Money for Nothing: The State Teachers' Pension Fund Blew $44 Million on the 8 Washington Project

“If,” the Rudyard Kipling poem your humble narrator was made to memorize in seventh grade, offers dubious aspirations for fiscal responsibility:

If you can make one heap of all your winnings/And risk it on one turn of pitch-and-toss,

And lose, and start again at your beginnings/And never breathe a word about your loss…

Adhering to the above will, in Kipling's estimation, render you “a Man, my son!” But not a man anyone would want minding an investment portfolio.

Which brings us, as so many stories about city politics do, to the smoldering wreckage of the 8 Washington luxury condo project. San Franciscans in November voted, by a 2-to-1 margin, to pull the plug on a proposed tower of $5 million pied-à-terres soaring to nearly three times the waterfront height limit. Last month, a judge essentially poured cement atop the vanquished project's grave, ruling that the State Lands Committee cavalierly exempted a crucial land transfer from onerous environmental review. Forget going back to Square One; the proposal has been knocked into negative territory — and at both the state and local levels. Getting anything developed on the site now figures to require multiple Environmental Impact Reports and approvals from a Wu-Tang Clan's worth of state and municipal bodies.

This is bad news for the teachers charged with, among other thankless tasks, foisting Kipling upon the Angry Birds generation — as well as their antecedents who instructed the Pac-Man generation. The California State Teachers Retirement System (CalSTRS) made one heap of $45 million, and risked it on the 8 Washington project. A public records request compelled CalSTRS to breathe a word about its loss: $44 million.

And counting.

A goodly portion of CalSTRS' 870,000 members will happily point out that, just as all the world isn't really a stage, the site of the proposed 8 Washington project isn't really a smoldering wreck. That's just a metaphor (not a simile).

In fact, the waterfront site along the Embarcadero looks damn near exactly as it did in 2006 when CalSTRS began siphoning millions into the plan to remake it into second- and third-homes for spectacularly wealthy folks likely not living off a teacher's pension. It's still a parking lot fronting a swim club and an ugly green fence. So just where the hell all that money went is the $44 million question. Calls to developer Simon Snellgrove's Pacific Waterfront Partners have not been returned. CalSTRS' spokesman claimed the funds were expended “on a variety of development activities” including “accounting, architecture, engineering, development fees, land, legal, marketing, and permitting.”

Well, they certainly weren't expended on shovels or bulldozers or hardhats of the sort not worn with a three-piece suit. Your humble narrator's request to explain how $44 million was spent on the softest of soft costs spurred a 250-word letter citing three different state codes in a roundabout way of saying “no comment.”

“Disclosure of the requested information prior to the completion of this investment is likely to cause substantial harm to CalSTRS' competitive position,” states the letter. Fair enough: Blowing $44 million is plenty bad; you wouldn't want to compromise CalSTRS' competitive position and cost it that last million.

CalSTRS, it seems, enjoys a novel definition of the word “competitive.”

California is the largest state in the nation and its teachers' pension fund is, accordingly, the nation's largest. Its assets comprise $181.1 billion; $22.3 billion of that is tied up in real estate. It has an interest in nearly 280 real estate ventures and its property-based holdings have grown more valuable than in pre-crash days.

And yet, writing optimistically about a pension fund is a bit like penning a glowing assessment of the healthiest man in the intensive-care unit. The nonprofit California Common Sense pegs CalSTRS' 30-year looming funding shortfall at $240 billion — a figure 80 percent greater than current contribution levels.

The $44 million CalSTRS bled into 8 Washington, then, is Bernie Madoff's bar tab. As was the $100 million it pissed away in 2010 via the ill-fated Stuyvesant Town development in New York City.

CalSTRS' spokesman, in fact, flaunted its vast holdings during a series of e-mails, perhaps in an attempt to trivialize a mere $44 million disgorged on undisclosed soft costs for a nonexistent construction project.

It's nice to know $44 million in public funds is mere spit in the ocean; squandering that much would, for many entities, lead to substantial harm of their competitive position.

But the most frustrating element of CalSTRS' 8 Washington fiasco, regardless of how much one values $44 million, was its utter predictability. The recent implosion of a plan to develop condos on this site was, in fact, the fourth such attempt to do so. All have failed in the face of fervent, organized, and well-connected opposition — though prior efforts managed to tank without scores of millions of public funds expended on God knows what.

CalSTRS knew this. And yet it chose to take the plunge and forge on, for years, in the face of a pre-existing, built-in opposition with a proven history of pulling developers' pants down — investing millions, and millions, and tens of millions more. It now has, literally, nothing to show for it.

Perhaps Rudyard Kipling was involved in this decision.

If you can keep your head when all about you/Are losing theirs and blaming it on you,

If you can trust yourself when all men doubt you/But make allowance for their doubting, too … you'll be a Man, my son!

Congratulations, Man! That'll be $44 million.

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