Dale Folwell’s investment strategy hurts NC, including teachers like me | Opinion
As a teacher and stakeholder in the state pension system, I was alarmed by former Gov. Jim Martin’s Aug. 5 commentary in defense of state Treasurer Dale Folwell’s investment strategy, in which Folwell chooses to hoard cash.
Martin’s defense that Folwell critics are operating with the benefit of hindsight is misguided. As I teach my high school students in our economics and personal finance class, the stock market has ups and downs but has a trend of long-term growth, with an average of 10% annual stock market gains.
When Folwell brags about saving $700 million in Wall Street fees, he fails to mention that it is not because he is making better deals, but because you pay less in fees when you invest less money. He’s not sticking it to Wall Street, he’s harming Main Streets across North Carolina.
For much of Folwell’s tenure as state treasurer, the cash allocation target was set for 1% — the same target he inherited in 2017. This is in line with similar pension funds. The remainder is invested in stocks, private equity and other assets. He recently raised the cash allocation target to 5%.
These paper targets seem to mean little to Folwell since typically he held much more cash than the plan’s stated target. The most recent report shows he’s holding 63% more cash than his revised and significantly higher 5% cash target.
By defying the plan allocation targets, Folwell has cost the plan at least $20 billion in unrealized investment returns.
The fund lost out because Folwell wanted to thumb his nose at Wall Street by not paying 3.5 cents for a dollar. And he has the nerve to crave praise for “saving” $700 million in investment fees while ignoring the $20 billion opportunity cost. That’s neither fiscal responsibility nor fiscal conservatism — it’s financial negligence.
Folwell’s tenure as treasurer has been about as damaging to the fund as the Great Recession when the fund lost $20 billion. As one of only four state treasurers who are sole fiduciaries, that loss is a direct result of his allocation decisions.
Folwell’s allocations were motivated not by professional staff recommendations, but by upholding a misguided campaign promise to send less money to Wall Street.
Since there is less in investment returns to support the pension fund, Folwell now relies in part on more property taxes to boost the fund and make up for his mistakes. He has supported a nearly 50% increase in local government employer contribution rates to the pension fund. Folwell admitted as much in an August 2021 Investment Advisory Committee meeting stating: ”...When you increase the employer contribution on LGERS, the local governments have really one big option, one big lever to pull on how they send us more money — that’s property taxes.”
Local governments across North Carolina should not be burdened because of Folwell’s fear of investing and flawed political promises. My neighbors should not be paying the price of Folwell’s warped cost benefit analysis via their property tax bills. My colleagues who teach, protect and serve our communities deserve a strong pension plan where we’ve invested 6% of each paycheck.
For the long term health of the pension plan, the next treasurer must trust the investment staff and invest with wisdom. It’s unfortunate that Folwell’s tenure will make an already difficult job more challenging for the next treasurer.