Washington state should not risk pension funds for startups
The Seattle Times editorial board argues against the suggestion by U.S. Rep. Jay Inslee, Democratic candidate for governor, that part of the state employee-pension money be used as venture financing for high-tech startups.
In his campaign for governor, Democrat Jay Inslee needs to be more careful in his economic suggestions. His proposal to use part of public employees' pension money as financial kindling to light a fire under "startup innovative companies" abounds with unnecessary risk.
That startups are inherently risky is part of the problem. The bigger risk is political. It is the piling of social objectives onto a task of finance.
The money is for the retirees. To make sure it will be there, the Washington State Investment Board invests contributions with an objective of earning 8 percent a year. It has averaged slightly better than this over the past 20 years. The result of its success is that only 14 cents of every dollar in pension payments is the return of money paid in, and 84 cents is from earnings.
It is a strong record, and it was done by being single-minded. "Collateral benefits like economic development are not things we can take into consideration," says the board's director, Theresa Whitmarsh.
The rules that bind the board are not arbitrary. They are the result of bad experiences in other times and places. U.S. Rep. Inslee knows this; it is why he immediately slimmed down his proposal by saying it would be "a small, defined portion of our state pension funds" only, and that as governor he would not choosing the companies himself.
Still it opens Pandora's Box.
Imagine one scenario. Inslee is an enthusiast for biodiesel. He made his comments at a Seattle biofuels company and suggested that pension money might be used to bankroll just that sort of company. Suppose it had; suppose state employee-pension funds had provided seed money for the largest biofuels refiner in the state, Imperium Renewables. That company got into trouble. It fired its CEO and had to cancel its initial public offering.
And more. Earlier this year Imperium was asking the Legislature to mandate that every gallon of truck-stop diesel sold in Washington have a small percentage of biodiesel. It wanted a guaranteed market. The Legislature said no — but would it have felt free to say no if state pension funds were owners of Imperium stock?
Single-mindedness has its advantages.
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