most recent federal tax return. It contributed or handed out $7.6 million in 2009, none of it for political causes, the return shows. Donations to 501(c)3 groups, such as the $349.7 million that the Arnolds gave the foundation in 2009, can be tax-deductible.
Arnold earned about $900 million in 2009 from Centaurus, according to the Seeking Alpha website. He made $1.5 billion in 2008, according to figures reported by the New York Times.
Stock-market declines in 2008 and 2009 widened the gap between the assets of U.S. public pensions and their projected obligations, intensifying a debate over benefit costs. Estimates of the gap vary from $700 billion to more than $3 trillion.
Short $240 Billion
California’s 10 largest funds were short a combined $240 billion last year, the Little Hoover Commission reported in February. The independent government-oversight group recommended some of the same changes Fritz’s foundation advocates.
Her organization says retirement benefits cost California too much, causing job cuts among workers including teachers when spending plans are reduced. California’s “largest and best” companies spend two-thirds less than the state to support employee retirement plans, the group says on its website.
The unions represented by Maviglio counter that pensions represent a small portion of costs for state and local governments. On its website, the group says that as a proportion of payrolls, governments pay no more into pensions now than they did in the 1980s.
The Pension Reform group backing the 2012 ballot measure hasn’t disclosed its financial supporters. Daniel Pellissier, the group’s president and a former deputy energy secretary under Governor Arnold Schwarzenegger, said he didn’t know whether any donors to his organization also gave to the Fritz group.
Pellissier, a Republican, said the bipartisan legislative approach advocated by Fritz hasn’t produced change.
“The Legislature has pretty much proved that they’re not going to do anything substantial,” he said by telephone.