Public Pension Systems Looking at Inner City : Investment: The infusion of funds will help rebuild riot-torn areas. But critics say the projects may be risky and question whether such directed spending is prudent.

California’s huge public employee pension system, criticized for failing to invest in the state’s impoverished inner cities, plans to pump money into rebuilding riot-torn South-Central Los Angeles.

The funds, eventually totaling $75 million, are expected to underwrite construction of several supermarkets in such market-short areas as East Los Angeles, a Watts civic center complex, shopping centers, and apartments and single-family housing.

Still, these steps are not likely to settle a debate, fueled by last spring’s unrest, over whether the California Public Employees Retirement System should channel money into projects designed to do social good in the inner city and whether “socially responsible” investments translate into good business decisions.

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Critics have complained that the $72-billion retirement program, which makes investments around the world, has failed to put a dime into inner-city Los Angeles. But others have held that the program’s responsibility is to protect the nest eggs of thousands of pensioners and that inner-city investments could be risky.

After last spring’s riots, a special Assembly committee noted that neither the state pension program, the nation’s largest public employee pension system, nor the $40-billion State Teacher’s Retirement System, could detail “a single investment in companies located in or primarily serving the communities impacted by the unrest.”

Assemblyman Curtis Tucker Jr. (D-Inglewood), who chaired the committee and whose district includes part of South-Central, described the PERS pension program’s commitment as “a good first step” but quickly added, “hopefully many more steps will follow.”

Currently, 133,000 retired educators and about 250,000 former public employees--from accountants to zookeepers--count on monthly pension checks from the two retirement programs.

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Each fund is overseen by a board consisting of employee representatives, gubernatorial and legislative appointees, and constitutional officers. They and their advisers invest pension funds in stocks, bonds, real estate and other ventures, aiming to earn an average of 8% to 9% annually.

Tucker and some other elected officials are pushing the systems to look at inner-city businesses as fresh opportunities to make money for retirees.

The public employee pension program is starting to listen, but some of its officials and professional money managers--sometimes hired to oversee parts of its investment portfolio--are skeptical, contending that geographically targeted investments, especially in inner cities, are too risky.

But even before the riots, PERS had taken a small step to quiet the critics.

It retained a Washington-based investment company chartered by the AFL-CIO to manage about $100 million earmarked for non-traditional investments across the nation. After the civil disturbances, local labor officials and PERS urged the company to focus its efforts in Los Angeles.

Now, the company is trying to wrap up plans to spend about $75 million to finance construction of supermarkets, housing and office buildings in riot-torn areas. So far, more than $40 million has been targeted for specific developments.

Stephen Coyle, an executive with the AFL-CIO Housing and Building Investment Trusts, said his company oversees pension funds totaling about $900 million from 350 retirement systems, including PERS.

Among the potential Los Angeles projects are proposals to sink $1.4 million into a civic center complex at 103rd Street and Compton Avenue in Watts and $10 million to acquire mortgages on homes renovated by union labor in South-Central.

In addition, Coyle’s staff is negotiating to steer $16 million into supermarkets at Vermont Avenue and Adams Boulevard, Olympic Boulevard and Soto Street, and Central and Slauson avenues; $15 million for shopping centers, including a two-acre site near Manchester and Western avenues in South Los Angeles that would include affordable housing above retail space, and $1.3 million to help build a 38-unit affordable-rental housing project on Colden Avenue near Broadway in South Los Angeles.

Other housing and commercial developments are also under review, according to officials with Housing and Building Investment Trusts.

Coyle said that it has taken about 1,000 hours of negotiations with local government leaders, including Mayor Tom Bradley, labor officials and community groups, to cobble together these projects and secure guarantees--such as long-term leases--to reduce the financial risk. But state Sen. Newton R. Russell (R-Glendale), a pension watchdog, questioned the wisdom of such investments.

“Once you start a social agenda with retirement funds, there’s no end to the social agendas” that could restrict the earning power of pension investments, he said.

But with recession-plagued government treasuries strapped for cash, some see the nation’s public pension funds--with assets estimated at $1 trillion--as a tool to create inner-city jobs without cost to taxpayers.

One question facing pension fund managers is whether money put into such potential inner-city investments as a movie theater chain or a recycling plant can match the earning power of traditional Wall Street investments.

“Targeted (investment) doesn’t mean ‘below-market rate.’ It doesn’t mean ‘high risk.’ It means you’re trying to get the investment where people live,” Coyle said.

State Treasurer Kathleen Brown, who sits on the state employees and teachers pension boards, has encouraged targeted inner-city investments as long as they can “earn a maximum return with a minimum of risk.”

But “the pension funds are not ever going to be vehicles for quick fixes, nor is it realistic to think that the problems of the inner city . . . are going to be turned around overnight,” she said.