Calif. considers investing more in its cities

July 26, 1999|By Neal R. Peirce

SACRAMENTO -- Why should America's public pension funds -- the life savings of America's state and local government workers -- be invested overseas, when better returns are often available from investments in our own cities?

That's the kind of disturbing question that Philip Angelides, California state treasurer since last January, has been asking.

It turns out that CALPERS -- the California Public Retirement System in which Mr. Angelides plays a key role -- has $35 billion invested in 48 countries worldwide. Altogether U.S. public pension funds now hold $242 billion worth of foreign stocks.

Yet Mr. Angelides, monitoring reports for the massive pension funds (value $240 billion) his office manages, noticed a big flow in depressed Indonesian and Japanese securities. In some cases, CALPERS' two-, three- and five-year returns from so-called "emerging markets" have even been negative.

"It's amazing to me," says Mr. Angelides, "how American investment in volatile overseas areas is a `given' of our capital markets, even while our own emerging markets -- inner cities, minority small businesses -- are so often written off as risky and troublesome."

Making home loans

Yet there are ripe opportunities, he notes, for "infill" development in cities. The federal Community Reinvestment Act, he adds, proves that lower-income minority residents, given a chance to borrow for a home, "will work their hearts out to pay it off."

Yet when Mr. Angelides asked a group of investment bankers why they hadn't set up a secondary market in loans to small and minority firms, they said the idea had never occurred to them.

It's not the first time we've seen such anomalies. A generation ago, when American capital rushed into questionable (and later disastrous) Latin American investments, our inner cities were effectively "redlined" to exclude home mortgage loans. Later, the multibillion dollar savings and loan scandals were perpetrated by institutions that pumped money into fast-expansion suburbs while ignoring older cities.

But past may not be prologue, if Mr. Angelides has his way. A 46-year-old former developer and state Democratic chairman elected treasurer last fall, Mr. Angelides has decided California faces a grim future unless it starts to rebuild its decaying older cities and curb wasteful and environmentally risky sprawl development at the urban fringe.

In June, Mr. Angelides went on the road across California selling his newly issued "Smart Investments" report. He argues California should set clear, strategic goals for investing its billions of public infrastructure funds and pension monies.

Smart growth angle

His own offices administer $450 million in yearly tax credits to construct affordable housing, and Mr. Angelides has abandoned his predecessor's lottery system of allocation. Instead, he's instituted smart growth incentives -- extra points for projects within a quarter mile of transit, or walking distance of an elementary school, or in a depressed area with a holistic community redevelopment process under way.

The main goal is to avoid a future of "two Californias" -- one affluent and white, the other poor and minority.

Initial reception is positive. Bank of America chief executive officer Hugh McColl arranged an Angelides briefing before 25 top business leaders in Los Angeles. Mr. Angelides pitched his approach to credit rating agencies, investment bankers, the Silicon Valley Manufacturing Group and a smart growth conference staged by the regional San Diego Association of Governments.

Mr. Angelides is getting welcome signals partly because the old growth assumptions -- that it's OK to build on green fields and ignore the cities -- are falling apart under the pressure of growth boundaries, hostile voter initiatives, traffic bottlenecks and land shortage.

Neal R. Peirce is a syndicated columnist.

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