A Slippery Slope

New Mexico Educational Retirement Board’s investment in private prisons remains controversial, but the board's not budging

The New Mexico Educational Retirement Board refuses to divest from private prison companies despite both their underperformance in the stock market and a growing number of educators in Santa Fe who oppose the investments.

Even though Santa Fe Public Schools Board of Education recently voted to support divestment in conjunction with Horizons Sustainable Financial Services and the Santa Fe Dreamers Project, a local immigrant rights group, the Dreamers say the board won't give them an audience to discuss other investment options. That's despite both The Geo Group, Inc. and CoreCivic, two major private prison firms, trailing behind the investment index the board uses.

The ERB's total portfolio as of June 30 was $13.3 billion. Of that, $3.1 billion—or 23.6%—is managed by the board's staff members, but the balance of the portfolio is managed by outside investment managers. The outside managers are hired by ERB's investment committee, says Jan Goodwin, the board's executive director.

Over the last year, Geo Group has underperformed by 22% and CoreCivic by 13%, according to Morningstar, an investment data and analysis firm.

"Had the ERB not been in those stocks, it would have done better," says Johann A Klaassen, chief investment officer with Horizons. "[The prisons] have been underperforming for five years. It's not a recent thing. They're not good investments."

Retirement systems around the country, including other education retirement boards, have invested in private prisons for years. The investments have become flashpoints for controversy more recently as inmate treatment in the prisons has come to light.

In 2018, the California State Teachers' Retirement System divested millions of dollars from both CoreCivic and Geo Group. Earlier this year, Bank of America, SunTrust Bank and JPMorgan Chase & Co all decided to stop financing private prisons.

According to the NMERB's financial reports, it invested less in the prisons this year than last year—and the investments make up just a fraction of the board's overall holdings.

In June 2018, the board had 56,000 shares invested in both companies. Twelve months later, the board invested 41,400, according to data provided by NMERB.

Another reason the board can't divest, according to Goodwin, is because those two stocks would need to be manually reinvested each day, taking up some staff resources.

Klaassen says that's a sign the NMERB is working with outdated technology. He suggests the board could reinvest that small amount of money in the other stocks in the index or in cash holdings.

Goodwin insists the board is working with the latest technology and tells SFR investing in cash would not have amounted to an increase.

Klaassen, who has worked in the investment and finance industry for nearly two decades, estimates that if the board had invested just $1,000 of that money in cash five years ago, it would have $1,054.66 today versus the $1,034.47 collected through the Geo Group investment.

"These two companies are causing 'portfolio drag,' more even than merely holding cash, and have been doing so for a long time," Klaassen says.

Ultimately, Godwin tells SFR there are no plans to divest because it would negatively impact the teachers' fund. If people really want to improve conditions for people in private prisons, Goodwin argues, remaining as a stockholder is a better way.

"If you divest, you don't have a place at the table anymore," Goodwin says. "It's only shareholders that can really effectively put pressure on management … When you look at the amount of stock, it's much smaller than the other companies and pension plans that have much larger holdings [that have divested] and what change has that made?"

Santa Fe educators and activists are more interested in divesting from the private prisons than trying to use a minuscule investment to change the policies of Geo Group or Core Civic. Among them is Elizabeth Bunker, a longtime Santa Fe educator.

Bunker sees even the relatively small amount of investment by the NMERB as a slap in the face to the children she works with and the decades she has put in helping immigrant and refugee children as a counselor at Piñon and a teacher at Cesar Chavez elementary schools.

"If for no other reason at all, if I didn't care about anybody else, I know that our children should not be in these prisons," Bunker tells SFR in her office filled with children's toys. "What worries me is that I don't know that they're ever gonna be OK."

The movement to divest has developed behind the scenes since the beginning of the year, when Sylvia Johnson, director of communications at the Santa Fe Dreamers Project, started brainstorming about pushing the NMERB to divest as a way to protest what she sees as the inhumane treatment of people in private prisons.

The unanimous vote last week from Santa Fe Public School Board to order District Superintendent Veronica Garcia to pen a letter to the NMERB asking the board to divest from private prisons is just a first step.

Johnson and other teachers and administrators are not stopping at the Santa Fe Public School District. They are already working with districts in Albuquerque, Taos, Farmington and Las Cruces to put more pressure on the NMERB to divest.

"We need thousands and thousands of signatures from educators in the state," Johnson says. "Santa Fe is leading the way in that. But if Albuquerque doesn't fully get on board, it'll never happen."

Johnson tells SFR a recent email to Dreamers from the board amounts to a denial of any more in-person meetings. She and others next plan to figure out exactly who and how to push the board in order to achieve divestment.

The NMERB has seven board members. Divestment would require a majority vote, although as of now, there is no set process in place to divest if that's what the board decides to do, Goodwin says.

"We don't want to cause a big scene unless we have to," Johnson says. "If it can be done in negotiations and in private meetings, fantastic, that's great. And if not it will probably become very public."

Editor's note: An earlier version of this story incorrectly stated the amount of money NMERB invested in Geo Group and CoreCivic stocks. The article has been updated to accurately reflect the number of stocks invested. 

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