Phoenix Prop. 202 risky for pensions
From the political notebook: » Proposition 202, on Phoenix’s March 12 specialelection ballot, makes me nervous.
Right now, the city charter limits the investments the retirement board can make. This is intended to help ensure safety and diversity.
For example, no more than 60 percent of the city’s pension funds can be invested in common stock and no more than 5 percent in any one company. There’s a similar limit on preferred stock, 10 percent overall and 5 percent in any one company. There are also limits on how much can be invested in total, stocks and bonds, in any one company or industry.
Even these limits are too swinging for my tastes. I think public retirement systems should be limited to investment-grade bonds and stockindex funds.
Under the state Constitution, promised public employee retirement benefits are a contractual right. Without a constitutional amendment, the only way to get out from under them would be for the governmental entity promising them to go bankrupt.
That means, to minimize taxpayer risk, investments should be made in as sure of things as possible. Retirement boards are naturally in search of higher returns, particularly these days when unfunded liabilities are mounting. But higher returns require taking greater risks.
The Phoenix retirement system currently has only 26 percent of its portfolio in fixed-income investments. The rest is in equities, real estate and hedge funds. Although that’s perhaps understandable in a low-interest-rate environment, that’s not a low-risk profile.
Prop. 202 would eliminate the current charter restrictions on retirement-fund investments and replace them with a “prudent-investor rule.”
Which is really no restriction at all.
Rather than hard numerical limits everyone can understand, the prudent-investor rule is entirely subjective. Short of a road trip to Vegas and putting everything on red, whether any particular investment is prudent is a matter of opinion. And the new charter language specifically allows the board to ignore diversification and make outsized bets if it thinks that’s
by the Morrison Institute for Public Policy at Arizona State University, Arizona’s Economic Development Landscape: Charting a Unified Course. The report was sponsored by Freeport-McMoRan Copper & Gold Foundation.
As Arizona works to build a better, more diversified economy and capitalize on the state’s growing reputation as a center for entrepreneurialism, innovation and opportunity, other challenges outlined in the report include:
» The huge number of jobs lost in the recession has reinforced the need for Arizona to wean itself off the booms and busts associated with the realestate/development industry.
» Many of our smaller rural communities are struggling to find their footing coming out of the recession.
» Arizona is not producing nearly enough of the STEM — science, technology, engineering and math — graduates that are essential to competitive economies in the 21st century.
» Many of our cities, towns and counties lack an economicdevelopment plan and have less than one full-time person working on economic development. Without a plan, communities lack a sound understanding of where they are, where they want to go, and how they are going to get there.
So, what can business, government and civic leaders do to help Arizona retain and grow jobs, businesses and enterprises? For starters, here are some immediate actions:
Cities and counties: With so many different and sometimes competing interests, and severely constrained resources, cities and counties must develop a culture of collaboration to provide the workforce, infrastructure and competitive business climate that are crucial determinants in business locations and job creation. All cities and counties should either have their own economicdevelopment strategy or be an integral part of a regional strategy. In rural Arizona, this collaboration is especially critical.
Local elected officials: Economic development is a marathon, not a sprint, and therefore needs a big-picture, long-term view — longer than even an incumbent’s term of office. It also is a team sport, requiring the active engagement of many to help retain and expand existing business, recruit new businesses and jobs, and support small businesses and entrepreneurship. Mayors, council members and county supervisors need to be catalysts for change and growth. A first step is making sure that their own jurisdiction has a clear idea of where it stands and where it needs to go.
Arizona Commerce Authority: With new leadership, staff and $10 million budget, the state’s economic-development organization needs to be able to count on stable funding and continued support from the Legislature and private sector. Even under the best of circumstances, it can take five to 10 years to turn around a state’s economy. The authority is rolling out its “Arizona Know How” branding campaign, touting the state’s abundant assets for business, industry and entrepreneurs. Telling the “Arizona Know How” story — inside of Arizona, in key markets across the country and around the world — is a vital step toward improving the state’s image.
Arizona Legislature: Law- makers must stay the course on the positive programs and policies instituted in recent years. Those programs and policies need a chance to work, and economic-development success requires focus, commitment and continuity. The Legislature also needs to support efforts that will diversify Arizona’s economy by targeting such cutting-edge sectors as bioscience and advanced electronics, while also protecting and expanding such traditionally strong sectors as aerospace and aviation. Of particular import are the significant opportunities in the research and development of unmanned aircraft systems in such cities as Yuma, Sierra Vista, Prescott and Safford.
In addition, the Legislature must restore funding to our education systems and institutions — primary, secondary, post-secondary — including community colleges and the state’s three public universities. This will go a long way toward improving Arizona’s economic-development competitiveness and reputation. And let us not overlook the critical importance of being a state that values and welcomes diversity, a basic requirement in today’s globalized economy.
Business community: Arizona’s business community needs to champion policies more than those that benefit their own firms or industry sector. Business leaders should get behind the Arizona Commerce Authority and regional groups such as the Greater Phoenix Economic Council and Tucson Regional Economic Opportunities, , as well as their local economic-development agencies and organizations. Business also must join legislators, community and business leaders, and educators in efforts to improve Arizona’s P-16 education systems and institutions, along with federal immigration reform. Finally, all Arizona business owners and executives must make themselves familiar with Arizona’s assets and tout them to their employees, boards of directors, customers and investors.
Although Arizona has much to celebrate, we still have much to do. Economic development and competitiveness will come only with continued collaboration, relentless work and investment — investment of time, commitment and purposeful action. Every resident in our state stands to gain when all communities across Arizona prosper. It’s up to every Arizonan to help make that happen.