Pointing to the ways better schools have helped boost neighborhoods in his 47th Ward, Alderman Ameya Pawar believes leveraging Chicago pension funds to provide direct social investment in city neighborhoods can serve as a much-needed stimulus package for the city.
Pawar, elected in 2011, outlined his ideas in a recent interview with Ward Room that focused on funding social services while also finding new ways to address chronic underfunding in the city’s pension funds. His suggestions include creating a common fund to pool a portion of the dollars already sitting in pension funds to help improve schools, communities and property values as well as provide an equal or greater return on investment than the funds already realize.
“It’s something I think we should talk about as a city, especially in conjunction with the issues [currently] surrounding our pensions,” Pawar said. “We keep hearing how we need to invest more in communities, hire more people and get more working class jobs. We need to flip a lot of these issues on their head and ask how can we rethink them.”
As part of a strategy to ensure future liabilities are met, pension funds of all stripes take current dollars and invest them in capital markets or other investment opportunities, and try to match future expected returns with the amounts the fund needs to pay out down the road. Pawar’s plan, still in the discussion stage, centers around replacing returns gained in, say, the stock market, with community-based investment opportunities.
Such opportunities could include funding social services or basic health care in schools or providing much-needed capital for infrastructure projects like roads, sidewalks or affordable housing. It’s an idea that’s been tried before, most noticeably in New York state, where the United Federation of Teachers invests a percentage of its retirement funds in creating affordable housing and jobs in New York City neighborhoods that earn market-rate returns. As well, four of New York City’s five pension funds invest $500 million in a pair of funds that help finance the rebuilding of residential and commercial properties damaged by Superstorm Sandy.
Pawar points out that in making schools better performing, communities become more attractive, generating new residents and increased property values. He cites Alexander Graham Bell Elementary, John C, Coonley and Audubon Elementary schools in his ward as examples of areas with higher property values as a result of attractive, high-performing schools.
By pooling resources into a common fund, Pawar says, the risk to the pension funds can be lowered. As he envisions it, the program could work like a tax incremental financing district, or TIF, capturing returns on investment from the incremental value realized as neighborhoods improve and property values increase. He’s quick to point out, however, the common fund wouldn't simply be another pool of money open for just any use, but would be restricted to either pilot programs or specifically identified projects that fit the common fund’s mission.
At the same time, the plan could help address issues related directly to the funds themselves.
“[To fix the city’s pension crisis], you need to either come up with new revenue or make some structural changes,” Pawar says. “This idea could do both. It’s a home grown stimulus. Ultimately, the more people that are working in our most vulnerable neighborhoods, the bigger the tax base and the more people who can pay into the pensions themselves.”
While he admits there are a host of details yet to be resolved, Pawar sees the opportunity as a stimulus directly benefiting communities by putting people back to work. The result: more jobs, more tax revenue, and more money flowing into pension funds.
“You have over $1 trillion in private entities and pension funds that isn't being invested in infrastructure,” he said. “This is a mechanism to take some of that money and get it into communities.”