An open letter to President Clinton: pension money for the infrastructure.

Dear President Clinton:

I've read reports that your administration is studying the feasibility of using the nation's $2 trillion to $3 trillion in retirement monies as a source of funding to renovate the nation's infrastructure. Sounds like a good idea. But, as a pension fund manager, I must caution that, like most good ideas, if it's handled badly it can lead to disaster.

From my perspective as a retirement fund director, I believe mismanagement will lead to serious concern on the part of retirees, who never contemplated their nest eggs carrying the weight of the nation's bridges and roadways. Such unease easily translates into the sort of political gridlock that a lot of your supporters look to you to avoid.

And mismanagement of such vast sums would be costly to the taxpayer, while at the same time threatening to projects. Before you go much further with the pension-fund idea, I would suggest you seek the advice of people with substantial experience in handling retirement plans, as well as the counsel of Wall Street financiers and government leaders.

Wall Street know-how is elementally important to devising the necessary investment vehicle. Perhaps as important as that expertise is the comforting perception of competence the involvement of Wall Street experts signals to the fund managers. Publicly involving fund managers and Wall Street gurus in the effort, working closely with government representatives, will do much avert the wrong impression. And inviting them in at the task-force stage also will lessen the possibilities for false starts.

MAKE SURE OF THE MONEY FLOW

Of two proposals now making the rounds on how to handle the pension fund-infrastructure program-setting up a quasi-governmental corporation or creating a taxable security with a dedicated money stream--I favor the latter.

You should seek to set up an infrastructure bank that would sell securities backed by a gasoline tax, user fees or some other dependable money source. Dedicating the money in such a fashion will avoid burdening future generations with more debt. The funds should be earmarked in a contractual-like manner with no possibility of deviation. Raise the money with one purpose in mind, and spend it with that same purpose in mind.

And the bonds would have to carry the same guarantees that the federal government extends to farm credits, small-business loans, home mortgages, the S&Ls and the Treasury notes bought by foreign investors.

Guarantees would help strengthen a participating fund manager's hand, because they would alleviate much of the possible concern on the part of the plan members.

Normally, pension fund managers aren't lured by the sort of low-rate bonds issued to underwrite most public works projects. The fact that they're tax exempt fails to entice for the simple reason that pension funds already don't pay taxes.

Nevertheless, most money managers do place a certain percentage of their assets into the sort of safe-and-sound investment that properly fashioned government infrastructure bonds would represent. There would be little reluctance to buying into the strategy if fund managers and directors were convinced it would be in the best interest of their fund members. The rate of return on the bonds would have to be fair alike to the members and to the government, that is, the taxpayers.

In creating guidelines for participation, the task force should set a limit on what percentage of a pension fund could be invested in infrastructure bonds. It's axiomatic that setting limits on any one type of investment is simply following prudent policy.

But an ancillary benefit might arise. If limits were tied to the degree to which a particular plan was fully funded, it could give added inducement--if any were needed--for fund managers to bring fund assets to the level required to cover all current liabilities. In the case of public, government-controlled funds, such as state employee retirement plans, this would bring relief to both plan members and to the taxpayers.

If you make the managers feel their concerns were met early on, there should be little to bar them from participating in the plan. For one thing, they have a vested interest in the national well-being just like anybody else.

Want another inducement? You could push for a plan to grant tax credits on pension payments for members of participatory plans. This is not a radical idea. View it as an investment tax credit for individual retirees the same as we have investment tax credits for corporations.

Participation could be limited to 5 to 10 percent of a fund's assets to guard against weakening a fund's earning power. It's highly unlikely that such a modest participation would cause a problem. Diversification is key to good plan performance.

By comparison, our plan, which is fully funded, now has about 25 percent of assets in governmental securities, and I would guess that's about average for private funds. Some go higher.

And please give absolutely no thought to making participation mandatory. That would sink the program.

DOWN THE REBUILT ROAD

Turning the vast potential of pension funds to public purpose, such as the infrastructure, is an idea that was floated on a national scale by the Rev. Jesse Jackson back when he was running for the job you're just getting into.

The AFL-CIO Housing Trust finances real estate construction and development with pension funds. Another example is the similar Bricklayers Housing Trust in Boston. These plans don't enjoy the government guarantees on investment that would necessarily be part of any federal program you mount. And, of course, none of these approach the vast scale contemplated for the nation's infrastructure.

I note that your Rebuild America Fund proposal contemplates a $20 billion federal investment leveraging $30 billion more from other governmental or private sources. That $50 billion, on an annual basis, sounds like enough to get us pretty far down the rebuilt road. Wisely used, it could let us tackle the most critical jobs first and help significantly in job creation. No matter how much money is allocated to a program, it will never be enough to satisfy everyone with even a remote interest in the outcome.

Still, carefully planned and properly implemented, an infrastructure rehabilitation program underwritten with pension funds could be made a success without the need for new taxes or for any new large bureaucracy to carry it out.

Naturally, any investment on the tremendous scale contemplated in the renovation of the nation's network of road, bridges or airports would pour enormous sums into the nation's economy.

Any such massive capitalization would amount to an investment in America's economic infrastructure as well as its physical infrastructure. More Americans would be employed. They would be paying more income taxes, collecting less in unemployment compensation and contributing more money into their own pension funds. A large-scale effort would benefit both the government and the funds.

As a further benefit to the nation's economic well-being, investing American pension fund money in the infrastructure would come as a welcome alternative to depending on foreign capitalization of domestic enterprise and projects.

REDEFINING THE INFRASTRUCTURE

With the increasing maturation of some modern technologies, such as computerization and miniaturization, and the dizzying growth of others, such as in electronic communication, we're at a point in our history where we have to redefine what we mean by infrastructure.

I'm not an engineer, but it seems clear to me that we need to think in terms of fiber optics and cellular communications--as well as in terms of roads, bridges and airports--when we speak of the nation's infrastructure.

There is no slighting the importance of this effort. It should rank next to education on our list of priorities. A country that can't adequately move or communicate within its borders has no chance to compete beyond them. Moving goods, services and information is the lifeblood of a healthy economy.

With the proper funding that retirement plans, properly used, can help provide, the Clinton presidency--the first post-Cold War administration--can begin the exciting tasks of first defining and then charting the digital highways of the next century.