Treasurer Tobias Read is pushing an investment policy change for Oregon’s public pension fund that would promote unionization of the workforce at buildings and other facilities in which the fund has a majority ownership interest.

The question is whether he’s doing so for the good of the fund, or his own political gain.

The updated “responsible contractor policy” Read is backing would apply to contractors who provide everything from janitorial and landscaping services to construction and maintenance in the commercial, residential and industrial properties controlled by the pension fund.

The Oregon Investment Council, the citizen’s panel that oversees pension fund investment policies, is slated to review the policy and vote on it next week.

Such policies aren’t unusual for public pension funds around the country, whose beneficiaries are often union members. And they are part of a growing institutional push toward so-called “ESG” investing, where investment managers are putting more emphasis on environmental, social and governance risks in an effort to bolster long-term returns.

But the policy update wasn’t requested or vetted by any other member of the council. It was initially crafted by Read’s staff in consultation with local and national trade unions -- not by Treasury’s investment division staff, which would typically be the case.

In fact, the former chair of the council, Rukaiyah Adams, raised strong concerns this fall, first reported by Willamette Week, that Read was bypassing the council to craft it.

Moreover, there is no explicit evidence that such policies will increase pension fund returns, which is the primary fiduciary responsibility of the council. In fact, real estate experts suggest the immediate effect of the policy will be higher labor costs in the real estate portfolio, potentially lowering overall returns and increasing pension costs for Oregon taxpayers.

That raises the question of whether Read is simply pandering to organized labor to win their support in his reelection bid this fall, and conceivably in a future bid for governor – and politicizing the investment council in the process.

In an interview Thursday, Read said his decision to pursue the policy has nothing to do with politics and everything to do with maximizing the ‘risk-adjusted returns’ to the pension fund over the long term.

The risk he’s referring to might include lawsuits, workers compensation claims and other financial and personnel problems that could cut into a property’s profitability.

“Our fiduciary responsibility is to the beneficiaries” he said, adding that a responsible contractor policy would create “better product outcomes.”

“When people are paid well, when there’s less turnover, when laws are followed, there’s a good indication you get a better outcome in terms of how properties are managed” and how they perform financially, he said.

If approved, the policy wouldn’t dictate unionization. It also includes language about maximizing returns. But it directs Treasury staff to use “responsible” contractors whenever possible – those offering fair wage and benefit standards measured by applicable collective bargaining agreements in markets where a majority of the trade or building sector is unionized. It defines responsible contractors as those providing employer-paid safety training and apprenticeships – programs almost always offered by union shops.

The policy includes a neutrality clause, meaning managers of properties controlled by the pension fund can’t discriminate against unions or union organizing. It requires annual reporting by managers. And it annually invites union input on the development of responsible contractor lists.

Unions make no bones about their goal: more unionization, particularly in assets that are owned by their members. They’ve successfully pushed such policies elsewhere, and Oregon’s pension fund is a big player. The pension fund has a controlling interest in some $5.5 billion worth of real estate, comprising 31.7 million square feet of commercial, multi-family, retail and industrial properties.

“We’ve been working on responsible contractor policies in private and public sector for decades,” said Felisa Hagins, political director for the SEIU Local 49, which represents Oregon service workers in the private sector. “It raises wages, benefits and workplace standards. It’s a win-win situation. What you see is investors protecting their investment while raising standards for very low wage workers who people rarely see.”

Hagins said her union has been frustrated by a lack of access to other council members to discuss the policy, so they turned to Read, the one elected official on the council.

“I don’t know how else you would see us going about the process,” she said.

A series of emails obtained by The Oregonian/OregonLive show that the new policy language was drafted in conversations last fall between Dmitri Palmateer, Read’s chief of staff; Jennifer Peet, a lawyer who serves as Treasury’s corporate governance director; and representatives from the SEIU, the Oregon Building Trades and North America’s Building Trade Unions.

In the emails, Palmateer and Peet batted language back and forth with the union reps to make sure the policy would apply to the widest possible number of buildings that the pension fund was invested in.

The union reps said they were eager to hook Palmateer or Treasury’s investment staff up with “NYC folks” so they could walk them through “how they’ve made this work.”

At one point, Palmateer asked Peet: “Do you think that this is essentially what labor wants? Any edit that I made that you think is a problem for them?”

The cost of real estate management and construction services vary by market and sector, but experts say unionizing more of the workforce is likely to increase costs.

“The labor is going to go up,” said Kirsten Larson, a professor at Portland State University who teaches courses in property and asset management. “In some cases, the owner will absorb that directly; in others the property expenses will be passed along to tenants, so that can make a property less attractive. The whole point of managing a financially responsible portfolio is to keep those expenses low.”

Bradley Malsin, the founder of Beam Development in Portland, had a similar take on the construction side. He said public projects above a certain dollar threshold typically include prevailing wage requirements that drive costs up.

“Often it makes sense to do,” he said, “but it’s definitely a factor in producing something that’s affordable.”

Rex Kim, a financial services consultant who serves on the council, said he suspects Oregon’s policies were out of step with best practices. He wants to know how the proposed policy stacks up against other public pension funds’, whether it would reduce risk, or potentially shut the pension fund out of future investment opportunities.

“I’m still reviewing it,” he said. “I need to rely on feedback from (investment staff).”

Read said Thursday that the policy had already been vetted by staff in the investment division. “I’m encouraged by what we’ve come up with and hopefully we’ll be able to adopt it.”

-- Ted Sickinger; tsickinger@oregonian.com; 503-221-8505; @tedsickinger

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