Last week Nicholas R. Carbone, deputy mayor of Hartford, announced that he would ask the City Council there to consider using city pension funds for low-cost housing loans.
Hartford's problem - a decaying inner city made worse by the flight of the middle class to the suburbs - is typical of many cities across the country. The solution proposed for Hartford may also become typical.
Public employe pension funds have been the fastest growing segment of the nation's retirement system in the past seven years, expanding at nearly 17 annually, Pensions & Investments magazine reported recently.The assets of state and local government plans totaled $131 billion at the end of 1977.
Despite their rapid growth, some of these plans are still grossly underfunded. A struggle is brewing between those city officials who want to fund pensions adequately and those who want to cut taxes. Meanwhile, the accumulated assets of pension funds seem like a gold mine to beleaguered city officials.
The New York teachers pension fund helped bail the city out of financial difficulties a couple years ago. Congress passed a bill specifically exempting New York from the prudence and exclusive benefit provisions of the Internal Revenue Code.
On the other side of the coin is the possibility that public employes' benefits may be jeopardized by using funds for social purposes.
Marc Gertner, a Toledo attorney, cited the example of an investment in housing complex for the elderly. The buildings cost $2.3 million to construct, and the return on investment, in Gertner's words, "would have provided one union seven days of work for six men."
Federal legislation prohibiting public employe funds from acquiring employer securities and real property in excess of more than 10 percent of the fund's assets failed to pass this year, but will probably be reintroduced in the next Congress. The bill is opposed by many public pension fund administrators who feel that state laws are adequate.
Enter the Department of Housing and Urban Development. That agency recently commissioned a two-year, $450,000 economic analysis of state and local pensions by the Urban Institute, a research organization. This follows by a few months the publication of a four-year, $524,000 study by the House Pension Task Force that documented the chaotic situation of state and local pensions.
Pensions & Investments declared: "There is only one obvious motive for HUD's interest in pension funds. It is looking for a way to divert the assets into investment in housing or urban development, probably low-income housing and urban renewal."
The editorial continued: "It is to be hoped that public pension fund officials have the stamina to continue their funding programs and to resist any pressures for investing their funds at other than market rates of return."
Michael Schneider, of HUD's office of economic affairs, denied that the department's primary aim was to tap the public pension fund lode. Rather, he said, it will help HUD to make policy decisions.
"If a city is going bankrupt, should we build a civic center? Are block grants helping or hurting cities' solvency?" he asked. On the investment side, he said the HUD study was intended to inform pension managers of a variety of investments, such as Small Business Administration-guaranteed loans.