From the windows of the Greenpoint Manufacturing and Design Center in Brooklyn you can see the threat that could kill the center’s chance to expand and create even more jobs than it already has.
Just across Newtown Creek and up the East River, the red brick of the recently completed 42-story Queens West apartment complex glows in the late afternoon sun. The structure is a harbinger of residential development now spreading into manufacturing districts across the outer boroughs. In Greenpoint, the GMDC complex-stuffed with cabinet makers, framers, metal workers and design shops–is surrounded by vacant factories and warehouses sporting “For Sale” signs, and the area is zoned for manufacturing.
But the center’s director, David Sweeney, says landowners don’t want to sell to him. They think they will get a better deal if and when the neighborhood is rezoned for mixed uses, including residential–a plan that city officials are currently reviewing. According to Sweeney, some owners are already cashing in by illegally converting lofts into apartments.
Despite the popular belief that manufacturing is dead in New York City, 250,000 New Yorkers still work in factories, and the current economic expansion is giving industry a chance to grow. Yet manufacturers around the city are running out of space and need new capital investment resources, according to Adam Friedman of the nonprofit New York Industrial Retention Network, which works to save the city’s blue-collar jobs. For a city with a 9.5 percent unemployment rate and hundreds of thousands of workers in desperate need of a decent wage, investing in manufacturing seems like a natural. Instead, the Giuliani administration is focusing its economic development energy on paying major corporations tens of millions of dollars–sometimes more than once–to keep their headquarters in the city.
A manufacturing revival would require government intervention–including strengthening and enforcing protective zoning regulations and boosting technical assistance programs. But another linchpin, says Friedman, is finding new capital. He points to the multibillion dollar government and union pension funds that currently fuel a significant percentage of Wall Street’s current boom.
A growing number of progressive political and labor leaders are calling for such a major boost in “economically targeted investing,” or ETI, using pension fund investments to create jobs or low-cost housing while earning money to pay for workers’ retirement.
“We need to have a real discussion if you are taking money from New York City to invest in manufacturing in Burma while the local manufacturing base deteriorates,” says Joe Gerard, secretary-treasurer of United Steelworkers of America. “You can use that pension fund capital to build housing, create jobs, build stronger communities.”
The strategy is not new. For many years, New York pension managers have invested in government-backed mortgages to develop low- and moderate-income housing. Increasingly, they are talking about shifting funds into job creation strategies. But the Giuliani administration has said little on the subject, even as the Department of City Planning seeks to re-zone large swaths of manufacturing land in the outer boroughs so that landowners can develop new housing.
At the nucleus of GMDC is a group of woodworkers forced out of Manhattan by skyrocketing real estate prices in the early 1980s. They set up shop in an empty former net and twine factory, taking advantage of affordable space and the neighborhood’s skilled work force, largely West Indian and Eastern European immigrants.
The city, which had taken over the complex for back taxes, would rent to them only month by month, however, and refused to invest anything in the crumbling structures. Working with local politicians and neighborhood groups in the late 1980s, the woodworkers launched the nonprofit GMDC and persuaded the city to turn the buildings over for a dollar in 1994. “We started in 1990 with 12 businesses with 80 employees,” recalls Sweeney. “Now there are 68 businesses employing 400 people, and our space is full.”
Public Advocate Mark Green has offered a two-pronged proposal that could use economically targeted investing to help GMDC and other New York City manufacturers. There are some 4,000 acres of “brownfields” in the city–completely unused manufacturing land, representing about one-fifth of the city’s roughly 20,000 total acres of manufacturing-zoned land. Developers and lenders usually won’t touch projects on the brownfields because most of the acreage is contaminated with decades-old industrial waste. First, Green says, the city should draw on some of the $200 million in money available for brownfields cleanup under the state’s 1996 Environmental Bond Act to reclaim that land. Then, he suggests, if a firm wants to build a factory the city’s Economic Development Corporation can lend it money–backed by federal community development loan guarantees–and sell the loan to one of the city’s public employee pension funds.
Green points out that New York City could tap into federal loan guarantees of up to $1.2 billion, but has drawn on only $40 million.
“It’s well worth exploring,” says Jon Lukomnik, the deputy comptroller who oversees the five city employee pension funds for city Comptroller Alan Hevesi. However, he notes, the mayor would have to make the first move–by instructing the city’s Economic Development Corporation (EDC) to originate the investment and apply the loan guarantee–before the funds could invest any money.
The idea is clearly not a high priority for Mayor Giuliani, however. He has not responded to Green’s proposal, and an aide in the mayor’s press office says top officials at the deputy mayor’s office for economic development and EDC know nothing about the proposal. “It slipped through the cracks or something,” says Curt Ritter, a spokesperson in the mayor’s office.
The city’s pension system has been making economically targeted investments, chiefly for mortgages on affordable housing, since 1981, when the five funds pumped $226 million into a program that lent to 4,200 families in redlined neighborhoods. But overall, ETIs comprise just a small fraction of the funds’ investments. The city’s biggest such fund, the $32.4 billion New York City Employees Retirement Service (NYCERS), which provides pensions for most Transit Authority employees as well as non-uniformed, non-teaching city workers, has roughly $22 billion invested in stocks and $9 billion in bonds and other debt instruments–but only $532 million in economically targeted investments.
The fund’s ETI investments have produced strong returns averaging more than 10 percent annually during the last five years, which is well above the rate of return on the government bonds NYCERS uses as a yardstick. The stock market has far exceeded that in recent years, however, and the law requires pension funds to maximize returns for their retirees. To most money managers, that means heavy investments in stocks.
Yet labor leaders are pushing pension funds with union representation on their boards to make ETIs that create union jobs. For example, the Union Labor Life Insurance Company, which manages investments for a number of union pension funds around the country, last year committed $5 million for an 18 percent stake in Retirement Systems Inc., to finance the construction of 75 retirement homes over the next six years. The project will employ 2,250 union construction workers, and the Service Employees International Union will organize the 2,400 service workers in the finished homes without management opposition.
This agenda draws fire from conservatives like Marvin Kosters of the American Enterprise Institute, who brands them “politically targeted investments.” After taking control of Congress in 1995, Republican leaders moved to force the Labor Department to revoke its 1994 regulation that established ground rules for ETIs. The effort failed, but the Republicans did kill funding for a proposed clearinghouse to track the performance of ETIs. According to Rich Ferlauto, special projects coordinator of the AFL-CIO’s new Office of Investment, the GOP attack has prompted the Labor Department to back off from promoting ETIs.
The flow of ETI investments by the New York City funds has slowed in recent years, partly because the federal and state governments have cut back on the mortgage guarantee programs that support the bulk of the city funds’ ETI portfolio. NYCERS officials have also decided to target more investments toward creating jobs through investing in small- and medium-sized businesses, which is more risky and complicated than investing in housing.
To help navigate that process, NYCERS decided in 1994 to hire a consultant to identify and screen opportunities to invest in New York City businesses. Pacific Corporate Advisors was given the nod in 1996 and presented two potential investments to the NYCERS board, which rejected both of them. Green, who sits on the board, calls that record “disappointing,” noting, “it took two years to hire a consultant, and so far, that consultant has failed to produce a single investment that works for NYCERS.”
“We’re disappointed also,” responds Lukomnik, “but sometimes things that seem like they should take a shorter time take longer. We do that to protect the pensioners.”
Michael Musuraca, who represents the city’s largest municipal union, District Council 37, on the NYCERS Investment Committee, agrees: “These are long-term projects. Speed is not necessarily the thing I’m looking for.”
But businesses like GMDC might need help sooner rather than later. Faced with woodworkers demanding room to expand, Sweeney feels Green’s proposal could help fill two needs: land and financing. “Bankers have bought the notion that industry doesn’t belong in the city,” he complains, so it’s almost impossible for manufacturing businesses to get loans.
Lukomnik agrees that preserving blue-collar jobs is important. However, he says, “this is a pension fund, not a manufacturing fund, not a housing fund. We can’t single-handedly solve the problem of entry-level manufacturing jobs.”
Green remains adamant. “This is something that creates jobs, doesn’t affect the budget and does nothing to put pension money at risk,” he says. “Why isn’t the city doing it?”
Journalist and folk singer Chris Seymour lives in Fort Greene, Brooklyn.