Wrapping their arguments in patriotism following the Sept. 11 terrorist attacks, Philip Angelides, California state treasurer, and H. Carl McCall, New York state comptroller, joined with financier Felix Rohatyn to propose a far-reaching plan to use public employee pension assets to finance projects to spur economic growth and rebuild infrastructure, supported by federal guarantees.
Whenever politicians propose economically targeted investments, they disregard a substantial body of evidence that suggests ETIs don't meet standards of prudence for investments and could result in higher contributions to public retirement plans. Such a course could have the same effect as cuts in government contributions.
Mr. Rohatyn, along with Mr. Angelides, a trustee of the California public employees' and state teachers' retirement systems, and Mr. McCall, sole trustee of the New York State Common Retirement Fund - the three biggest pension funds in the country - co-hosted a meeting last month in New York City to advance their proposal, inviting other public fund officials to attend and consider the ideas.
Mr. Angelides, in public statements, has identified what he calls "the double bottom line," an initiative to "mobilize the powerful instrument of financial capital in new and innovative ways, consistent with the highest fiduciary standards, to respond to the challenges of widening economic disparity."
As their invitation states, "We are working together to build a coalition of pension fund trustees and managers and state investment officers who would collectively call on the federal government to work in partnership with the states."
They declare, in the invitation letter, "It is important that pension funds and state investment funds be proactive and identify investment opportunities that are consistent with our fiduciary responsibilities and reflective of our public commitment." But then they add, "As always our intent is to benefit our members - and all the citizens of our states and nation."
As pension plan fiduciaries, Messrs. McCall and Angelides can't serve dual interests. Their duty as fiduciaries is to oversee the pension plans solely for the benefit of participants. As their proposals indicate, they are attempting to serve political as well as investment agendas.
"Recalling his tenure as chairman of the Municipal Assistance Corp.," according to a statement by Mr. McCall after the meeting, "Mr. Rohatyn pointed out that, `We were able to save New York City from bankruptcy mostly by city pension system investments backed by federal guarantees ... it was probably one of the best investments the New York City pension system ever made."' Because an ETI might once have worked doesn't end the fiduciary issue.
If the investments the three officials propose could meet prudent standards, there should be a market of investors voluntarily ready to commit financing. If the market isn't willing to invest, politicians shouldn't abuse their trust as fiduciaries to try to use pension funds to finance these projects. If the investments are prudent and will pay a market return, why the need for a federal guarantee? The officials should seek appropriations for the projects from their legislatures, so the financing is fully debated and the public is fully informed and can influence the outcome of the proposals.
So far, Colleen Beamish, director-communications in the California treasurer's office, said Mr. Angelides isn't ready to make any announcement on developments that have come out of the meeting. But she hinted without elaborating that one change to the initial ideas could be to de-emphasize the role of pension funds. Mr. McCall's spokesman didn't return calls for comment.
Any potential de-emphasis, however, won't go far enough unless it eliminates public pension fund financing entirely from the proposal. For pension funds, there can't be any double bottom line that matters, only a single one, their own.
