ERB top priority should be fiduciary, not morality

Why stop there? The state Educational Retirement Board chose social conscience over fiduciary duty last week when it voted 4-2 to drop investments in private prison companies.

For some boards, that may be a good thing. But not when more than 100,000 New Mexicans are relying on you to keep their retirement funds sound, and tapping taxpayers is needed to make that happen.

Board member Adan Delgado was among those supporting the change, arguing “we’re a pension fund that represents educators, and I think the message we received from our members has clearly indicated they have a very strong distaste for our investment in private prisons.”

Activists have targeted investments in Florida-based GEO Group, which operates county jails and detention facilities for U.S. Immigration and Customs Enforcement in New Mexico and elsewhere. Private prisons are, and have been, a reasonable subject for debate, and opponents argue that profit from incarceration is morally wrong.

But how does the board vote, which wouldn’t be implemented until it approves policies implementing the change, square with NMERB’s “fiduciary duty to minimize risk in our portfolio and take advantage of opportunities on behalf of our members?” It doesn’t.

The majority isn’t making an economic argument here. And bear in mind the ERB has had chronic unfunded liabilities — 2019 reforms are expected to get it to full funding in 46 years. Of course the ERB’s 60,000 active members and 51,000 retirees — primarily teachers, school administrators and university professors — expect their defined retirement checks to be there as promised. And so there has been a regular ask of legislators to shore up the fund with more and more taxpayer money.

A more important question here is the slippery slope — and the immense fiscal impact if followed to a logical conclusion — raised by board member Donald Duszynski, who warned a statement on private prisons could lead to the board taking sides on issues ranging from tobacco to birth control to fossil fuels.

He’s right. If the board majority — which includes a designate of Treasurer Tim Eichenberg, who should know better — wants to go down this road there are plenty of targets. Perhaps they should also boycott:

Intel, which last year announced it was investing another $11 billion in its Israel-based operations, boosting its workforce there to about 14,000. The Boycott, Divestment and Sanctions (BDS) movement argues against investment in companies doing business in Israel over the Palestinian issue.

Apple. Chances are if you use an iPhone it was made at a sprawling factory complex in Zhengzhou, China, that employs about 350,000, many who work long hours for low pay. The morality issue on private prisons in the U.S. is much more serious in China. A United Nations human rights panel reported that up to 1 million Uighur Muslims were forced into grounds that resemble massive internment camps for “political indoctrination.” The New York Times and others have documented China’s designation of Islam as an ideological illness and its objective to annihilate it by way of sweeping ethnic cleansing.

Apple is one of the world’s biggest companies. Earlier this week it was trading at $118 per share and its gross profit for the 12 months ending June 30 was $104.5 billion, up 6.54%, according to macrotrends.

General Motors. A Fortune 500 company, GM’s first China venture dates to 1997 with the formation of Shanghai GM to manufacture and sell Chevrolet, Buick and Cadillac brands in the domestic market. As Forbes reports, local partnerships are important in China where local partners “have close ties to the Communist Party — which determines who will be in what business and for how long.”

ExxonMobil and Chevron. These energy giants are major producers of fossil fuels — and targets of climate change activists.

The list could go on. While it might be politically popular to pick on private prisons, the board majority’s position here is wrongheaded — unless ERB members want to go down the road of politics over economics as a retirement investment strategy. If they do, it should be with eyes open to reality and no expectation of any future legislative bailouts courtesy of the taxpayers, who can ill-afford to subsidize their moral choices.