Senate Inaction Leaves Empty Seats on Critical State Investment Council

John Reitmeyer | July 12, 2018 | Budget
Panel deals with $78.6 billion public pension system, but governor’s eight nominees have yet to get a hearing

Ruchir Sharma
State law gives Gov. Phil Murphy the right to fill half the seats on the State Investment Council, a panel that plays a key role in the handling of public-worker pension assets. But six months after the governor was sworn into office, the state Senate has yet to consider his slate of eight nominees.

The holdup appears to be a matter of scheduling with the Senate, which has the right to review the governor’s nominees for the investment council to make sure they are fit for the job.

The delay has yet to directly impact any of the fiscal policies that are set by the investment council since the panel generally only meets once every two months to consider proposed investments and other matters related to the $78.6 billion pension system.

State Investment Council chairman Tom Byrne submitted his resignation weeks ago.
But several holdovers from former Gov. Chris Christie’s tenure — who had been filling gubernatorial seats — have stepped down, including chair Tom Byrne, who submitted his resignation letter to Murphy several weeks ago. That means the next investment council meeting could be held without a full complement of its members — even as issues like a resetting of the pension’s system asset allocation are up for consideration.

The council’s public meetings largely go unnoticed in Trenton. But Murphy, a first-term Democrat, has been advocating for a number of new policies that could change the pension system’s investment course compared to the agenda that was set during Republican Chris Christie’s tenure. State government also has a long record of underfunding the employer obligation to the pension system, putting more pressure on the investments to perform well.

Governor appoints half the panel

Murphy submitted the names of his eight investment-council nominees mid-April, but they can’t begin serving until they appear before the Senate Judiciary Committee, and also win approval from the full Senate. A Senate voting session is scheduled for July 26, the same day the investment council was scheduled to hold a meeting that has since been postponed to August. The current legislative calendar doesn’t list any upcoming Judiciary Committee meetings, but it’s possible it could meet to review Murphy’s nominees on the same day as the full Senate. Still, as of yesterday, the fate of the governor’s nominees remained up in the air.

The makeup of the investment council was established by a state law that originated in the 1950s, with half the 16 seats set aside for direct appointees of the governor, and most others representing state-worker groups.
The panel doesn’t directly administer benefits or manage the pension system’s investments on a day-to-day basis, but instead plays an administrative role, overseeing things like investment strategy and the distribution of stakes in stocks, bonds and other assets. (The pension system itself is made up of a number of different retirement funds for worker groups that include teachers, judges, police officers, and firefighters — the investment council’s policies have an impact on nearly 800,000 current and retired employees.)

As a candidate for governor last year, Murphy repeatedly criticized policies the investment council pursued under Christie, including the payment of hefty fees — totaling hundreds of millions of dollars in some years — to the outside managers of hedge funds. As governor, Murphy has praised the panel for more actively pursuing strategies that emphasize environmental, social and governance criteria, which is known as ESG investing, and for shedding a $2 million stake in a manufacturer of semi-automatic rifles for civilian use in the wake of a mass shooting inside a high school in Parkland, Fla.

But Murphy won’t exert influence over the investment council until he’s able to seat all eight of the nominees whose names he submitted on April 16 for formal confirmation by the Senate. They are: Theodore R. Aronson of Philadelphia, Pa.; Danielle Beyer, Roselle Park; Wasseem Boraie, East Brunswick; Leonard J. Carr, West Orange; Vaughn Crowe, Randolph; Samir M. Pandiri, Chatham; Deepak Raj, Princeton; and Susan Soh, Short Hills.

Council’s work is ‘really important’

Adam Liebtag, a state AFL-CIO representative who currently serves as the panel’s acting chair, said he’s looking forward to working with Murphy’s nominees as the council digs deeper into a host of issues, including fees and the allocation of assets.

“Work of the council is really important, especially in our current situation with pension funding and the changing landscape with pension investments,” Liebtag said.

The Senate Judiciary Committee held a total of three meetings in May and June, but it has yet to get together so far in July. An aide for Committee Chair Nicholas Scutari (D-Union) suggested yesterday it’s possible the committee will meet later this month, but nothing has been finalized.

It was just a few weeks ago that Senate President Steve Sweeney (D-Gloucester) and Assembly Speaker Craig Coughlin (D-Middlesex) were trading barbs publicly with Murphy about fiscal policy in the run up to the June 30 deadline for a new state budget. But those disagreements — just the latest to involve Sweeney and Murphy— didn’t relate specifically to the pension system. The governor and the legislative leaders eventually put aside their differences and were able to enact a fiscal year 2019 spending plan that boosted the state’s overall pension contribution by $700 million.

Earlier this year, Sweeney did hold up the Senate confirmation of two of Murphy’s nominees for cabinet positions, education commissioner Lamont Repollet and higher education secretary Zakiya Smith Ellis. The Senate President went public with specific concerns about those nominees. No such questions have been raised about any of the governor’s nominees for the investment council.

Messages left yesterday with a spokesman for Sweeney by phone and email were not returned. A spokeswoman for the Department of Treasury also did not comment on the status of the SIC nominees.