by Ron Ross
The Arcata City Council, not surprisingly, has been looking into ways to invest the city's working capital in "socially conscious" securities. A draft proclamation states that "the City Council of the City of Arcata declares the goal of investing and expending its public moneys in a manner that is socially and environmentally responsible as well as fiscally responsible to the citizens and community of Arcata."
In my October column I expressed skepticism about the effectiveness and feasibility of socially conscious investing. The issues I raised pertained to an individual investing his own money.
Additional concerns are raised when a person or group invests funds belonging to someone else. When you manage assets for the benefit of another person, you become what is known as a "fiduciary." Common examples include trustees of pension plans, someone managing the assets for a disabled or underage relative, or the trustees of a charitable foundation.
A sizable body of law exists pertaining to what is proper conduct of fiduciaries. The American Law Institute's summary of the laws and court decisions runs 454 pages.
Anyone responsible for public funds is subject to additional restrictions. In most cases, for example, stock market investments are disallowed. These rules will probably keep the Arcata City Council on a short enough leash so that no serious errors will be made with the city's funds.
Nevertheless, there are a number of reasons to question the advisability of a local government entity attempting socially conscious investing.
The city has $6.2 million, which is managed by California's Local Agency Investment Fund. The fund invests primarily in commercial paper, government securities and certificates of deposit with maturities averaging less than a year.
It's reasonable to assume that the citizenry expects its public officials to get market rates of return and avoid loss of principle on its investments. Any public official going beyond these narrow objectives would be wide open to criticism and the possibility of legal action if a problem arose with the investments.
Furthermore, what is the mandate of someone elected to local office?
During the Vietnam War, Los Angeles Mayor Sam Yorty paid a much publicized visit to Vietnam. When Yorty returned he was full of advice as to what the United States ought to be doing in Southeast Asia. One of the local papers observed at the time that Los Angeles was the only city in the country with its own foreign policy.
In the intervening years, a number of other cities (San Francisco, Berkeley, Santa Monica and Arcata, for example) have occasionally behaved in a similar fashion. During the Gulf War, the Arcata City Council declared itself a sanctuary for conscientious objectors. Arcata is also a self-proclaimed "nuclear free zone."
Aside from questions surrounding the soundness of these issues, the basic question is, are these appropriate concerns for local government?
The Arcata City Council seems to be composed of U.S. senator wannabes. Effectively managing a city is not enough for them; they want to save the world. Have they resolved all municipal problems so that now they can apply their wisdom to national issues?
If the council members choose to proceed with their socially conscious investment plan, I would hope to see a clearly specified statement as to why they are doing it, just what they expect to accomplish and how they are going to measure and quantify how well they have succeeded?
This would be a very difficult thing to do, but nevertheless, it is a reasonable expectation. Part of the body of law pertaining to fiduciaries, in fact, requires written investment objectives.
Some of the issues on most socially conscious "screens" strike me as somewhat hypocritical for government officials. How can public officials in California moralize about companies involved in tobacco or gambling when the government is by far the major beneficiary of these activities? The California lottery is the largest example of legalized gambling in the state. Taxes on tobacco products are several times larger than the profits earned by their producers. If tobacco companies are guilty of exploiting nicotine addicts, so are elected officials.
As an Arcata resident for 28 years, I haven't often agreed with my City Council. I have to admit, however, that the councils have been entertaining.
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