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This is a story about promise and decline in America, and it begins in San Bernardino. What 40 years ago was alien to Los Angeles is now an extension of it; the city of San Bernardino, population 200,000, is a continuation of 70 miles of Burger Kings and poor-credit car lots that stretch east from the southern Californian coast. It has been said that San Bernardino is a city that works on the nerves, a last stop for those who come from somewhere else. Ironic then—or perhaps appropriate—that the exit into town off the Christopher Columbus Transcontinental Highway yields to businesses hawking bail bonds and tires, both mechanisms, in a way, for escape. 

Imagine Hospitality Lane first, because Hospitality Lane typifies the optics of this situation. Lying beyond these dilapidated businesses, through a highway underpass, lining this innocuously labeled road, sits the administrative buildings of the San Bernardino bureaucracy. Glare off their glass exteriors bathes the landscaped greens that surround them, the region’s natural grit halted at the gardens’ edges—relative luxury against a backdrop of need. One of these buildings houses the San Bernardino County Employees’ Retirement Association (SBCERA), an organization that has agreed to pay $8 billion in benefits to retirees and currently possesses $6 billion. 

The promise is what is owed; the decline is what’s missing.

Fair or not, this comparison—sterile public wealth standing stark against private need—has percolated through the American political discourse. In Washington, Wisconsin, and beyond, public pensions have been vilified as exorbitant and out of touch as the nation continually nears debt ceiling standoffs and credit downgrades. The unions, conventional wisdom goes, have forced politicians to promise benefits in return for campaign contributions (or, just as valuable, to not campaign against them) and electoral support; the bill, both sides know, will not come due until later.

But this story of promise and decline, as with most stories, is much more complicated than the stereotypes personified on Hospitality Lane. If this simple road and the surrounding buildings typify the stereotype of public pensions as a whole, then the people within these buildings—and, especially, the two men charged with leading the fund’s investments, CIO Donald Pierce and Deputy-CIO James Perry—typify the stereotype of public plan investors. Both military men by training, they exhibit an economy of movement and speech. Their suits, ties included, are sharp without being flashy, more Chicago than Wall Street. Their hair, although no longer of military closeness, is cut conservatively. Their manner of speech is friendly without being chummy. Superficially, they could just as easily be small-town bank managers or accountants. But beyond the superficial, their personas are strikingly at odds with the situation in which they find themselves. One gets the sense that neither is in the habit of promising more than he can deliver. It would not shock anyone if neither were comfortable with even a modicum of debt.

They also deal with what is instead of what should be—for what else can they do? Chief investment officers may dream of better governance and funding structures, and they can often create change on the margin, but wholesale alteration is not within their purview. “I think it is best to operate in the markets as they are, and not hope for a situation I would like,” says Pierce. This conservative vein—conservative not in politics, but in temperament—is exemplified by his larger goal: Not losing money for the fund and its participants. “I find it very helpful to understand the price the market will pay to offset the risk of not losing money in the options market,” he adds, “because at times it may be better to sell that option than buy it. While we would always like to not lose money and get phenomenal returns, we try to focus more on not losing money.” San Bernardino wins by not losing, in essence—a lesson long-ignored by the elected officials charged with giving investment teams like Pierce and Perry the tools with which to work.

This story of promise and decline does not start in San Bernardino because it is a particularly egregious example of the public pension problem. It does not start there because it is a particularly exemplary example. The problem of how America, as a country, got to where it is—where for decades its politicians promised benefits to workers and then left it to another generation to pay for those promises, and where a few good men and women tirelessly work to meet the targets mandated of them—starts in San Bernardino because it is so utterly typical.