News Story

Ann Arbor Considers Cutting Lucrative Fossil Fuel Stocks From Underfunded Pension Plan

The Ann Arbor City Council is considering divesting its city retirees’ pension fund from investments involving fossil fuel companies in an effort to combat "global warming." 

But the city could be urging its pension board to pull out from lucrative stocks at a time when the system is already underfunded. The city’s Employees’ Retirement System has its own board and it would make the final decision.

A recent study showed that oil and natural gas stocks have been among the most lucrative nationwide for many public pension funds. Financial experts warn against limiting investments (or excluding certain categories) if investors want to maximize returns.

Ann Arbor’s own pension report states that the retirement system is underfunded and may be in need of increased contributions from the city.

According to the city’s retirement system 2012 report, which is the most recently released by the city, the retirement system is funded at 82.7 percent. Without “significant investment gains,” the report says the city will need to increase its contributions to the retirement system. In 2012, contributions were $12.7 million, according to the report.

Ann Arbor City Council Member Stephen Kunselman said the resolution has been postponed so they could get more information. Kunselman said he wants to know more about what divesting from fossil fuel stocks would have on the fiduciary responsibilities of the city’s pension board.

Carlton Carroll, spokesman for The American Petroleum Institute, said oil and natural gas stocks have been great investments for municipality pension funds.

“It does a disservice to our nation’s pursuit of long-term energy security and to the thousands of families that rely on the substantial investment returns provided to state and local governments by the oil and natural gas industry,” Carroll said in an email. “The oil and natural gas industry has been one of the few bright spots in our economic recovery and how the energy revolution taking place in America can create millions of new American jobs and trillions of dollars of revenue for the government at a time when we need it most.”

A 2011 study found that oil and natural gas stocks provided seven times the returns per-dollar-invested as the other fund investments when looking at the five largest public employee pension funds in 17 states. 

The analysis was done by Sonecon, an advisory firm that does economic studies. The company says it has provided analyses for Bill Clinton, Al Gore, Hillary Clinton, Barack Obama and numerous senior officials for the Obama administration.

“The development of oil and natural gas in America has done more to create jobs and generate revenue than any other industry during these difficult economic times,” Carroll said. “State pension fund investments in oil and natural gas companies are providing strong returns for teachers, firefighters, police officers, and other public pension retirees, according to a Sonecon study.”

According to an article posted at MLive, the city of Ann Arbor’s Energy Commission urged the council to divest from the top 200 publicly traded fossil fuel companies.

Ann Arbor Mayor John Hieftje and Nancy Walker, executive director of the City of Ann Arbor Employees’ Retirement System, didn’t respond to requests for comment.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.

Commentary

Affirmative Action for Kindergartners

As the Supreme Court's October term beckons, it is worth noting that the Justices have accepted an important case, Schuette v. Coalition to Defend Affirmative Action.

This case pits defenders of a Michigan constitutional amendment designed to prevent racial preferences against those who wish to protect such preferences. Passed with overwhelming support by the voters of Michigan in 2002, the Michigan Civil Rights Initiative would prohibit both discrimination and preferential treatment on the basis of race or sex in public university admissions.

Proponents of this initiative point to verified evidence showing that admissions based on merit rather than race improve educational outcomes when measured by the number of minority students who graduate both on time and with degrees in demanding fields.

Opponents argue that experience shows that the enrollment of minorities, particularly at elite schools, tends to suffer in the absence of preferences. From a policy perspective, this debate comes down to the question of whether the nation wants more minority graduates in STEM fields — consistent with the outcome of California’s Proposition 209 — or simply more minority enrollees. Much of the current debate over which policy choice ought to be implemented centers on the admissions practices at the University of Michigan, which sees itself as an elite institution.

At the same time, some 40 miles away from Ann Arbor, the residents of Detroit must deal with a public school system that — aside from a few bright spots — affirmatively diminishes the economic and social prospects of children. As researchers at Johns Hopkins University have shown, Detroit high schools are part of a universe of 2,000 highly deficient secondary schools in the country that serve large numbers of minority students. In fact, 38 percent of all African American students and 33 percent of all Latino students in the country attend these dropout factories. These schools produce 81 percent of all Native American dropouts, 73 percent of all African American dropouts and 66 percent of all Hispanic dropouts.

Predictably, the nation's ongoing failure to solve the problem of under-performing elementary and secondary schools means that hundreds of thousands of minority students, who could meet colorblind admission standards at elite schools, are not even in the ball game.

It is doubtful, however, that either preferential admissions or the nation's current examination of such admissions can overturn these hard facts. Rather than addressing the deficiencies of schools that place the lives of thousands at risk and contribute to rising income inequality, it appears that the future of disadvantaged students as a whole, and the present concerns of parents, remain buried from view.

Politicians and over-heated commentators distract us with their focus on whether a few more minority students will be admitted to, but not necessarily graduate from, elite universities.

Cynically, the persistence of this outcome may serve as a full-employment, reputation-enhancing opportunity for lawyers, advocates and university admissions officers. At the same time, the advantages of dismantling failing schools and school districts, the benefits of firing underperforming teachers and the necessity of providing expanded school choice remain unexamined while the politicians of both parties take advantage of this unseemly situation by leveling charges and counter-charges and offer affirmative action in university admissions as a panacea for failing public schools.

Given this state of affairs and driven to achieve a distinctly different future — one that bears little resemblance to the past — African Americans, Latinos and indeed all Americans must, without malice or bitterness, pursue an enduring form of jurisprudence that places the education of the disadvantaged among us at the center of our focus while condemning the nation’s disproportionate focus on elite education to history’s dustbin.

Although the debate over racial preferences at elite public universities may be important as a constitutional matter, it is time to pursue affirmative action for kindergartners. Rather than continue to allow the lawyers, the activists and the politicians to profit from America’s ongoing commitment to inaction and human misery, let’s address school failure now.

(Editor's note: This commentary originally appeared in The Detroit News on Sept. 26, 2013.)

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Harry G. Hutchison, a University of Michigan graduate, is a professor of law at George Mason University School of Law and a member of the Board of Scholars at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.