It’s bad enough when politicians exploit public-employee pension funds to win votes by pursuing dubious “socially responsible” investment strategies, but the problem gets worse. Putting elected officials in charge of investing billions of dollars also creates opportunities for dealings that look less appropriate even than Comptroller William Thompson’s effort to get tough on ExxonMobil.

A case in point is a story out of California, reported in yesterday’s Los Angeles Times, involving the California Public Employees Retirement System. The Times has discovered that the state’s controller, Steven Westly, now a Democratic primary candidate for governor, may have steered CalPERS investments to at least three venture capital firms that would not necessarily have passed muster except that they were headed by campaign contributors or friends of contributors.

Lest anyone think this is just a West Coast issue, New York State’s comptroller, Alan Hevesi, makes an appearance in the story. One of the firms is led by one Elliott Broidy, who met with Mr. Westly in 2003 accompanied by none other than Mr. Hevesi. In addition to Mr. Broidy’s and his wife’s donations of $83,400 to Mr. Hevesi’s campaigns since 2002, the entrepreneur’s wife has donated $179,000 to Mr. Westly in the same period. At least Mr. Hevesi wasn’t asking Mr. Westly to do anything he himself would not do – New York’s pension funds invest $200 million in Mr. Broidy’s Markstone Capital Group LLC, compared to the $50 million CalPERS eventually put in.

The Times reports Markstone is “a fledgling firm that invests in infrastructure and other ‘old economy’ industries in Israel.” Some CalPERS board members were reluctant to invest in the firm because it is relatively new and its business is focused “in a very unstable part of the world.” Messrs. Westly and Hevesi may well have been right that the benefits of investing in Israel outweighed the risks (ask Warren Buffett), but the problem is that Mr. Westly’s decision to lobby the CalPERS board on the matter, a decision apparently encouraged by Mr. Hevesi, has about it a certain odor. All investments present risks, but the process is fraught with peril when political donations get involved.

Although Mr. Hevesi’s office didn’t respond to our request for comment yesterday, Mr. Hevesi has said that he maintains a “wall” between campaign contributions and his investment decisions at the retirement fund. He’s said that before because this charge of politically motivated decision making at the pension fund is familiar territory for him. As these columns have noted in the past, Mr. Hevesi has frequently appeared to exploit his power over the pension fund to reward campaign donors. When his office has launched shareholder suits against companies whose stock the fund owns, he has hired donors as outside counsel, setting them up for enormous potential fees.

Politicians of all stripes throw around so much pork it seems could fly. The comptrollers’ pension pork – the largesse comptrollers can distribute via state pension funds – is a special breed of sow. The temptation is greater because it can seem like “free” money. Comptrollers are accountable to taxpayers only if they fail spectacularly, forcing taxpayers to make up the shortfall of a poorly invested pension fund. If ever there were an argument for shifting public employees to defined-contribution pensions instead of the defined-benefit systems of California and New York, this is it. We remarked earlier this week that public pension funds make taxpayers the prisoners of the comptroller’s “conscience” when that comptroller dallies in socially responsible investing. It also, as the Los Angeles Times has now reminded us, may hold taxpayers hostage to the comptroller’s political friends.