Use Pension Funds to Renew Cities, Jesse Jackson says
THE Rev. Jesse Jackson's controversial plan to use private pension funds to rebuild inner cities is once again in the news - to the discomfort of the United States pension-fund industry. Mr. Jackson's proposal was a major part of his unsuccessful presidential bid in 1988. Pension managers, however, have long faulted the plan. They argue that to tap private pension funds to aid one particular social goal - in this case, the construction of homes and businesses within inner-city areas - could potentially threaten the economic safety of pension plans, particularly if the ``borrowers'' of the pension funds were unable to pay back the amount borrowed.
Jackson, however, is stepping up his advocacy of the plan, which is gaining new attention, given growing speculation that Jackson could be a candidate in the 1990 mayoral election in Washington.
Political analysts say that if Jackson were to run - a step that would necessitate moving his residency from Chicago to Washington - he would presumably win. Incumbent Washington Mayor Marion Barry has come under mounting criticism for his city's growing crime problem. Washington is predominantly black and solidly Democratic, factors that would favor a serious Jackson mayoral bid.
Jackson, for his part, has once again taken the offensive in pushing for his pension-plan housing program:
In a speech at Harvard in April, Jackson called for a domestic housing bank, patterned somewhat along the lines of the World Bank. Such a bank, Jackson said, would not rely on ``government money or private charity.'' Rather, he said, ``it would use workers' money.''
``Why,'' Jackson asked, ``can't a pension fund be used for housing?''
Jackson and his supporters repeated their call for the bank at a ``African-American Summit'' held in New Orleans at the end of last month. As a bow to the Jackson supporters in the conference, a resolution was passed calling for black Americans to pool their financial resources to aid inner cities, as well as to tap private pension funds as an ``alternative'' to banking institutions and the bond market for the capital needed to develop housing and small businesses within inner cities.
Specifically, the plan called for investing $80 billion in urban areas over a 10-year period.
The African-American Summit was the first national black political convention since a summit in Gary, Ind., in 1972. Thus, adoption of the Jackson pension plan was seen by analysts as reflecting the underlying political agenda of the larger black community in the United States.
Jackson has repeatedly called for a congressional review of the Employee Retirement Income Security Act, the federal law governing pension plans in the private sector, to see how pension funds might be better used for retirees and to aid urban communities.
Still, many pension-fund officials, and custodians of trust funds earmarked for pensions, argue that it would be a mistake to tap pension funds for political goals. ``That would be a distortion of the original purposes of the funds, which are targeted for pension benefits alone,'' one fund custodian says.
Currently, only a few pension funds in the US allow assets to be used for political objectives. One such example is the New York City Retirement System. Since the early 1980s, it has provided for assets of about $300 million to be used for mortgages and rehabilitation projects.
Officials of New York's retirement program insist that whatever assets are earmarked for housing provide for a market rate of return on the funds borrowed.
New York's pension system has worked in tandem with a local agency, the Community Preservation Corporation. According to officials of the pension plan, the return on investment has been in the 11 percent range. But to make the actual housing sites more affordable to lower- and middle-income people, the community group mixes in grants and other borrowed funds to bring down the actual interest rates of the housing that is built.
Other jurisdictions that have used state or city pension funds to help underwrite various construction programs have included Connecticut and the city of Burlington, Vt.
Jackson, for his part, has indicated that he hopes to sponsor a national summit on his housing plan, although the time for such a summit has not yet been determined.