There is a growing wave across the country toward public pension fund investments in economic development. But not in Maryland.
Not if the dozens of retired state employees who testified before a House committee yesterday have their way, or the more than 600 others who called legislators in the past week to protest House Bill 963.
The bill, as originally drafted, would have required the trustees of the $15.5 billion Maryland State Retirement and Pension Systems to target up to 10 percent of their annual investment dollars toward "economically targeted investments." If the entire portfolio were reinvested in one year, 10 percent would amount to $1.55 billion.
But partly because of the unexpected amount of opposition to the bill, co-sponsor Kenneth C. Montague Jr., a Baltimore Democrat, offered amendments yesterday to water it down. The proposed changes would merely ask the trustees to make a "good faith effort to achieve a certain level of targeted investments," namely between 5 percent and 10 percent.
"House Bill 963 is a bill that really is designed to put Maryland in the mainstream with respect to targeted investments of its pension funds," Mr. Montague told the House Appropriations Committee.
But dozens of retired teachers and other current and retired state employees who showed up yesterday said they were still stinging from the pension system's decision two years ago to invest $15 million in a state-sponsored venture capital trust.
They questioned whether the concept of economically targeted investing would allow the pension trustees to fulfill their primary duty of earning the highest rate of return with the lowest amount of risk.
"Were these investments to earn the highest rate of return, then they would already be being made," said Susan Esty, a lobbyist for the American Federation of State, County and Municipal Employees. All state employees are required to participate in the pension plan, which covers more than 200,000 active and retired workers.
"There's considerable concern, since their money is there for the security of their retirement," she said. The flood of phone calls to the House committee members, she explained, was "a spontaneous uprising. It's like a tidal wave of outrage."
Bennett Shaver, secretary to the pension system's board of trustees, pointed out the pension system was already investing in Maryland. Along with the $15 million venture capital investment, the system has placed more than $10 million in pooled real estate funds in the state; $30 million more in Maryland mortgage securities; and has authorized Alex. Brown Inc. to find up to $100 million in direct real estate investments.
As practiced in almost two dozen other states, economically targeted investments have funneled pension money to everything from affordable housing and small-business loans in New York, to golf courses in Alabama and a proposed baseball stadium in San Francisco.
Of the roughly $4 trillion in U.S. pension fund assets, somewhere between $2 billion and $10 billion has been invested in economically targeted investments, depending on the definition used, according to Pensions & Investments magazine.