California Treasurer Bill Lockyer has displayed complete solidarity with the environmental efforts of fellow state leaders Governor Arnold Schwarzenegger and Attorney General Jerry Brown. In fact, he is now contemplating a green building bond measure, and he has consistently leveraged his position on the boards at CalPERS and CalSTRS to direct substantial funds toward sustainable investments. The Metro Investment Report is pleased to present the following interview with Treasurer Lockyer, in which he details the ways that California is using its financial resources to secure a greener and more sustainable economy.
Treasurer, you recently announced a proposal for a $5 billion bond measure to implement green building measures for state-owned buildings. If passed, what would this green building program achieve?
The state of California is the largest property owner in the state of California, with 206.6 million square feet of office buildings that tend to be very inefficient and old. We're hoping to green the buildings, that is, to provide leadership at the state level by retrofitting and adding renewable energy sources to as many buildings as we can.
Where did your idea for this bond come from? How has the idea evolved?
I'd like to aggressively promote the green agenda in a variety of ways consistent with my office's responsibilities. I talked to the governor about trying to green my own building in Sacramento, and he said, "Why are you being so limited? Let's do it for the whole capital area." So, I took that idea and made it statewide.
We've done a lot of work with the Department of General Services and others to develop a disciplined approach to getting this done as quickly and smartly as possible. The low-hanging fruit, the easy stuff, are things that many people are doing in private sector buildings: the boiler, the roof system, the window system, the air conditioning and heating systems, things of that nature that very quickly pay for themselves.
Two examples are Patton State Hospital and Napa State Hospital. They spent several million dollars on retro-commissioning efforts that will pay for themselves in about five years. After that, it's a net benefit to the state and the taxpayers. We want to commit about half of this pool of bond money to retro-commissioning and retrofitting projects that yield fairly immediate results.
Because you need a two-thirds vote to get a bond passed through the Legislature, we have to convince some legislators who are not persuaded about global warming that this is worth doing to save taxpayers' money.
You follow in a line of state treasurers since Jesse Unruh who have used the Office of the Treasurer to take bold steps in investment and economic development policies for the state. Do you see your position, especially with California State Teachers Retirement System (CalSTRS) and California Public Employee Retirement System (CalPERS) and with these bonds, moving California toward its goal of being a center of green employment and a national green leader?
As you mentioned, I serve on PERS and STRS, the two largest public pension programs in the country. Both PERS and STRS have significant environmental investments as part of their portfolios. Just this morning, we spent two-and-a-half hours with the managers at PERS to get very specific about their green investments. The real estate portfolio of PERS totals about $20 billion, which is complicated by the fact that they are making a lot of specific investments in property. But with respect to commercial properties, they're trying to work with our partners to incorporate green technology in the building designs, either retrofitted or new. There isn't a specific dollar amount there; it's filtering through all of their real estate investments. Their goal is to reduce energy use in our real estate portfolio by 20 percent in five years. They're about halfway there now, in the second year of this program.
Then, there's about $500 million in public equities where they've hired managers to screen stock purchasing globally for green investments. What they've done mostly is to screen out what they think are bad investments rather than necessarily to invest in the best in the particular market. They're rethinking that strategy, but right now, there's $500 million devoted to those sorts of investments.
They have about $20 billion, with $600 million devoted to green investments, in private equity investing, hedge funds, etc.-investing through fund managers where, basically, you're not investing in a specific technology company but sort of a fund. More and more they're trying to invest directly in green companies.
It's more modest, but there are several hundred million dollars at STRS invested in similar ways, looking for smart green investment opportunities. So I am attempting to accelerate those efforts in both pension funds.
There are some other things that are more specific responsibilities of the treasurer. For example, we just deposited $10 million in the nation's first commercial green bank in San Francisco, the New Resource Bank, which helps finance job-creating opportunities and enterprises in the green sector. I hope that we will increase that with time.
We also have various financing authorities where we help finance, for instance, a waste company's purchase of energy efficient, less polluting trucks or things of that sort.
You sit on the Alternative Energy and Advanced Transportation Finance Authority. Is that what you're referencing?
No. This is pollution control. The Pollution Control Authority is more robust, so we'll provide hundreds of millions of dollars every year to waste industries and others to try to expand recycling and have green business practices, green equipment, and so on.
The one you mentioned, the Alternative Energy and Advanced Transportation, hasn't done much. We're working hard to expand its role. There are legislative proposals that we've got across the street to try to do that, but it has been inactive for years.
We also finance industrial development, schools, and low-income multi-family housing projects. In all those areas, we try to advance green business practices.
Another work in progress is to help figure out how to have a carbon bank for the state of California if policymakers decide that the cap-and-trade system is going to be our policy. There is a debate going on between regulatory approaches and market-based approaches to expanding green investment. My guess is that both will happen, but I'm not the policymaker, so I have to wait and rely on their judgments about these things.
Since we're the state's banker, I hope we can help set that up, assuming that part of what happens at the federal or the state level is some form of carbon bank. It would be useful in a variety of ways. If, for example, we buy a fleet of automobiles, green buildings, or provide tax-exempt financing for the garbage company for their new trucks, any of those transactions could result in the production of carbon credits. A number of things can happen with them: you can retire them and make an environmental contribution; you market them, if that's desirable or necessary; or, they could even be used to induce business locations and expansions in California. That would be part of the package of getting them to come here or expand here, so that we wouldn't continue to lose some businesses that we would like to other states that have inducements.
In December, VerdeXchange News and IDG hosted GreenXchange, which included Glen Blacet from CalSTRS and Allan Emkin from PCA on a panel on investment strategies for pension funds going green. You oversee the wise investment of these funds so that their returns go to the employees and members of the pension funds. How do you balance the economic opportunities in these markets with the protection of the employees that rely on these pension funds?
I don't think there's a contradiction between doing well and doing good. As these markets evolve, sustainability may equal profitability. We hope to invest on behalf of the beneficiaries of those pension plans in businesses that are going to grow and do well.
Of course, we would like to create jobs in California, as well. The bulk of the venture capital in this state comes from Californians, but we'd like the jobs to be California jobs, too. We know that the economy needs a significant source of new jobs every seven or eight years. One of the shortcomings of the current federal administration is they missed the opportunity to rely on a green economy to create a lot of new jobs, and so I'm hoping that that will happen now. And, of course, for us, it's tens of thousands of jobs that could be created in California.
In the absence of federal policy, California has been one of the bellwether states in the United States for the green movement. But what are you drawing from in the way of best practices from the international scene? Who are you looking to, whether as a board member of CalPERS or CalSTRS or as the state's banker, for guidance in these new markets?
We work with the Investor Network on Climate Risk (INCR) regularly. Many of the pension fund advisors have global expertise, and each of our state funds has several of them that work with the staff there.
There's a group of pension funds that have a serious interest in these issues. New York, Connecticut, New Jersey, and several local and state funds in California-there are a number of states that we work together with to try to figure these things out. PERS-particularly the $600 million that PERS is investing either directly in companies or in green funds-has often been the magnet that drew other pension funds into co-investing. That's been a positive role for our state funds.
You were attorney general and president pro tem of the State Senate. In a term-limited world, you bring vast experience to these evolving issues, but you are stepping back and letting the Legislature develop the policy. Do you believe that we're doing it right here in California?
There is an urgent need for international and national efforts. Obviously, pollution respects no territorial boundaries. But California and some other states have led the way.
Many, many years ago, I wrote the first bill to regulate transportation of toxic waste and the first bill in the country to set up a system for white paper recycling in state government-and the list goes on and on. I've had a long interest in these matters.
The legislature enacted the Pavley bill on auto emissions standards. Of course, I sued the automobile industry about their emissions, and Jerry Brown is continuing that work. As attorney general, I sued the Bush Administration on environmental issues 20 times or more, because they kept ignoring federal law with respect to wetlands protection and mercury and lead poisoning and clean water and land use issues and offshore oil drilling-the list goes on and on and on. I hope that we can now move in a more positive way. I suspect that the next president will have more engagement with these issues. We'll have better cooperation from Washington.
AB 32 is obviously a landmark legislative effort. It's still very general, but that's where it starts, and then the implementation strategies occur. I see my role as part of the implementation effort, whether that's green buildings or expanding alternative energy investments through California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA). One of the interesting financing mechanisms-a lot of these things just come down to how are you going to pay for them-is what is called a power purchase agreement, which is a public-private partnership to expand the greening of buildings and the use of renewable energy.