A 2.2 TRILLION DOLLAR TEMPTATION / THE NEW YORK TIMES EDITORIAL

July 28, 2009

Editorial

A $2.2 Trillion Temptation

The nation’s public employees have a very large pool of money — about $2.2 trillion — that must be invested wisely to cover their retirement. So it makes sense that anybody who wants to help invest that money — and make the fabulous profits that go along with such assistance — should not be writing campaign checks to state treasurers or comptrollers or other officials who manage the funds.

In its crudest form, the transaction is called “pay to play” — or give to get — and it is an unspoken arrangement that often means investors are chosen not for their low fees and high skills but for their connections.

The Securities and Exchange Commission long ago barred underwriters of municipal bonds from contributing to candidates and then doing business with them. But 10 years ago, the commission balked at expanding that order to pension funds.

Finally, last week the commissioners unanimously proposed excellent new rules to end pay to play for public pension funds and 529 college savings plans invested by states.

The proposed rules cannot be enacted too soon for New York State’s pensioners. The state’s fund, which has dropped from $154 billion to $110 billion in a year, has been the source of great concern after three people were arrested in a recent scandal. They allegedly participated in a kickback scheme involving pension investments under the control of Alan Hevesi, the former comptroller.

His replacement, Comptroller Thomas DiNapoli, who has instituted a number of reforms as a result of the scandal, has not agreed to refuse campaign contributions from those doing business with his office. He has asked the Legislature to create a public-financing system for the comptroller’s race next year.

There is also another very large loophole that needs to be closed: lawyers make huge fees negotiating contracts for the state and the S.E.C. has no control over lawyers unless they are fronting for investors. So campaign finance experts fear that law firms will become the newest fertile ground for finance officials looking for campaign money.

That exception needs to be fixed. Until then, the S.E.C. should give final approval to these excellent new rules for investors. They could help level the playing field for candidates and remove the corruption of contributions by investors who later want to do business.

Copyright 2009 The New York Times Company