March 1998 Denver Public Schools invested in private prison corp.
DPS made money off prisons
By Carlos Illescas, Denver Post Education Writer
March 4 - Successful investing can sometimes mean investing in failure.
that's what some Denver Public Schools officials discovered recently when
told that the district's pension fund made money off a company that buys
prisons, then leases them back to the governments and private agencies
that run them.
The investment raised eyebrows among some school board members,
who have begun questioning whether certain types of industries are
appropriate for a school district's portfolio.
Locally and nationally, schools and other public entities are
becoming more watchful than ever about how taxpayer money is invested,
experts say. Increasingly, they are choosing "socially responsible''
investment funds, which are more profitable than ever.
"People are starting to understand that you can't divorce values
from money,'' said Elizabeth Elliott McGeveran, spokeswoman for the
Washington-based Social Investment Forum, a nonprofit group that promotes
responsible investing.
"Teachers go to school every day to educate people and make the
country better. It doesn't set a good example if, for example, you're
investing in prisons. You want to support the work you do everyday, not
undermine it,'' McGeveran said.
But should being politically correct take precedence, or is it
the money that matters most? Should a public entity like a school
district or municipality invest in stock that may not be perceived as
socially acceptable, such as a prison real estate company or a tobacco
company? The law says the type of stock shouldn't matter.
According to the Colorado Uniform Prudent Investment Act, a
school district, acting as a trustee for its beneficiaries, has the "duty
of loyalty to act solely in their interests.'' Translation: The type of
stock doesn't matter as long as it makes money. That's exactly what DPS
did.
Last July, the district's $2 billion pension fund purchased
15,000 shares of Nashville-based CCA Prison Realty Trust at $21 each. Two
months later, the fund sold all the shares for about $34 apiece - a
profit of roughly $200,000.
Tessa Burr, manager of investment relations for CCA Prison
Realty Trust, said DPS was the only school district in the country that
invested in the company, but "we have a couple of cities in the works.''
"Real positive' "All we do is purchase real estate. We don't manage the
prisons or run them,'' she said. "Everything has been real positive.''
The company owns 13 facilities in seven states. The prisons
house inmates from eight states, two counties, the District of Columbia,
the U.S. Immigration and Naturalization Service, the Federal Bureau of
Prisons and the U.S. Marshals Service.
Denver school board member Bennie Milliner raised the issue last
month after noticing CCA Prison Realty Trust listed on a report to the
school board on pension fund investments. Despite the state law, Milliner
said school districts have an obligation to invest in companies that are
socially responsible. At the very least, pension beneficiaries should be
informed of the investments without having to ask. That doesn't happen
now. "To me, it's not a social issue, but an irony,'' Milliner said.
"We're a school district investing in prisons. It doesn't make sense to
me.
"Despite what others say, I think it is our business to raise
that awareness level for the beneficiaries,'' he added. School board
members Rita Montero and Elaine Berman also questioned whether the prison
investment was appropriate. But board President Sue Edwards said the
board should stay out of the district's investment practices and stick to
what it was elected to do - set policy.
"I believe strongly that concerning the pension fund, we have
the absolute responsibility to only consider maximizing returns on
investments,'' Edwards said. "I don't believe we really can consider the
social impact on investment.''
Before 1991, most of DPS' pension fund assets were managed in
house, under the supervision of an investment officer, and most were
fixed-income investments. Then the school board adopted a policy that
diversified assets and allocated a large portion of the fund investments
to outside investment managers. Unlike most other major school districts
in the state, DPS isn't enrolled in the Public Employees Retirement
Association, which manages pension funds for Colorado school districts
and cities. Montero, who serves on the district's investment committee,
said the district may consider a new policy that addresses socially
responsible investing.
But socially responsible investing could be an expensive
proposition for DPS. It would cost the district up to $200,000 for
managers to "screen'' investments, according to a DPS analysis. "Social
investments are restricted in what they can invest in,'' said Melissa
Daly of Lipper Analytical Services Inc. in New York City. "When they are
limited in that way, it can prevent you from the opportunities you might
otherwise be able to invest in. Funds that invest in companies that are
socially conscious go out of their way to be politically correct.''
Still, they are among the fastest growing funds in the
investment world. A study by the Social Investment Forum showed that
money in social and environmentally friendly mutual funds has more than
tripled - from $162 billion in 1995 to $529 billion in 1997.
Municipalities and other public organizations are joining the movement,
experts say, although school districts have been slower to follow.
From: Michael Novick <[EMAIL PROTECTED]>
Regards,
Tom Walker
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Vancouver, B.C.
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