An open letter to President Clinton: pension money for the infrastructure.

• Author: Gallahue, John J.
• Position: Viewpoint

Dear President Clinton:

I've read reports that your administration is studying the feasibility of using the nation's $2 trillion to $3 trillion in retirement monies as a source of funding to renovate the nation's infrastructure. Sounds like a good idea. But, as a pension fund manager, I must caution that, like most good ideas, if it's handled badly it can lead to disaster.

From my perspective as a retirement fund director, I believe mismanagement will lead to serious concern on the part of retirees, who never contemplated their nest eggs carrying the weight of the nation's bridges and roadways. Such unease easily translates into the sort of political gridlock that a lot of your supporters look to you to avoid.

And mismanagement of such vast sums would be costly to the taxpayer, while at the same time threatening to projects. Before you go much further with the pension-fund idea, I would suggest you seek the advice of people with substantial experience in handling retirement plans, as well as the counsel of Wall Street financiers and government leaders.

Wall Street know-how is elementally important to devising the necessary investment vehicle. Perhaps as important as that expertise is the comforting perception of competence the involvement of Wall Street experts signals to the fund managers. Publicly involving fund managers and Wall Street gurus in the effort, working closely with government representatives, will do much avert the wrong impression. And inviting them in at the task-force stage also will lessen the possibilities for false starts.

MAKE SURE OF THE MONEY FLOW

Of two proposals now making the rounds on how to handle the pension fund-infrastructure program-setting up a quasi-governmental corporation or creating a taxable security with a dedicated money stream--I favor the latter.

You should seek to set up an infrastructure bank that would sell securities backed by a gasoline tax, user fees or some other dependable money source. Dedicating the money in such a fashion will avoid burdening future generations with more debt. The funds should be earmarked in a contractual-like manner with no possibility of deviation. Raise the money with one purpose in mind, and spend it with that same purpose in mind.

And the bonds would have to carry the same guarantees that the federal government extends to farm credits, small-business loans, home mortgages, the S&Ls and the Treasury notes bought by foreign investors.

Guarantees would help strengthen...