Just 2% of Philadelphia’s pension fund could boost the local economy

The primary responsibility of the $8.4 billion Philadelphia pension fund is to assure the continuing financial security promised to city workers upon retirement. The welfare of city employees, along with all Philadelphians, depends on the economic and social well-being of the city itself. Therefore, the Philadelphia Public Banking Coalition has proposed that the city pension fund invest $168 million, 2% of its portfolio, in local economically targeted investments to fund projects that benefit Philadelphians.

These investments would address policy goals while achieving returns as high or higher than many of the fund’s current asset classes. Currently, the 2023 pension fund investment policy describes risky investments in options, futures, forwards, and swap agreements. And there’s a precedent for public policy considerations, for example, in limitations on investments in Russian companies, private prisons, and arms manufacturers. The current portfolio exhibits a strong real estate focus but without preference for Philadelphia projects.

Below are just a few of the possible opportunities for targeted investments that would strengthen the health of Philadelphia’s economy.

Philadelphia could follow New York City’s lead in investing in affordable housing. New York City allocates 2% of its pension assets for economically targeted investments. Since the 1980s, the program has invested more than $4.5 billion in affordable housing. The AFL-CIO Housing Investment Trust also provides an example of union investment in affordable housing for its members.

A federal General Accounting Office report in 1992 found 15 public pension fund investments in affordable housing, most of which involved seamless collaboration with other programs. Globally, there is a growing movement to create a housing supply that is permanently affordable and can anchor economically diverse neighborhoods. Called social housing, it is directly owned by local government. Seattle offers a current example. Vienna and Singapore have had such programs for decades. Philadelphia should be next.

The Philadelphia Green Capital Corp. could leverage financing from the pension funds for programs promoting renewable energy and energy efficiency, following the model of the New York State Energy Research and Development Authority. Or a grant through the Inflation Reduction Act to implement a Clean Communities Investment Accelerator program could collateralize a loan from the pension fund, thereby further expanding its capacities.

Financial incentives provided by the Inflation Reduction Act and other recent legislation can now remit 30% to 50% of renewable energy and energy efficiency project costs in the form of tax credits or direct payments. Because such projects require upfront capital outlays, pension fund financing could expedite the implementation of these programs. Doing so would benefit not only the pension fund but also the whole of Philadelphia.

When the Weavers Way Co-op expanded to stores in Ambler and Germantown, it demonstrated that cooperative capital development projects can be large enough to be stand-alone investments for a pension fund. For smaller-scale cooperative ventures, credit unions — which are a form of cooperative organization for financial purposes — have created investment vehicles in other countries like Ireland, providing a model for collaboration between our local credit unions and the Philadelphia pension fund.

Community land trusts could hold property of a size and for a purpose suitable for pension fund investment. Long-term investments in community land trusts could be used to refinance properties whose tax credits are expiring, and would otherwise be gentrified.

To make this proposal operational, an entity is needed to identify or package investments that meet the pension fund’s criteria for risk, return, capital preservation, and impact, while buffering against political favoritism. The Board of Pensions and Retirement could create or hire such an entity, but an even better choice would be the Philadelphia Public Financial Authority; City Council created the authority in 2022 for the purpose of facilitating such financing.

The bottom line is clear: $168 million from the city pension fund — just 2% of its portfolio — could be wisely invested in such projects, with market-rate returns at risks similar to, or even lesser than, many current investments.

This would stimulate the local economy and expand jobs and economic opportunities, thereby improving the city’s tax base and supporting the beneficiaries of the pension fund in the present, as well as upon retirement.

Stan Shapiro is cofounder and vice chair of Philly Neighborhood Networks, following a long stint as chief staff attorney for City Council. Peter Winslow is president of A SMART Collaboration LLC and is active in the Philadelphia environmental justice community. Both are members of the Philadelphia Public Banking Coalition.