Peace & Justice
Teachers Battle Fund Managers Over the Future of the Forest
by David Bacon
SAN FRANCISCO (2/12/97) - San Francisco City College teachers won an enduring reputation a decade ago for their opposition to apartheid. In the era when divestment was considered a potent economic weapon for freeing Nelson Mandela, a grassroots movement led by the city college teachers' union helped spearhead efforts to get state teacher pension funds out of South Africa.
Mandela eventually was freed. And after apartheid fell, his African National Congress paid tribute to divestment efforts worldwide for the enormous economic pressure they put on the old racist regime.
Teachers didn't forget the lesson.
For the last few months, they've again been trying to force their pension fund to use the power of its multi-million dollar investments for a socially-responsible goal. This time their enemy is Charles Hurwitz, one of the junk-bond kings, and CEO of Maxxam Corp.
Maxxam owns Pacific Lumber Co., near Eureka, California, having engineered a hostile takeover a decade ago. Pacific Lumber, in turn, owns the Headwaters forest, the last remaining old-growth redwood forest in private hands.
When city college teachers, members of Local 2121 of the American Federation of Teachers, discovered their pensions were invested in Maxxam, they were shocked. Maxxam is notorious for its efforts to log the majestic redwoods, and last fall thousands of environmental activists converged on the forest, hoping to preserve what little is left.
But teachers weren't just offended by the company's logging practices. When Hurwitz engineered his takeover of Pacific Lumber, one of the first things he did was to raid the pension fund of the company's loggers. Sixty million dollars of loggers' pension money was used to pay down the debt burden of the high interest junk bonds Hurwitz used to finance his corporate raid, endangering regular, predictable payments for Pacific's retirees.
When the pension funds weren't enough, Hurwitz cast his eyes on the forest itself. Stepping up Pacific's once-sustainable logging rate, he began to use the resulting income to pay down the debt burden as well.
"Hurwitz should be in jail," says Nancy Husari, a San Francisco City College teacher and Local 2121 member. "I believe we should be concerned when our own pension money is being used to support these kind of actions."
Husari and her coworkers discovered that the State Teachers Retirement System, which is the source of retirement, disability, death and survivor benefits for California's teachers, holds 71,400 shares of stock in Maxxam. The stock is valued at over $3 million. The state pension fund for other public employees, the Public Employees Retirement System, owns even more - 318,400 shares, worth over $13 million. Classified school employee, who are non-teachers but also belong to the teachers' union, are covered under PERS.
"We should get out," says California Federation of Teachers President Mary Bergan. At its recent convention, the CFT adopted a resolution calling on STRS and PERS to use their enormous leverage to try to save as much as possible of what's left of Headwaters.
But teachers are receiving the same resistance to this idea that they received when they first proposed divestment from South Africa. Fund managers say their primary responsibility is to consider the safety of their investments first.
Although teachers believe that STRS is supposed to follow a socially-responsible investment policy, STRS CEO James Mosman denied this in a November 7 letter to the Rose Foundation for Communities and the Environment. He said the fund does not "actively select stocks on the basis of fundamental events or news...We do not divest individual securities or sectors of the market for any reason other than it is mandated by law."
City college teachers have heard it all before. Fund managers seem very upset that the people whose money they manage want a voice in how it's invested, and have criteria which go beyond the bottom line.
In fact, the up-from-the-bottom teachers' effort is part of a much larger movement. Many unions are trying to assert their voice in how pension and welfare funds are invested. The funds are enormous, and constitute a significant portion of the investment capital in the U.S. today. Why can't this money be used, unions ask, to require more responsible corporate policies?
Maxxam, however, doesn't seem a very sound investment from a financial point of view either. The company is liable for the failure of a Texas-based savings and loan in 1988, and its subsequent $1.6 billion bailout by the U.S. Office of Thrift Supervision. The failure has resulted in a series of legal actions, in which Maxxam could be held responsible for over $4 billion.
The solution proposed by the Rose Foundation, which was adopted by the state teachers' federation, is a debt-for-nature swap. Teachers want Hurwitz to give up all of Headwaters, not just the 7500 acres which is the subject of a recent deal between Hurwitz, Senator Dianne Feinstein and Deputy Interior Secretary John Garamendi. The Headwaters forest extends for over 60,000 acres. Teachers propose that Maxxam immediately halt logging in all of it, and then surrender the entire forest to the Federal government in return for cancellation of the savings-and-loan debt.
Teachers want STRS and PERS to ask Hurwitz to agree. If he refuses, they want the funds to sell their Maxxam stock. Maxxam's credit rating has already been downgraded by Standard and Poors from B+ to B. A financially sound company gets ratings in the A to AAA range. "This investment is unwise both from a financial point of view and because it threatens the country's last remaining old-growth redwood forest in private hands," says Rose Foundation spokesperson Carla Din.
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