Author: Joseph Peha

UP #362: We can do something about Global Warming

As the chair of the Council’s Budget Committee I also chair the Seattle City Employees’ Retirement System (SCERS) Board.  At the request of the 350Seattle.org which is fighting global climate change, SCERS asked our investment consultant NEPC (of Boston) to give its recommendation on how the city might divest from fossil fuel stocks, commonly referred to as the Carbon Underground 200 (CU200.)

Last June, the City Council passed Resolution 31525, which I sponsored, adopting investment policies for the City. In that resolution, the City Council urged the SCERS Board to work towards divestment from fossil fuel holdings.

NEPC’s first report in November said divestment could not be done responsibly; however, it only presented a single scenario – complete & total divestment done all at once, which would result in massive costs and penalty fees.  I wrote about this in Urban Politics Issue 359.  That report failed to answer the original SCERS question: “…how divestment could be sequenced over the next 5 years”. Consequently, I moved that the board ask NEPC to address this question.  The motion passed and last week NEPC presented its follow-up report, which once again recommended against divestment from fossil fuel companies.

The gist of their argument was that no other public pension fund had divested (though NEPC ignored the fact that public pensions outside the US had,) and that any screening of fossil fuel companies would invariably reduce investment performance and increase costs.

In response, I softened the divestment request by moving that:

“The Investment Committee recommends to SCERS the preference that, at natural points of transition, the active investment managers representing SCERS move out of fossil fuel investments with consideration of fiduciary responsibilities and that SCERS receive a review [of] this practice and report any available information on the current state of carbon by September 1, 2015.”

The new language would allow SCERS investment managers to determine if and when divestment was financially prudent. It also specified that any divestment be made at “natural points of transition”, which was done to address NEPC’s claim that executing any changes would trigger additional transaction costs.  However, despite the cautious nature of the new proposal, NEPC’s assertion that there would be higher costs, lower returns, and that Seattle would be the first to take the divestment step – though none of these assertions were conclusive or perhaps even accurate – created enough concern among the SCERS board that they accepted NEPC’s recommendation.

Regrettably, my motion did not receive a second from the board members, so it could not be discussed.  Certainly I was disappointed; however, I was struck by how adamant NEPC had been in opposing any consideration of shifting the City’s investments out of fossil fuel companies – regardless of how measured or systematic the proposal.  NEPC’s apparent bias – they appeared to ignore studies, cherry-pick evidence, and adopt narrow-minded financial theories in their effort to create a narrative against divestment – seemed like a dogma which rational thought could not penetrate.

At least one NEPC client has rejected NEPC’s approach.  The University of Maine System, which has close to $600 million (SCERS is just twice that, at $1.2 billion) rejected NEPC’s advice against divestment.  Glen Cummings, president of the University of Maine at Augusta, clearly described the State System’s decision to divest from coal as a rational one: “From a pragmatic point of view, moving to more sustainable sources of energy is a good financial investment.”

A number of other institutions have come to a similar conclusion.  The United Methodist Pension Fund with $21 billion (17.5x the size of SCERS) and Stanford University with $18 billion (14.5x the size of SCERS) have both opted to begin divestment from coal.  Outside this country, AP2, Sweden’s National Pension Fund with $36.7 billion (30.6x the size of SCERS,) is divesting.

These institutions, each of which is significantly larger than SCERS (which multiplies their level of their fiduciary duty,) recognize a likelihood that is referred to as “stranded asset risk” whereby fossil fuel companies will be stuck with assets under the ground -coal or other fossil fuel assets that cannot be extracted because of changing laws, regulations, or market demands.  Already we have seen a marked decline in fossil fuel valuations and the market place is changing dramatically.  Even NEPC, in its report to SCERS, noted that fossil free indexes – indexes that screen out the CU200 – performed 30 points better than the S&P 500 over the last 10 years.  Just in 2014, the Fossil Free Indexes US (FFIUS) outperformed the S&P 500 by roughly 1.5%.

Other major institutions and retirement funds around the globe have recognized the financial risk and the devastating environmental impact that looms if we continue to expand carbon fuel consumption. I believe SCERS missed a unique and important opportunity – both to avoid risk and to help secure a better future for us all.  However, the City’s Finance Director, Glen Lee, did introduce and the Investment Advisory Board unanimously passed the following motion:

“Upon the motion by Glen Lee, seconded by Robert Harvey, Jr., the Investment Committee recommends  that the Seattle City Employees’ Retirement System (SCERS) pursue corporate engagement on climate change and other environmental issues, as presented by staff in their January 26, 2015 memorandum; and pursue, as appropriate, investments that are expected to produce investment results consistent with SCERS’ fiduciary duty to its members and, if possible, also positively address climate change and other environmental issues. The Board recognizes that these types of investments (e.g. renewable energy, cleantech, and green bonds) are relatively new and limited in availability and will need to be considered prudently as SCERS pursues investments in its asset classes (e.g. real assets, private equity, fixed income.) SCERS’ staff and advisers will provide quarterly updates regarding ESG investment issues and treat ESG issues as a strategic goal of SCERS.”

The Lee motion does not divest from fossil fuel companies; however, it does encourage investing in alternative energy sources and practicing active engagement to improve companies’ behavior. Perhaps most importantly it requires NEPC to report back quarterly on the state of the fossil fuel market, the progress of institutional divestment, and related ESG (environmental, social & governance) issues. Since it takes steps in the right direction I support it.  However, it fails to address stranded assets and a potential carbon investment bubble that could threaten our retirement funds, and it fails to acknowledge the City’s responsibility for contributing to global warming.

The next meeting of SCERS is February 12th at 9am in room 900 of the Artic Building (720 Third Ave,) there is a limited time set aside at the beginning for public comment.  Since my more beneficial motion did not receive a second it will not be discussed, and instead the Lee motion will be formally voted on at this meeting.

Thanks to Bruce Herbert, Chief Executive of Newground Social Investment, SPC and Alex Lenferna, South African Fulbright & Mandela Rhodes Scholar at the UW

The Year in Review: Oh the Places We’ve Been and the Path We’re on for 2015!

Thank you so much for helping make 2014 such a powerful year.  It is no secret how much I love this city and my job, and I am proud of the work and accomplishments we are achieving together.  It is an enormous privilege to represent you on City Council.

Sally visiting a preschool classroom.

I would like to share with you some highlights that put Seattle in the national vanguard in 2014.  Here are some of my office’s efforts for which I am most grateful this year.  They are a great start and we will build on them in 2015:

The Seattle Park District

This August, Seattle voters approved the creation of the Seattle Park District which will provide a stable, dedicated funding source for our beloved Parks, athletic fields, and community centers. Our 6000+ acres of parks and open spaces face a $267 million major maintenance backlog; and due to serious funding limitations through the recession we had to significantly reduce the hours that our beloved 26 community centers are open. Our new Parks funding will help us fill that backlog and move our Parks toward sustainable funding and operation.

It was an honor to work with so many dedicated advocates who spent the past two years working to protect and promote our parks city wide. Now our parks, playgrounds, and community centers will be cleaner, safer, and more accessible. The Seattle Park District is just beginning its important work; the Community Oversight Committee selection process is underway, and we will welcome a new Parks Superintendent this year. Thank you for letting me know of your interests and how you would like to be further involved in your neighborhood going forward.

Civil and Safe Downtown

Throughout this past year, I worked hard to make sure we have adequate services and support for those who are experiencing homelessness in our city. My goal is to take care of people first by creating safe spaces and housing for those on our streets, thereby assuring Downtown is a place that everyone enjoys.

During this year’s Budget, I focused on some important projects to make our Downtown a cleaner, safer place for everyone. For example, we added funding for hygiene services at locations like the Urban Rest Stop, and I requested that the City’s Human Services Department promote a program I initiated last year to install lockers in public spaces. Lockers will provide clean and dry spaces for people who are homeless to leave their belongings while looking for places to live or work. I have also worked closely with business leaders, human service providers and our police to coordinate our efforts and resources.

I am proud of these steps but recognize there is much more to be done. I have been in conversation with faith leaders from across our region to discuss how the city might assist them in hosting homeless men and women at their churches. Working with the Mayor’s Office, I have also proposed contracting with experienced service providers to coordinate temporary shelter and case management in some of the City’s buildings, including community centers.

Homelessness affects all of us, and there is a clear need for coordination within King County and statewide to create more housing for those in need. If we are to become the city we wish to be, a city that prioritizes the safety and well-being of all of its residents, we must invest intelligently and compassionately and focus our shelter and housing investments to help people move up and on with their lives.

 

Reducing Congestion and Increasing Transit, Improving our Transportation Infrastructure

Seattle voters did it again – we said YES to paying for additional transit in our City even though our King County neighbors rejected a tax increase. This is a great step to reduce congestion in Seattle; and working with Metro and with SDOT, the goal as to increase trips on nearly 50 routes within our city.

My focus in 2015 is to reduce congestion on our streets so people and goods can move throughout the city more efficiently and with less frustration. This will require all of us to use our streets differently: take a bus, streetcar or light rail when we can, carpool when possible, walk or ride a bike on a safe street, or drive at a time when roads are less crowded.

I’ve been told if each of us changes our single-occupant habit a mere 10% of the time, the through-put on our existing streets and highways will improve significantly. That’s a change we can make as individuals. Taking a macro-view, improving our transportation network requires the State legislature to pass legislation this year to improve our roads, bridges, and signals. I look forward to working again with Rep. Judy Clibborn and Sen. Curtis King to finally pass an effective state-wide package to fund our transportation infrastructure.

 

Affordable Housing

Seattle expects thousands of new residents to move into our city every year over the next two decades. Like many big cities including San Francisco, Boston, and New York, we do not have sufficient affordable housing stock to accommodate those who want to move here. Our goal is to increase the supply of housing starting in 2015, while promoting thriving and revitalized neighborhoods for the long term.

Based on data from the City’s Office of Housing, the City needs to build, convert, or otherwise add at least 50,000 net new units of affordable housing over the next two decades. We need to increase our supply of housing by over 2000 units annually to meet the needs of people who want to live and work in our community.

The Multi-Family Tax Exemption (MFTE) and the Housing and Family Levies are tools the city has effectively used to build affordable and low income housing. Although they have been useful, MFTE and the Housing Levy together have provided an average of only 650 units annually, a far cry from the 2000 units we need. We need to expand these programs that are working and add tools and incentives if we are to make significant progress toward our goals. Stay tuned; additional solutions will be identified in 2015 and we will get to work, fairly.

 

Universal Preschool, Families, and Public Safety

We will establish a program of Universal Pre-K in our city, thanks again to Seattle taxpayers and to Council President Tim Burgess. Giving a child a good start in school is one of the most important things we can do for the child, the family, and our community at large. Providing a high quality education to the children in our city helps address social equity issues at the roots.

A child who has an opportunity to enjoy a high quality pre-k experience is more likely to start kindergarten with confidence. The child will learn to read along with her peers; that in turn help the child “read to learn.” We know that a child whose self-esteem is growing during middle school will do better in school, stay in school, and ultimately graduate from high school with relevant job skills or college readiness tools. As former King County Sheriff Sue Rahr says, the most important things we can do to create safe communities is to help parents have and keep a good-paying job, assure the family has health care, and support their children be ready for and stay in school. It all makes sense, and it’s all interconnected.

 

Greenways and Accessible Streets for All

An exciting development for me this year? I transitioned to an electric-assist bicycle! You may have spotted me riding up and down Second Avenue, or zipping up and down our steep hills (passing young lads on the way thanks to a little extra battery power). I feel safer riding my bicycle around town because of smart investments in bicycling infrastructure and in our Neighborhood Greenways.

This fall we celebrated SDOT’s installation of the 2nd Avenue Cycle-track and the kick-off of a brand new transit agency – Pronto Cycle Share! I am also pleased that Sunday Parkways have been funded in the 2015 budget and that city agencies will have the resources to create safe and fun routes between neighborhoods and parks. I’m pedaling forward into 2015 to continue to make our streets accessible for all!

 

My best to you and your family. I greatly appreciate your staying in touch with me, and hope 2015 is your best year yet.

Sally Bagshaw