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ations to influence the type of investments that the govern-

ment makes.  In short, should the government invest solely

to earn the highest possible return on investments, or

should the government consider larger political and societal

questions?

The theory behind social investing was perhaps best

explained in a 1989 report by a task force established by

then Governor Mario Cuomo to consider how New York public

employee pension funds were being invested.  The task force

concluded that state employee pension funds should not be

operated solely for the benefit of state employees and

retirees.  In the opinion of the task force, those employees

and retirees were only one among several groups of "stake-

holders" in state employee pension programs, others being

"the plan sponsor; corporations seeking investment capital

from the pension fund; taxpayers who support the compensa-

tion of public employees, including contributions to the

pension fund; and the public, whose well being may be af-

fected by the investment choice of fund managers" (emphasis

added).16  Using that criterion, the task force rejected the

idea that investments should be made solely on the basis of

maximizing the immediate return to the pension trust.

Instead, pensions should be invested in a way that maximizes

"both direct and indirect returns" to all stakeholders,

including "the larger society and economy."  Therefore, the

task force concluded, state employee pension funds should be

guided into economic development projects beneficial to the

state of New York.

Most state employee pension funds are subject to such

social investing. Alaska may have been the first state to

require social investing, with a requirement in the early

1970s that a portion of state pension funds be used to

finance home mortgages in the state.17  The Alaska example

also illustrates the dangers of social investing.  A down-

turn in the local real estate market cost the fund millions

of dollars that had to be made up through other revenue

sources.

Throughout the 1970s and 1980s, social investment in-

creasingly came to be a part of state pension programs.18

It became a subject of widespread public debate in the mid-

1980s with the question of South African divestment.  Even-

tually, 30 states prohibited the investment of pension funds

in companies that did business in South Africa.  Today,

approximately 42 percent of state, county, and municipal

pension systems have restrictions targeting some portion of

investment to projects designed to stimulate the local

economy or create jobs.  This includes investment in local