October 21, 2008
New York City is exploring whether to invest some of its over $100 billion pension fund in roads, bridges, power plants and schools to keep up with its rising population in the face of budget constraints, the city comptroller said on Tuesday.
Texas was one of the first states to propose investing pension funds in infrastructure projects. Projects in many states around the country have been put at risk by cuts in federal aid and the economic downturn that has clipped tax revenues. New York City's budget is under pressure from the crisis on Wall Street as the financial industry usually contributes 10 percent of city tax revenues.
New York City's Democratic Comptroller, William Thompson, included his infrastructure recommendation with other proposals to address the city's financial problems. The proposals range from cracking down on overspending, by reducing the $1 billion spent on overtime by city workers and more than $26 million on non-overnight travel, to indexing the unincorporated business tax to inflation.
Thompson, a mayoral candidate who opposes Mayor Michael Bloomberg's bid to extend the term limit law, told a Crain's business breakfast his office is "exploring the use of New York City Pension Funds to invest in infrastructure, specifically investments that could address the urgent need to repair and expand roads, bridges, power plants and schools to meet population growth amid budgetary prudence."
SOME SAY LEASING IS BEST
The comptroller's approach differs from a strategy proposed by one of his mayoral rivals, Democratic Speaker Christine Quinn, who said the city should examine leasing assets.
Leasing, which typically involves public-private partnerships, is also being studied by New York's Democratic Gov David Paterson.
Though widely used overseas, leasing ventures have had a mixed record in the United States.
Texas has the biggest U.S. privatization plan, but lawmakers enacted a partial moratorium due to fears that the deals had enriched developers at the public's expense. In Pennsylvania and New Jersey, turnpike privatization plans were so unpopular, they were unable to make any headway.
But Virginia and Florida are forging ahead. And just a few weeks ago, Chicago's City Council approved a plan to lease its Midway Airport for $2.52 billion to Citigroup, YVR Airport Services, and John Hancock Life Insurance Company.
Public and private pensions around the nation have ample reason to seek higher returns by investing in roads and other hard assets. This year, many have been burned, not only by stocks, but investment in real estate, hedge funds and commodities, which were popular plays in recent years.
Many public pensions aim for an 8 percent return. Muni analysts expect few if any to meet that benchmark this year.
While New York City's comptroller is one of several overseers for its pensions, State Comptroller Thomas DiNapoli is the sole trustee for this $154 billion fund and a DiNapoli spokesman said he also is looking into infrastructure plays.
"The bottom line is that every investment has to make good economic sense for the Fund," the spokesman said. "This is an evolving asset category, and we're watching developments in this space of the market closely."
If public pensions decide roads, bridges, power plants and schools are the next best investment, they will be following the lead of financial companies that have raised hundreds of millions of dollars for this purpose, including: Goldman Sachs, Morgan Stanley, The Carlyle Group and a Credit Suisse-General Electric venture.
Spanish companies Cintra and Abertis and Australia's Macquarie Group Ltd are among the developers that have sought deals in the United States.
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