Mayor Martin O'Malley is bashing heads with the city's retirement boards, pushing them to invest some pension fund dollars in the local economy - and it's easy to see why.
The city's two major pension boards control more than $3 billion in assets. That's close to 20 times what the city expects to collect in income taxes this year, or about $4,600 for every man, woman and child in Baltimore.
When O'Malley said he wanted to pump some of that money into the city economy, he threw himself into a debate over politics and public pensions that has raged for the last two decades.
Especially since the calls for divestment from South Africa and its apartheid regime during the 1980s, politicians have squared off repeatedly with pension officials, and with each other, over the issue of "socially responsible investing."
The debate now is over the kinds of "economically targeted" investments O'Malley is seeking: investments in local businesses that are designed to be profitable but are made in the hopes of creating jobs. It's an especially intriguing option for politicians, some analysts say, when money is tight.
"The mayor's options for raising funds for the benefit of the city are limited," said Edwin R. Boyer, director of alternative investments for Sparks-based Assets Strategy Consultants. "He realizes that this is a pool of funds that could help the city."
In an unusual address last month to the two major pension boards, O'Malley said that when he asks financial institutions in other cities to pour some money into Baltimore, he's told: "Your own pension system doesn't invest in Baltimore. Why should we?"
The problem, pension board members and analysts say, is that the retirement boards have a legal responsibility to seek the best rate of return on prudent investments for the city's nearly 30,000 retirees and employees whose livelihoods depend, or will depend, on their pension benefits.
Requiring local investment, experts say, raises two dangers: that local politics might influence where the money goes, enriching political patrons; and that pension funds might bypass better investment opportunities elsewhere.
O'Malley told the pension board members he recognizes those pitfalls.
"I'm not telling you to lose money," the mayor told the members of the Employees' Retirement System board and the fire and police pension board. "You all are the smart people. Come up with something that does more for our local economy than you all have been doing, and does it in a way that's [financially] responsible."
The pension boards have yet to come up with local investment policies that have satisfied O'Malley, and in retaliation he has been blocking pension system business that comes before the city Board of Estimates. The chairmen of the two boards - Comptroller Joan M. Pratt and fire officers union chief Stephan G. Fugate - have attacked O'Malley for interfering.
"The [pension] trustees don't work for the mayor," says Pratt, a frequent critic of the mayor. "They're independent."
Fugate has accused O'Malley of acting in behalf of Sterling Venture Capital, a local company run by several O'Malley campaign contributors - an accusation the mayor denies.
Sterling lost out on a lucrative pension contract in December, and O'Malley recently chastised the retirement boards for failing "to invest a nickel" with the company.
"It's almost as if no local investments need apply," O'Malley said in an interview last week.
Some retirement officials say that in fact, Sterling was initially chosen for the money manager contract in part because it was locally based. Pension board members say they dropped the company when they realized it wasn't the specific type of investment manager they wanted - and then they started hearing complaints from O'Malley.
Regardless of Sterling's case, some pension experts say that if the retirement boards start doing more business locally, politics may well influence the decisions.
"Pension activities around the country are often tainted with corrupt practices because it's an awful lot of money and it's a ripe area for pinstripe patronage," said Thomas A. Mills, a former chairman of the Philadelphia Board of Pensions and Retirement and a former first deputy finance director for the city.
"It was our former mayor Frank Rizzo who said, `Of course I give contracts to my friends. You wouldn't expect me to give them to my enemies, would you?'"
Beyond the politics, O'Malley's demand raises a fundamental question: Is it possible to get the best return on investments while advancing a particular cause, such as helping local businesses?
In the complex and often political world of public pensions, the answer depends on whom you ask.
The current debate over such investments is a direct descendant of the apartheid-era politics of the 1980s. In 1986, Baltimore joined a number of cities around the country in passing laws to force municipal pension funds to divest from companies doing business with South Africa.
