Board of Trustees of the Employees' Retirement System v. Mayor of Baltimore City

ELDRIDGE, Judge. These cases involve numerous challenges to two Baltimore City ordinances requiring that Baltimore City employee pension systems divest their holdings in companies doing business in South Africa. The pertinent facts are as follows. The City of Baltimore maintains three employee pension systems: The Elected Officials Retirement System (E.O.S.), the Fire and Police Employees Retirement System (F. & P.), and the Employees Retirement System (E.R.S.).

Each system is administered by a Board of Trustees, 1 which is responsible for ensuring that members and beneficiaries ultimately receive the benefits to which they are entitled. As of December 31, 1986, the total sum accumulated in the three systems was approx ⁸⁰ imately $1.2 billion. 2 Virtually all of these assets are invested in either equities or common stocks (40% to 50%), fixed income instruments (40% to 50%), or cash and short-term equivalents. Under each system, members are entitled to specific future benefits (defined benefits). In addition, the systems include a “variable benefits” program, which provides additional benefits that depend directly on the rate of return on the funds.

Under this program, if the rate of return in a given year exceeds 7.5%, then all of the excess between 7.5% and 10% goes toward the payment of additional benefits; in addition, if the rate of return exceeds 10%, then half the excess over 10% goes toward the payment of additional benefits while the City receives the other half. 3 In 1986 the City Council of Baltimore passed, and on July 3, 1986, the Mayor of Baltimore signed, Ordinance No. 765, which amended Baltimore City Code (1976, 1983 Repl.Vol., 1986 Cum.Supp.), Art. 22, §§ (7)(a), (35)(a). Section l(i) of the Ordinance provides that no funds of the E.R.S. or the F. & P. shall remain invested in, or in the future be invested in, banks or financial institutions that make loans to South Africa or Namibia or companies “doing business in or with” those countries. 4 Section l(ii) of the Ordinance states that ⁸¹ entities doing business in or with South Africa, within the meaning of § l(i), “shall be identified by reference to the most recent annual report of the Africa Fund entitled ‘Unified List of United States Companies with Investments or Loans in South Africa and Namibia.’ ” **** 5 Section 3 of the Ordinance further stipulates that divestiture shall occur within a two-year period. That period began to run on January 1, 1987. See § 2(b).

Section 2(d) empowers a Board of Trustees to suspend divestiture during this two-year period, provided that, before acting, the Board adopts a resolution. Under § 2(e), the Board, in adopting such a resolution, must find: “(1) That the rate of return on the funds [is] substantially lower than the average of the annual earnings on the funds over the past five years, and (2) That continued divestiture under this ordinance will be inconsistent with generally accepted investment standards for conservators of pension funds notwithstanding the intent of this ordinance, or (3) That divestiture under the divestiture program will cause financial losses to the funds.” Finally, in § 2(f), the Ordinance specifies that, when adopting a suspension resolution, a Board must state in writing its standards and conclusions, and set forth the duration of the suspension; the period of suspension, how ⁸² ever, may not exceed 90 days, and the two-year time period for divestiture is tolled during the suspension. Apparently because Ordinance No. 765 by its terms applies only to the E.R.S. and the F. & P., it was unclear whether the E.O.S. was also required to divest. As a result, the City Council passed and the Mayor signed Ordinance No. 792, which amended Baltimore City Code (1976, 1983 Repl.Vol., 1986 Cum.Supp.), Art. 22, § 23(b), to provide expressly that the City’s divestiture program applies to the E.O.S. 6 As of November 1987, the two-year period for divestiture had not begun to run for the F. & P. and the E.R.S. For each quarter since the Ordinances’ effective date, the Trustees of those systems have found, among other things, that the “rate of return on the funds [has been] substantially lower than the average of the annual earnings on the funds over the past five years.” Thus, as for those systems, the divestiture program has been suspended for successive 90-day periods.

On December 31, 1986, the Trustees of each of the City’s three employee pension systems, and two employee beneficiaries, filed this action against the Mayor and City Council of Baltimore, asking the Circuit Court for Baltimore City to ⁸³ declare the Ordinances invalid. In support of this request, the Trustees contended: that § (l)(ii) of Ordinance No. 765 impermissibly delegates legislative power to the Africa Fund, a private entity; that the Ordinances unconstitutionally impair the obligation of the City’s pension contracts with the systems’ beneficiaries; that the federal Comprehensive Anti-Apartheid Act of 1986, Pub.L. No. 99-440, 100 Stat. 1086 (1986), preempts the Ordinances; that the Ordinances intrude on the federal government’s exclusive power to conduct foreign policy; and that the Ordinances violate the Commerce Clause of the United States Constitution, Art. I, § 8, cl. 3. On January 9, 1987, four pension fund beneficiaries, raising related arguments, moved to intervene on the side of the Trustees. 7 The Trustees moved for summary judgment. 8 After hearing argument on March 26, 1987, the circuit court denied the motion for summary judgment, finding it necessary first to determine facts concerning the Ordinances’ financial impact. On April 6, 1987, the circuit court denied the motion to intervene. 9 ⁸⁴ During the trial, which took place between June 22 and July 10, 1987, the parties presented a large amount of highly technical evidence concerning the Ordinances’ financial impact.

Thereafter the circuit court filed an opinion and a declaratory judgment containing numerous findings and conclusions. The circuit court, based on the evidence of financial impact, held that “it cannot be concluded that the Ordinance[s] will impair the performance of the equity funds.” 10 In reaching this decision, the trial judge discounted the parties' evidence detailing the performance of other South Africa free (S.A.F.) equity funds: “Some have fared better than the unrestricted equity funds of the same money manager; some fared worse. Many did better than the [Standard & Poor 500 Index]. 11 All the experts agreed, however, that the track records of these SAF funds is too short (less than three years) to be statistically significant.” Moreover, the court noted that “not one witness was able to express the opinion that the percentage return on the plaintiffs’ equity investment will be reduced because of the Divestment Ordinancefs].” The circuit court indicated that the Ordinances barred investments in 120 of the 500 companies on the Standard & Poor 500 (S & P 500). The court further recognized that these companies represent approximately 40% of the market capitalization of the S. & P. 500. 12 Thus, the court found that, under the Ordinances, the pension systems’ portfolio will have more investments in relatively smaller companies whose stock prices tend to be more volatile.

The court ⁸⁵ stated, however, that this was not necessarily a disadvantage, reasoning that in the long run such stocks perform as well or better than larger companies’ stocks. The Trustees had attempted to show that the Ordinances would adversely affect their money managers’ “active” style, which had proved very successful. Generally, this style emphasizes investments in certain sectors of the economy in an attempt to surpass rather than merely to duplicate the market’s performance. 13 The circuit court found that, by eliminating some potential investments in certain sectors, the Ordinances would affect the active style. Nonetheless, the court deemed any interference to be insignificant, concluding that “adequate SAF [South Africa free] replacement stocks can be found for each sector, even though the SAF companies will be replacing larger companies.” The Trustees had also introduced evidence purporting to show that the Ordinances would diminish the quality of the pension systems’ portfolio by requiring money managers to forego their “first choice.” The circuit court disagreed, stating that “it is not axiomatic that the manager’s second choice is inferior to the first.” The court explained that money managers ordinarily invest in a limited number of companies with which they are familiar. 14 Thus, the court found that the Ordinances would merely require money managers to do additional research in order to locate adequate replacement stocks.

The court did find that the Ordinances would affect the Short Term Investment Fund (S.T.I.F.). The S.T.I.F. is a fund of very short-term investment paper that is pooled in a local bank with the funds of other owners and is issued to ⁸⁶ meet immediate or short-term liquidity requirements. The Ordinances affect participation in the pooled S.T.I.F., since that fund invests in companies doing business in South Africa. As comparable substitutes may not be readily available, the pension systems’ S.T.I.F. may be forced to increase its ratio of investments in lower-yielding obligations, such as Treasury Bills.

Moreover, unlike the pooled S.T.I.F., most South Africa free S.T.I.F.s charge management fees. These two factors, the circuit court found, would result in a decreased annual return on the pension systems’ S.T.I.F. of .75% or $900,000. The court also found that the Ordinances require divestiture of 47% of the pension funds’ equity portfolio and 10% of the fixed income portfolio. The parties agreed that replacing these holdings with S.A.F. investments would lead to some initial, one-time costs; however, they disagreed as to the extent of the costs. 15 The Trustees had attempted to prove that, in addition to “explicit” costs (such as broker’s fees or commissions), transactions of this magnitude adversely affect stock prices and thereby result in additional, “implicit” costs.

Noting that other experts reject this theory, the circuit court declined to credit the Trustees’ evidence. In addition, the court accepted the City’s contention that the cost of transactions that would have occurred absent divestiture should be subtracted from the total costs of divestiture. Consequently, the court fixed the initial cost of divesting the funds’ equity and fixed income portfolios at $750,000. 16 Finally, the court observed that, because of the smaller size of S.A.F. companies, divestiture will result in a larger ⁸⁷ volume of trading. This in turn, the court found, will cause an annual increase in broker’s commissions of $300,000.

In summary, the trial court fixed the initial cost of divestiture at $750,000, or one-sixteenth of 1% of the funds’ total value. In addition, the court calculated that the ongoing cost of divestiture is $1.2 million per year ($900,000 for the S.T.I.F. and $300,000 for additional commissions), or one-tenth of 1% of the funds’ total value. The court reasoned further: “If the Pension Funds earn in excess of 10% (as has regularly been the case since 1984), the loss to the retirees is halved, since the City takes one-half of the excess earnings.” Consequently, the court concluded that the initial cost to the systems’ beneficiaries is actually only V32 of 1% and that the ongoing cost is actually only V20 of 1%. 17 In light of the Ordinances’ “minimal” effect and the “salutary moral principle” underlying them, the circuit court rejected the Trustees’ impairment of contract argument. The court upheld § l(ii) of Ordinance 765, which provides that entities doing business in South Africa shall be identified by reference to the Africa Fund’s “Unified List.” The circuit court construed the ordinance to mean that “[t]he Unified List is merely a ‘reference,’ which the Trustees may accept or reject,” and that “the Trustees are the final authority to determine whether a company is disqualified.” Accordingly, the court held that § l(ii) did not impermissibly delegate legislative power to a private entity.

The trial judge also rejected the Trustees’ other challenges to the ⁸⁸ Ordinances. 18 The Trustees and the applicants for intervention both appealed to the Court of Special Appeals. On the parties’ joint request, we issued a writ of certiorari to consider the important issues presented. I. Initially, we shall address the denial of the motion by four pension fund beneficiaries to intervene on the side of the Trustees. In denying the motion, the circuit court ruled that the applicants were not entitled to intervene as a matter of right under Maryland Rule 2-214(a)(l) or (2), and ruled that they would not be granted permissive intervention under Rule 2-214(b).

We disagree that the applicants were not entitled to intervene as a matter of right under Rule 2-214(a)(2). Rule 2-214(a)(2) provides in pertinent part: “Upon timely motion, a person shall be permitted to intervene in an action: ... (2) when the person claims an interest relating to the property or transaction that is the subject of the action, and the person is so situated that the disposition of the action may as a practical matter impair or impede the ability to protect that interest unless it is adequately represented by existing parties.” Plainly the applicants, as beneficiaries, “clai[m] an interest relating to the property ... that is the subject of the action.” Moreover, a ruling upholding the Ordinances’ validity would be res judicata in a separate action by the ⁸⁹ applicants. Restatement (Second) of Judgments, § 41(1)(a) (1982).

See Ugast v. LaFontaine, 189 Md. 227, 233 , 55 A.2d 705 (1947) (judgment for constructive trustee was res judicata in subsequent action brought by beneficiaries of constructive trust). See also Sea-Land Services, Inc. v. Gaudet, 414 U.S. 573, 593-594 , 94 S.Ct. 806, 819 , 39 L.Ed.2d 9 (1974). Consequently, the applicants are “so situated that the disposition of the action may as a practical matter impair or impede” their ability to protect their interests. 19 Indeed, the trial court in its opinion did not find otherwise. The basis for the trial court’s denial of intervention as of right was the court’s conclusion that the Trustees adequately represent the applicants’ interests.

In Citizens Coordinating Comm. v. TKU, 276 Md. 705, 713 , 351 A.2d 133 (1976), we pointed out that under the intervention of right provision of former Rule 208, the rule requires only that the representation by existing parties “may be inadequate.” In Maryland Radiological v. Health Serv., 285 Md. 383 , 402 A.2d 907 (1979), which was also decided under former Rule 208, we adopted an “interest analysis” test to determine whether existing representation is adequate. Referring to the discussion in 7A C. Wright & A. Miller, Federal Practice and Procedure § 1909 (1972), Judge Digges for the Court explained that test as follows ( 285 Md. at 390-391 , 402 A.2d at 911-912 ): “First, these authors suggest the obvious: If the potential newcomer’s interest is not represented or advocated to any degree by an existing party, or if the existing parties all have interests that are adverse to those of the proposed intervenor, he is unrepresented and, assuming compliance with the other provisions of Rule 208 a, inter ⁹⁰ vention should be permitted____ Second, if the applicant’s interest is similar but not identical to that of an existing party, ‘a discriminating judgment is required on the circumstances of the particular case, but he ordinarily should be allowed to intervene unless it is clear that the party will provide adequate representation for the absentee.’ Id. (footnote omitted). Third, if the interest of an existing party and an intervenor-applicant are identical, or if an existing party is charged by law with representing a movant’s interest, ‘a compelling showing should be required to demonstrate why this representation is not adequate.’ ” Also, in both the TKU case, 276 Md. at 712 , 351 A.2d at 138 , and the Maryland Radiological case, 285 Md. at 388 n. 5, 402 A.2d at 910 n. 5, we pointed out that intervention decisions under Rule 24 of the Federal Rules of Civil Procedure serve as a guide to interpreting the Maryland Rule.

Because of his fiduciary duties to the trust’s beneficiaries, a trustee is charged by law with representing the beneficiaries’ interests. Consequently, in cases under Rule 24, F.R.Civ.P., courts often view the interests of a trustee and the beneficiaries as the same, conclude that the trustee will adequately represent the beneficiary’s interests, and deny to the beneficiaries intervention as of right. See, e.g., Heyman v. Exchange Nat. Bank of Chicago, 615 F.2d 1190, 1194 (7th Cir.1980); Peterson v. United States, 41 F.R.D. 131, 133-134 (D.Minn.1966); Kind v. Markham, 7 F.R.D. 265, 266 (S.D.N.Y.1945).

The cases recognize, however, that where there is a conflict between the interests of the trustee and beneficiaries, or when other circumstances exist whereby the representation by the trustee may be inadequate, the beneficiaries will be granted intervention. See, e.g., Swift v. Swift, 61 F.R.D. 595, 597-598 (E.D.N.Y. 1973); Peterson v. United States, supra, 41 F.R.D. at 134 ; Federal Home Loan Bank v. Long Beach Fed. S. & L. Ass’n, 122 F.Supp. 401, 435 (S.D.Cal.1954). ⁹¹ The trustees of a public pension system do not necessarily occupy precisely the same position as the trustees of a conventional private trust. It is true that, like ordinary trustees, the persons administering Baltimore’s retirement funds are charged with fiduciary duties of loyalty and care toward the systems’ beneficiaries. In the present case, however, the Trustees have obligations to the City as well.

As to variable benefits, which are the only benefits affected by the Ordinances, Baltimore City receives one-half of the systems’ excess earnings over 10%. Thus, with respect to these benefits, the City is a co-beneficiary. Moreover, in this case the Boards of Trustees are agencies of Baltimore City, which is the party opponent in this litigation. The Trustees are municipal officials with some responsibility to comply with the City’s directives.

In essence, the Trustees are prosecuting this lawsuit against their employer. The present case, therefore, is very different from an ordinary action brought on behalf of beneficiaries. In fact, it should be noted in this context that, during Baltimore’s last mayoral election campaign, one of the issues between the candidates concerned the propriety of permitting the Trustees to prosecute an appeal in the present case. See The Sun (Baltimore), August 29, 1987, at 5A.

In light of the Trustees’ peculiar role, we conclude that the beneficiaries’ interests are “similar but not identical” to those of the Trustees. See Maryland Radiological v. Health Serv., supra, 285 Md. at 390 , 402 A.2d at 912 . In our opinion it is not sufficiently clear, under the facts of the present case, that the Trustees will adequately represent the applicants. The prospect that the Trustees might not ask the United States Supreme Court to review an unfavorable ruling in this Court is not entirely unlikely in light of past events.

A decision not to seek Supreme Court review would adversely affect the applicants, who would be bound by our ruling. Consequently, under these circumstances, we hold that the Trustees may not adequately represent the applicants’ interests. Thus, the trial court erred in holding that the ⁹² applicants were not entitled to intervene as a matter of right under Rule 2-214(a)(2). 20 When a trial court has erroneously denied a motion to intervene, the ordinary remedy is to reverse and remand the case so that the intervenor may present the evidence that he originally would have produced. See, e.g., Citizens Coordinating Comm. v. TKU, supra, 276 Md. at 714 , 351 A.2d at 139 .

In the case at bar, however, the applicants took the position, during oral argument before us, that they do not desire a remand for this purpose. Rather, they only wish to have the status of parties in the present proceeding before this Court and for all future proceedings in the case, including the right to seek review in the United States Supreme Court. As a consequence, the circuit court’s error does not require reversal. Instead, we shall exercise our authority under Rule 8-604(e) to modify the circuit court’s judgment so as to grant the applicants’ motion to intervene.

II

Section l(ii) of Ordinance 765 provides that “[business entities doing business in or with the Republic of South Africa shall be identified by reference to the most recent annual report of the Africa Fund entitled ‘Unified List of United States Companies With Investments or Loans in South Africa and Namibia.’ ” The Trustees contend that this provision constitutes an impermissible delegation of legislative power to a private entity. The City agrees that if the Trustees are bound by the South Africa Fund Unified List, and with respect to Nami ⁹³ bia bound by the determinations of the United Nations’ offices referred to in the Ordinances, then the Ordinances are unconstitutional (City’s Brief, p. 31). The City, however, urges that the language of the Ordinances is ambiguous, and it points to the circuit court’s construction of the Ordinance No. 765 which was as follows: “The directive in the Ordinance that [corporations doing business in or with South Africa] ‘shall be identified by reference to the most recent annual report’ of the Africa ' Fund Unified List is merely a ‘reference,’ which the Trustees may accept or reject.” 21 Under the circuit court’s construction, the City’s argument continues, there is clearly no impermissible delegation of legislative power. As the Court stated in Comm’n on Med.

Discipline v. Stillman, 291 Md. 390, 413 , 435 A.2d 747, 759 (1981), “[fjn the enactment of laws, the legislature acts in the exercise of a power conferred upon it by the people; it cannot validly redelegate its lawmaking authority to others.” See Md. Co-op. Milk Producers v. Miller, 170 Md. 81, 88 , 182 A. 432, 435 (1935); Brawner v. Supervisors, 141 Md. 586, 595-596 , 119 A. 250 (1922); Bradshaw v. Lankford, 73 Md. 428, 430 , 21 A. 66 (1891); Fell v. State, 42 Md. 71, 83 (1875); Hammond v. Haines, 25 Md. 541, 562 (1866). See also Anne Arundel County v. Fraternal Order, 313 Md. 98, 111, 114-115 , 543 A.2d 841 (1988); Maryland Cl Emp Ass’n v. Anderson, 281 Md. 496, 508-509 , 380 A.2d 1032, 1039 (1977). This principle follows from the nature of representative democracy.

Pursuant to Article XI-A of the Maryland Constitution, and as authorized by Maryland Code (1957, 1987 Repl.Yol.), Art. 25A, the Baltimore City Council has the sole power to enact local legislation for the people of Baltimore City. Cheeks v. Cedlair Corp., 287 Md. 595 , ⁹⁴ 608-609, 415 A.2d 255 (1980). 22 Thus, in enacting legislation, City Council members generally have no authority to substitute the judgment of others for their own judgment. Md. Co-op. Milk Producers v. Miller, supra, 170 Md. at 88 , 182 A. at 435 ; Bradshaw v. Lankford, supra, 73 Md. at 430, 21 A. at 66 .

The principle of nondelegation, however, is not absolute. See Bradshaw v. Lankford, supra, 73 Md. at 430 , 21 A. at 66 . As this Court stated in Department of Transportation v. Armacost, 311 Md. 64, 72 , 532 A.2d 1056, 1060 (1987), “[o]ur cases have long sanctioned delegations of legislative power to administrative officials where sufficient safeguards are legislatively provided for the guidance of the agency in its administration of the statute.” Furthermore, the Court noted in Price v. Clawns, 180 Md. 532, 538 , 25 A.2d 672, 675 (1942), that “[t]here are many instances in which authority is lodged in and permitted to private persons by the Legislature.” See, Portsmouth Stove and Range Company v. Mayor and City Council of Baltimore, 156 Md. 244, 251-253 , 144 A. 357, 360-361 (1929). Nonetheless, delegations of legislative authority to private entities are strictly scrutinized because, unlike governmental officials or agencies, private persons will often be wholly unaccountable to the general public.

See Group Health Ins. of N.J. v. Howell, 40 N.J. 436, 445 , 193 A.2d 103 (1963); Fink v. Cole, 302 N.Y. 216, 224 , 97 N.E.2d 873 (1951); Union Trust Co. v. Simmons, 116 Utah 422, 427-428 , 211 P.2d 190 (1949); Note, The State Courts and Delegation of Authority to Private Groups, 67 Harv.L.Rev. 1398, 1402 (1954). 23 ⁹⁵ A number of cases have held that no impermissible delegation takes place when a legislature merely adopts a fixed standard promulgated by a private entity. See, e.g., St. Louis, Iron Mt. & Southern Railway Co. v. Taylor, 210 U.S. 281 , 28 S.Ct. 616 , 52 L.Ed. 1061 (1908); Kingery v. Chapple, 504 P.2d 831 , 836 n. 13 (Alaska 1972); City of Bakersfield v. Miller, 64 Cal.2d 93, 97-98 , 48 Cal.Rptr. 889 , 410 P.2d 393 , cert. denied, 384 U.S. 988 , 86 S.Ct. 1890 , 16 L.Ed.2d 1005 (1966); City of Warren v. State Const. Code Com’n, 66 Mich.App. 493 , 239 N.W.2d 640 (1976); People v. Shore Realty, 127 Misc.2d 419 , 486 N.Y.S.2d 124 (1984); Meyer v. Lord, 37 Or.App. 59 , 586 P.2d 367, 371 (1978); Dudding v. Automatic Gas Co., 145 Tex. 1 , 193 S.W.2d 517, 520 (1946). But cf. Cawley v. Northern Waste Co., 239 Mass. 540 , 132 N.E. 365 (1921).

The Ordinance in the present case, however, does not incorporate a fixed standard but a standard that is subject to periodic revision by the Africa Fund. Section 1(H) of Ordinance No. 765 requires the Trustees to employ the “most recent annual report” of the Africa Fund’s Unified List. Courts have frequently viewed the legislative incorporation of future changes or revisions in a standard promulgated by a private entity as an impermissible delegation of authority. See, e.g., City of Tucson v. Stewart, 45 Ariz. 36 , 40 P.2d 72, 80-81 (1935); Agnew v. City of Culver City, 147 Cal.App.2d 144, 153-157 , 304 P.2d 788, 795-797 (1956); People v. Pollution Control Board, 83 Ill.App.3d 802 , 38 Ill.Dec. 928 , 404 N.E.2d 352 (1980); Gumbhir v. Kansas St. Bd. of Pharmacy, 228 Kan. 579 , 618 P.2d 837, 843 (1980); State v. Crawford, 104 Kan. 141 , 177 P. 360 (1919); Coffman v. State Board of Examiners in Optometry, 331 Mich. 582 , 50 N.W.2d 322, 326 (1951); People v. Mobil Oil ⁹⁶ Corp., 101 Misc.2d 882 , 422 N.Y.S.2d 589, 592 (1979); State v. Emery, 55 Ohio St. 364 , 370, 45 N.E. 319 (1896); Hillman v. Northern Wasco County People’s Util.

Dist., 213 Or. 264 , 323 P.2d 664, 674-675 (1958), overruled on other grounds in Moulding v. Clackamas County, 278 Or. 359 , 563 P.2d 731 (1977); Woodson v. State, 95 Wash.2d 257 , 623 P.2d 683, 685 (1980). 24 On the other hand, courts have sometimes upheld legislative adoption of private organizations’ standards which are periodically subject to revision, in limited circumstances such as where the standards are issued by a well-recognized, independent authority, and provide guidance on technical and complex matters within the entity’s area of expertise. See, e.g., Ex parte Gerino, 143 Cal. 412, 419 , 77 P. 166 (1904); Colorado Polytechnic College v. State Board for Community Colleges and Occupational Education, 173 Colo. 39 , 476 P.2d 38, 42 (1970); Rosenthal v. State Bar Examining Committee, 116 Conn. 409 , 165 A. 211, 214 (1933); State v. Dee, 77 So.2d 768 (Fla. 1955); Lucas v. Maine Com’n of Pharmacy, 472 A.2d 904 (Me.1984); Application of Hansen, 275 N.W.2d 790, 796-797 (Minn.1978), appeal dismissed, 441 U.S. 938 , 99 S.Ct. 2154 , 60 L.Ed.2d 1040 (1979); Appeal of Murphy, 482 Pa. 43 , 393 A.2d 369 (1978), appeal dismissed, 440 U.S. 901 , 99 S.Ct. 1204 , 59 L.Ed.2d 449 (1979); State v. Wakeen, 263 Wis. 401, 407-412 , 57 N.W.2d 364, 367-369 (1953); Potter v. New Jersey Supreme Court, 403 F.Supp. 1036, 1040 (D.N.J.1975), aff'd, ⁹⁷ 546 F.2d 418 (3rd Cir.1976). These cases usually involve accreditation or similar programs by established professional organizations. 25 We need not in the present case express agreement or disagreement with the specific holding in any of the above-cited opinions of our sister states concerning delegation to private entities. It is sufficient to point out, in light of the prior decisions of this Court and the cases generally throughout the country, that if the Trustees are bound by the determinations of the private entities listed in the Ordinances, there arises a serious question concerning the validity of the Ordinances under Article XI-A of the Maryland Constitution.

It is a settled “principle that a court will, whenever reasonably possible, construe and apply a statute to avoid casting serious doubt upon its constitutionality.” Yangming Transport v. Revon Products, 311 Md. 496, 509 , 536 A.2d 633 (1988). See, e.g., Craig v. State, 316 Md. 551, 552 , 560 A.2d 1120 (1989); Heileman Brewing v. Stroh Brewery, 308 Md. 746, 763-764, 521 A.2d 1225 (1987); In re Criminal Investigation No. 1-162, 307 Md. 674, 685 , 516 A.2d 976, 982 (1986); Davis v. State, 294 Md. 370, 377 , 451 A.2d 107, 111 (1982). We agree with the circuit court and the City that this principle is fully applicable to the Ordi ⁹⁸ nances. As Judge Greenfeld pointed out for the court below, the language of the Ordinances, designating the South Africa Fund’s Unified List as a “reference,” is reasonably subject to the construction that the Trustees are not bound by the list.

It is, in the words of the circuit court, “merely a ‘reference’ which the Trustees may accept or reject.” ⁹⁷ “[T]he State’s interest in assuring qualified legal practitioners was commensurate with the A.B.A.’s interest in maintaining high standards among law schools. ****** "The corporate purpose of the Association of Motor Sports is unrelated to the legislature’s presumed intent [in enacting the exemption from the noise ordinance]. Therefore, we are not persuaded by the analogy to the ABA’s law school approval process.” ⁹⁸ The circuit court’s construction of the Ordinances, which we uphold, avoids casting substantial doubt upon their validity under the cases dealing with delegation of legislative power to private entities. The Trustees have cited no case, and we are aware of none, indicating that it is an impermissible delegation of legislative authority for a legislative body to direct a government agency to use a private entity’s list merely as an advisory reference, with the agency being free to decline to follow the list. Consequently, it is for Trustees to determine whether a particular company is doing business in South Africa.

While the view of the South Africa Fund must be taken into consideration, the Trustees may reject that view with regard to any particular company. The concept of “doing business” in a particular area involves a matter of degree. If viewed expansively, “doing business” would encompass even the most tangential contacts with South African entities. On the other hand, if construed very narrowly, “doing business” might signify only actual ownership or control of productive assets, such as mines or factories, in South Africa.

Clearly, however, the City Council did not contemplate a definition so narrow as to frustrate the objectives of divestiture. Nevertheless, from the Ordinances’ references to the Africa’s Fund’s and United Nations organizations’ definitions, it is clear that the City Council sought a responsible standard, and did not wish to bar investments in firms “doing business” under the most expansive sense of that term. In other contexts, we have construed the statutory phrase “doing business” in a geographical area to mean doing a “substantial amount of ⁹⁹ business” or engaging “in significant business activity” in that area. See, e.g., Yangming Transport v. Revon Products, supra, 311 Md. at 504-509, 536 A.2d at 637-640 ; S.A.S. Personnel Consult v. Pat-Pan, 286 Md. 335, 339-340 , 407 A.2d 1139, 1142 (1979); G.E.M., Inc. v. Plough, Inc., 228 Md. 484, 488-489 , 180 A.2d 478, 481 (1962).

In our view, this is the definition which the Trustees should utilize.

III

According to the Trustees and the beneficiaries, the Ordinances impair the obligations of the beneficiaries’ pension contracts with the City, in violation of the Contract Clause of the United States Constitution, Art. I, § 10. We disagree. A. In Robert T. Foley Co. v. W.S.S.C., 283 Md. 140, 151-152 , 389 A.2d 350, 357 (1978), we reviewed the framework for determining if governmental action unconstitutionally impairs contractual obligations, saying: “Consideration of a claim that particular governmental action invalidly impairs contractual obligations involves several steps. See United States Trust Co. v. New Jersey, 431 U.S. 1, 17-21 , 97 S.Ct. 1505 , 52 L.Ed.2d 92 (1977).

First, it must be determined whether a contract existed. If that hurdle is successfully cleared by the claimant, a court next must decide whether an obligation under that contract was changed. Finally, if the second question is answered in the affirmative, the issue becomes whether the change unconstitutionally impairs the contract obligation, ‘[f]or it is not every modification of a contractual promise that impairs the obligation of contract under federal law____’ City of El Paso v. Simmons, 379 U.S. 497, 506-507 , 85 S.Ct. 577, 582-583 , 13 L.Ed.2d 446 (1965).” See State v. Good Samaritan Hospital, 299 Md. 310, 318 , 473 A.2d 892, 896 , appeal dismissed, 469 U.S. 802 , 105 S.Ct. 56 , 83 L.Ed.2d 7 (1984). See also State v. Burning Tree ¹⁰⁰ Club, Inc., 315 Md. 254, 271 , 554 A.2d 366 (1989); Chevy Chase Savings & Loan v. State, 306 Md. 384, 416 , 509 A.2d 670 (1986).

There is no doubt that, by establishing the pension systems, the City imposed contractual obligations on itself. Under Maryland law, pension plans create contractual duties toward persons with vested rights under the plans. See, e.g., Archer v. Archer, 303 Md. 347, 357 , 493 A.2d 1074 (1985); Lookingbill v. Lookingbill, 301 Md. 283, 289 , 483 A.2d 1 (1984); Deering v. Deering, 292 Md. 115, 124-128 , 437 A.2d 883 (1981); City of Frederick v. Quinn, 35 Md. App. 626, 371 A.2d 724 (1977). Moreover, the Baltimore City Code expressly recognizes the existence of a contractual relationship, at least between the City and the members of the F. & P. and the E.R.S. Baltimore City Code (1976, 1983 Repl.Vol.), Art. 22, § 42. 26 Since divestment does not alter the provisions in the law concerning the amount of benefits that a retiree is entitled to receive, the Ordinances do not directly change the City’s pension contracts with the systems’ beneficiaries.

Compare Maryland State Teachers Ass’n v. Hughes, 594 F.Supp. 1353 (D.Md.1984), aff'd, No. 84-2213 (4th Cir. Dec. 5, 1985). The Trustees argue, however, that the Ordinances indirectly change these contracts by modifying the manner in which the pension funds are invested. ¹⁰¹ The right to receive defined benefits was not indirectly changed. Judge Greenfeld expressly found that “nothing in the evidence suggests that the Ordinances will in any way jeopardize the amount or payment” of the defined benefits. That finding is supported by the evidence and cannot be deemed clearly erroneous under Rule 8-181(e).

The trial court did find that the initial and ongoing costs of divestiture may affect the pension systems’ profitability and, as a result, may slightly diminish the level of future variable benefits. 27 Thus, in this respect, the Ordinances may indirectly change the City’s obligation under its contracts with the beneficiaries. The cases, however, make it clear that an insubstantial change does not unconstitutionally impair the obligations of a contract. Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 411 , 108 S.Ct. 697 , 704, 74 L.Ed.2d 569 (1983); Allied Structural Steel Co. v. Spaunaus, 438 U.S. 234, 244-245 , 98 S.Ct. 2716, 2722-2723 , 57 L.Ed.2d 727 (1978); Chevy Chase Savings & Loan v. State, supra, 306 Md. at 416 , 509 A.2d at 686 . The circuit court found that the initial cost of divestiture is one-thirty-second of 1% of the systems’ assets and that the ongoing annual cost is one-twentieth of 1%.

Based on these findings, which are not clearly erroneous, it follows that the circuit court was justified in concluding that the cost of the Ordinances to the retirement systems, and thus to the systems’ beneficiaries in terms of future variable benefits, is so minimal that it does not approach the constitutional standard for impairment. 28 ¹⁰² B. The Trustees further argue that the Ordinances indirectly change the pension contracts by disturbing the beneficiaries’ expectations that benefits will be well secured. According to the Trustees, the beneficiaries are entitled to demand that the systems’ funds “will be invested prudently for the exclusive benefit of the workers (and their beneficiaries) and for the sole purpose of securing the payment of promised future benefits.” (Trustees’ Brief, pp. 14-15). Thus the Trustees contend that the contracts incorporate the common-law duties of prudence and loyalty and that the Ordinances alter those duties. We agree that the pension contracts incorporate the Trustees’ common-law duties of prudence and loyalty.

Moreover, we shall assume that if legislation substantially alters those duties, the legislation should be viewed as changing the obligations of contract. Nonetheless, in this case, the Trustees have not proven such change. 29 As stated above, one of the common-law fiduciary duties is the requirement that trustees act prudently in managing trust affairs. Shipley v. Crouse, 279 Md. 613, 621 , 370 A.2d 97 (1977); Zimmerman v. Coblentz, 170 Md. 468, 484 , 185 A. 342, 349 (1936); Johnson v. Webster, 168 Md. 568, 576 , 179 A. 831, 834 (1935); Fox v. Harris, 141 Md. 495, 506 , 119 A. 256, 260 (1922); Gilbert v. Kolb, 85 Md. 627, 634-636 , 37 A. 423 (1897); Gray v. Lynch, 8 Gill 403, 431 (1849); ¹⁰³ Green v. Lombard, 28 Md.App. 1, 5 , 343 A.2d 905, 909 , cert. denied, 276 Md. 743 (1975). The Court in Shipley v. Crouse, supra, 279 Md. at 621 , 370 A.2d at 102 (quoting G. Bogert, The Law of Trust and Trustees, § 541 (2d ed. 1960), explained as follows: “ ‘A trustee is required to manifest in all his management of the trust the care, skill, prudence, and diligence of an ordinarily prudent man engaged in similar business affairs and with objectives similar to those of the trust in question.’ ” Likewise, Baltimore City Code, Article 22, §§ 7(h) and 35(h), adopt the duty of prudence set forth in § 404(a)(1) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1104 (a)(1) (1982) 30 : “The Board of Trustees shall discharge its duties ...

(2) With the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” The trustees argue that the Ordinances alter the duty of prudence by radically reducing the universe of eligible investments. There is no doubt that the Ordinances place some limits on the scope of investment. Using the South Africa Fund’s Unified List, the Trustees argue, for example, that they are barred from investing in almost one-half of the market capitalization of the S & P 500. In fact, the correct figure may be substantially smaller, as the Trustees are not bound by the South Africa Fund’s determinations.

Nevertheless, the Ordinances do exclude a not insignificant segment of the investment universe. Cf. Lanoff, The Social Investment of Private Plan Assets: May It Be Done Lawfully Under ERISA?, 31 Lab.L.J. 387, 391 (1980). The City, ¹⁰⁴ however, has shown that, under the divestiture program, economically competitive, substitute investments remain available.

Furthermore, the Trustees’ emphasis on market capitalization is somewhat misleading. 31 While the Ordinances seem to ban investments in many larger companies with a high market capitalization, numerous opportunities remain available. Thus, under Judge Greenfeld’s findings, the Ordinances permit the Trustees to construct an almost perfectly diversified portfolio, one that accurately matches the market as a whole in all respects except the size of the companies in which the pension systems invest. Moreover, the Trustees’ inability to demonstrate that divestiture will impair the portfolios’ equity performance indicates that a diversified, S.A.F. portfolio can be managed consistently with the duty of prudence. In fact, on cross-examination, the Trustees’ witnesses conceded that, given a shift to “passive” management, the funds could duplicate the performance of a “target index,” such as the S. & P. 500.

Thus, divestiture does not imprudently increase risk or decrease income. The Trustees’ chief concern seems to be that, by foreclosing a certain range of investments, the Ordinances will adversely affect the money managers’ active style. Yet, assuming arguendo that this is true, there is in our opinion no contractual right to a particular management style. 32 ¹⁰⁵ The provisions regulating the divestiture program reinforce our conclusion that the Ordinances do not change the Trustees duty of prudence. The transition to an S.A.F. portfolio is to occur gradually, over a two-year period.

The Ordinances expressly empower the Trustees to suspend the divestiture program at any time for up to 90 days if they find, in essence, that divestiture has become imprudent. See § 2(d), (e) of Ordinance No. 765. The parties do not dispute the circuit court’s interpretive rulings that the two-year period is extended for the length of any valid suspension and that the Ordinances do not limit the number of times the Trustees can suspend the program. In addition, none of the parties has challenged the trial court’s further rulings that, during a suspension, the Trustees may make new investments in companies doing business in South Africa and that the Trustees may order a suspension at any time before the time limit has run, even if total divestiture has already occurred.

We agree with these interpretative rulings by the circuit court. In our opinion, there exist numerous safeguards which guarantee that divestiture cannot occur unless it would be consistent with the Trustees’ duty of prudence. C. In a related argument, the Trustees contend that the Ordinances alter the duty of prudence by mandating the consideration of social factors unrelated to investment performance. Under the circumstances of this case, we disagree.

No less an authority than Professor Austin Wakeman Scott rejected the proposition that “trustees are rigidly ¹⁰⁶ bound to attempt to secure the maximum return, whether as to income or principal, consistent with safety.” III Scott on Trusts, § 227.17 (W. Fratcher 4th ed. 1988). 33 Instead, Professor Scott concluded (ibid.): “Trustees in deciding whether to invest in, or to retain, the securities of a corporation may properly consider the social performance of the corporation. They may decline to invest in, or to retain, the securities of corporations whose activities or some of them are contrary to fundamental and generally accepted ethical principles. They may consider such matters as pollution, race discrimination, fair employment, and consumer responsibility.” 34 For this position, Scott relied in part on an analogy to the corporate fiduciary’s limited right to make charitable contributions: just as the directors may conclude that charitable contributions are in the corporation’s long-term interests, so too a trustee “may well believe that a corporation that has a ¹⁰⁷ proper sense of social obligation is more likely to be successful in the long run than those that are bent on obtaining the maximum amount of profits.” Ibid. “But,” he continued, “even if this were not so, the investor, though a trustee of funds for others, is entitled to consider the welfare of the community, and refrain from allowing the use of funds in a manner detrimental to society.” Ibid. These views are consistent with the position that a trustee’s duty is not necessarily to maximize the return on investments but rather to secure a “just” or “reasonable” return while avoiding undue risk.

King v. Talbot, 40 N.Y. 76, 86 (1869); Withers v. Teachers’ Retirement System, 447 F.Supp. 1248, 1254 (S.D.N.Y.1978), aff'd, 595 F.2d 1210 (2d Cir.1979); III Scott on Trusts, supra, § 227.3; Restatement (Second) of Trusts § 227 comment (e) (1957); Dobris, Arguments in Favor of Fiduciary Divestment of “South African” Securities, 65 Neb.L.Rev. 209, 232 (1986); Ravikoff & Curzan, Social Responsibility in Investment Policy and The Prudent Man Rule, 68 Cal.L.Rev. 518, 519 (1980). Cf. Troyer, Slocombe & Boisture, Divestment of South Africa Investments: The Legal Implications for Foundations, Other Charitable Institutions, and Pension Funds, 74 Geo.L.J. 127, 156-157 (1985). But see Langbein & Posner, Social Investing and the Law of Trusts, 79 Mich.L. Rev. 72, 99-104 (1980).

As one commentator stated, a “trustee is under no duty to open a brothel in Nevada, where prostitution is legal, in order to maximize return to beneficiaries.” Dobris, supra, 65 Neb.L.Rev. at 232. Thus, if, as in this case, social investment yields economically competitive returns at a comparable level of risk, the investment should not be deemed imprudent. The Mayor and City Council of Baltimore were motivated to enact the Ordinances, in part, because the Trustees’ prior investment practices offended a growing ¹⁰⁸ number of the systems’ beneficiaries and residents of the City. Moreover, given the vast power that pension trust funds exert in American society, 35 it would be unwise to bar trustees from considering the social consequences of investment decisions in any case in which it would cost even a penny more to do so.

Consequently we conclude that if, as in this case, the cost of investing in accordance with social considerations is de minimis, the duty of prudence is not violated. 36 Accordingly, we hold that the Ordinances do not alter that duty. 37 ¹⁰⁹ D. Finally, the Trustees contend that the Ordinances alter their duty of loyalty, which is implicit in the pension contracts. We disagree that the Ordinances alter that duty. Like the duty of prudence, the general duty of loyalty is well-established in Maryland law. See, e.g., Goldman v. Rubin, 292 Md. 693 , 441 A.2d 713 (1982); Gianakos v. Magiros, 238 Md. 178 , 208 A.2d 718 (1965); Hughes v. McDaniel, 202 Md. 626 , 98 A.2d 1 (1953); Mangels v. Tippett, 167 Md. 290 , 173 A. 191 (1934); Diffenderffer v. Minder, 3 G. & J. 311 (1831).

Moreover, as with the duty of prudence, the Baltimore City Code incorporates ERISA’s formulation of the trustee’s duty of loyalty (Art. 22, §§ 7(h), 35(h)): “The Board of Trustees shall discharge its duties ... solely in the interest of the members and beneficiaries and: (1) For the exclusive purpose of: (i) providing benefits to members and beneficiaries ____” The Trustees urge that, by requiring them to consider the interests of persons other than the beneficiaries and by requiring them to manage the systems for purposes other than providing benefits, the ordinances change this duty. It is clear that the trustee’s duty of loyalty extends beyond a prohibition against self-dealing and conflict of interest, two wrongs that are not present in this case. Even if the trustee has no personal stake in a transaction, the duty of loyalty bars him from acting in the interest of third parties at the expense of the beneficiaries. See Restatement (Second) of Trusts, § 170 comment q (1957); Conway v. Emeny, 139 Conn. 612, 621-622 , 96 A.2d 221, 225 (1953); In re Estate of Sedgwick, 74 Ohio App. 444, 461 , 59 N.E.2d 616, 624 (1944).

Nevertheless, we do not believe that a trustee necessarily violates the duty of loyalty by considering the social consequences of investment decisions. If, as in this case, ¹¹⁰ the costs of considering such consequences are de minimis, the trustee ordinarily will not have transgressed that duty. Although Professor Scott termed the trustee’s duty of loyalty “[t]he most fundamental duty owed by the trustee to the beneficiaries,” IIA Scott on Trusts, supra, § 170, he clearly believed that that obligation could be reconciled with considering the ethical implications of the trust’s investments. See III Scott on Trusts, supra, § 227.17.

Our conclusion is consistent with that belief. Moreover, our opinion in this case is broadly consistent with the requirement, embodied in the Baltimore City Code, that the trustees act “solely in the interest of the beneficiaries,” and “for the exclusive purpose ... of providing benefits.” As Professor Scott recognized, under some circumstances trustees may well believe that, by investing in businesses with “a proper sense of social obligation,” they will in the long run best serve the beneficiaries’ interests and most effectively secure the provision of future benefits. Ibid. Consequently, the Ordinances do not change the Trustees’ duties of prudence and loyalty, which are implicit in the pension contracts.

For the foregoing reasons, we hold that the Ordinances do not unconstitutionally impair the obligation of contract. ÍV. The intervenors argue that the Ordinances “violated their due process rights under the ‘taking’ clause of the Fifth and Fourteenth Amendments” (Intervenors’ Brief, p. 40). The Intervenors reason that the initial and ongoing costs of divestiture will reduce the future earnings of the pension funds, consequently reducing the amount of variable benefits payable to the beneficiaries. Because of this reduction in the amount of variable benefits, according to the Intervenors, there has been “a confiscation by [the city] government” (Ibid.) and “the beneficiaries have been deprived of ¹¹¹ their right to constitutional due process as their property has been taken without just compensation” (id. at p. 44). 38 As previously pointed out, the Intervenors have a contractual right to receive both defined benefits and variable benefits.

Moreover, the contractual right to receive these benefits constitutes property under Maryland law. Deering v. Deering, supra, 292 Md. at 122-128, 437 A.2d at 887-890 . See Archer v. Archer, supra, 303 Md. at 356-357 , 493 A.2d at 1079 ; Lookingbill v. Lookingbill, supra, 301 Md. at 286-290 , 483 A.2d at 2-4 . 39 The Intervenors’ contractual right to receive benefits does not, however, give them a right to direct or control the investment of funds in Baltimore City’s pension systems. Absent a provision in the law to the contrary, the beneficiaries of a public retirement system have no right to direct the investment of the systems’ assets.

Withers v. Teachers’ Retirement System, supra, 447 F.Supp. at 1260 (the beneficiaries of a public retirement fund “have no entitlement to, or right to direct the retention of, the ¹¹² particular assets that are held for investment purposes in the pension fund”); Crown v. Patrolmen’s Variable Supp. Fund Trustees, 659 F.Supp. 318, 320 (S.D.N.Y.), aff'd, 819 F.2d 47 (2d Cir.1987). See Tron v. Condello, 427 F.Supp. 1175, 1189-1190 (S.D.N.Y.1976) (beneficiary “has a vested right in receiving his pension benefits, but not in regulating the investment policies set by the Legislature and the Retirement Board”). If the earnings of the pension funds were sufficient to warrant the payment of variable benefits under the pension formula, and such payments were not made, the beneficiaries could reasonably argue they had been unlawfully deprived of a property right. There is no sound basis for the claim made in the present case, however, that the beneficiaries’ property interest in future variable benefits is unconstitutionally “taken” whenever the City Council or the Trustees act in a way which might reduce the earnings of the pension funds.

As the Supreme Court stated in Connolly v. Pension Ben. Guar. Corp., 475 U.S. 211, 224-225 , 106 S.Ct. 1018, 1026 , 89 L.Ed.2d 166 (1986), quoting Penn Central Transportation Co. v. New York City, 438 U.S. 104, 124 , 98 S.Ct. 2646, 2659 , 57 L.Ed.2d 631 (1978), its decisions under the Just Compensation Clause “have eschewed the development of any set formula for identifying a ‘taking’ forbidden by the Fifth Amendment, and have relied instead on ad hoc, factual inquiries into the circumstances of each particular case____ To aid in this determination, however, [the Court has] identified three factors which have ‘particular significance’: (1) ‘the economic impact of the regulation on the claimant’; (2) ‘the extent to which the regulation has interfered with distinct investment-backed expectations’; and (3) ‘the character of the governmental action.’ ” See Chevy Chase Savings & Loan v. State, supra, 306 Md. at 411 , 509 A.2d at 684 . ¹¹³ The economic impact of the Ordinances might be to deprive the beneficiaries of some variable benefits they would otherwise receive if the Ordinances were not in effect. The degree of this impact is, however, substantially reduced by “provisions in the Act that moderate and mitigate the economic impact.” Connolly v. Pension Ben.

Guar. Corp., supra, 475 U.S. at 225 , 106 S.Ct. at 1026 . The provision in the Ordinances allowing for the postponement of divestment, for example, and other provisions previously discussed, mitigate any adverse impact on the beneficiaries’ variable benefits. The Ordinances do not interfere with “distinct investment-backed expectations.” Connolly, supra, 475 U.S. at 225 , 106 S.Ct. at 1026 .

The Supreme Court has stated: “A reasonable investment-backed expectation must be more than a ‘unilateral expectation or an abstract need.’ ” Ruckelshaus v. Monsanto, 467 U.S. 986, 1005 , 104 S.Ct. 2862, 2874 , 81 L.Ed.2d 815 (1984), quoting Webb’s Fabulous Pharmacies v. Beckwith, 449 U.S. 155, 161 , 101 S.Ct. 446, 451 , 66 L.Ed.2d 358 (1980). Variable benefits are, as their name suggests, speculative and uncertain. Whatever diminution of variable benefits the Ordinances might cause cannot be said to interfere with a “distinct ... expectation.” As the Court said in Andrus v. Allard, 444 U.S. 51, 66 , 100 S.Ct. 318, 327 , 62 L.Ed.2d 210 (1979), “loss of future profits—unaccompanied by any physical property restriction—provides a slender reed on which to rest a takings claim. Prediction of profitability is essentially a matter of reasoned speculation that courts are not especially competent to perform.

Further, perhaps because of its very uncertainty, the interest in anticipated gains has traditionally been viewed as less compelling than other property-related interests.” Finally, the nature of the governmental action in this case does not involve the government appropriating the beneficiaries’ money for its own use or for the use of others. Government regulation under “a public program that adjusts the benefits and burdens of economic life to promote ¹¹⁴ the common good ... does not constitute a taking requiring Government compensation.” Connolly v. Pension Ben. Guar. Corp., supra, 475 U.S. at 225 , 106 S.Ct. at 1026 .

The Ordinances here do just that. Any reduction in variable benefits is an incidental cost of the City government’s efforts to promote the common good by regulating its own investment policy. We conclude that the Ordinances do not effect a “taking” of the beneficiaries’ property in violation of the Fifth Amendment. Y. We next address the contention that the Comprehensive Anti-Apartheid Act of 1986, Pub.L. No. 99-440, 100 Stat. 1086 (1986), codified in relevant part at 22 U.S.C. §§ 2151 , 2346(d), 5001-5116 (Supp. IV 1986), preempts the Ordinances. 40 Among other things, the federal Act prohibits new American investment in South Africa; prohibits the importation of certain South African products, including krugerrands, uranium, and coal; forbids the export of computer technology to the South African security forces; limits American loans to the South African government; and restricts nuclear trade with South Africa.

See 22 U.S.C. §§ 5051-5060 . In addition, the federal statute requires American businesses with more than 25 employees in South Africa to comply with the Sullivan Principles, a code of fair employment practices for companies operating in South Africa. 22 U.S.C. §§ 5034-5035 . Section 5061 provides for the termination, modification, or suspension of the above sanctions if the South African government makes progress towards abolishing apartheid. Conversely, § 5091 autho ¹¹⁵ dxes more stringent sanctions if such progress fails to occur.

Federal law may preempt state or local law in different ways. 41 Congress may preempt state law by expressly stating its intention to do so. California v. ARC America Corp., —- U.S. —, ——, 109 S.Ct. 1661, 1665 , 104 L.Ed.2d 86 (1989); Hillsborough County, Fla. v. Auto. Med. Labs., 471 U.S. 707, 713 , 105 S.Ct. 2371, 2375 , 85 L.Ed.2d 714 (1985).

The Anti-Apartheid Act of 1986 does not expressly preempt state and local divestiture laws. Absent express preemption, a court may infer a congressional intent to preempt from a scheme of federal regulation sufficiently comprehensive to occupy a given field or to make clear that Congress left no room for supplementary state legislation. California v. ARC America Corp., supra, 109 S.Ct. at 1665 ; Pacific Gas & Electric v. Energy Resources Comm., 461 U.S. 190, 204 , 103 S.Ct. 1713, 1722 , 75 L.Ed.2d 752 (1983); Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 , 67 S.Ct. 1146, 1152 , 91 L.Ed. 1447 (1947). Moreover, even if Congress has not completely preempted state regulation in a particular area, state law is preempted to the extent that it actually conflicts with federal law.

California v. ARC America Corp., supra, 109 S.Ct. at 1665 . “Such a conflict arises when 'compliance with both federal and state regulations is a physical impossibility’ ... or when state law ‘stands as an obstacle to the accomplishment and execution of the full purpose and objectives of Congress.’ ” Hillsborough County, Fla. v. Auto. Med. Labs., supra, 471 U.S. at 713 , 105 S.Ct. at 2375 . Nevertheless, so as not to place undue restrictions upon state sovereignty, preemption is not lightly presumed.

California Federal Sav. & Loan Ass’n v. Guerra, 479 U.S. 272, 281 , 107 S.Ct. 683, 689 , 93 L.Ed.2d 613 (1987); Mary ¹¹⁶ land v. Louisiana, 451 U.S. 725, 746 , 101 S.Ct. 2114, 2129 , 68 L.Ed.2d 576 (1981); Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 132 , 98 S.Ct. 2207, 2217 , 57 L.Ed.2d 91 (1978), affirming 279 Md. 410 , 370 A.2d 1102 (1977). Furthermore, in areas traditionally regulated by state and local governments, there is a strong presumption against finding federal preemption. California v. ARC America Corp., supra, 109 S.Ct. at 1665 ; Hillsborough County, Fla. v. Auto. Med.

Labs., supra, 471 U.S. at 716 , 105 S.Ct. at 2376 ; Pacific Gas & Electric v. Energy Resources Comm., supra, 461 U.S. at 206 , 103 S.Ct. at 1723; San Diego Building Trades Council v. Garmon, 359 U.S. 236, 244 , 79 S.Ct. 773, 779 , 3 L.Ed.2d 775 (1959). In these circumstances there must be compelling evidence of congressional intent to preempt. San Diego Building Trades Council v. Garmon, supra, 359 U.S. at 244 , 79 S.Ct. at 779 . Baltimore City’s regulation of investments by its employees’ pension funds is clearly a matter of traditional local regulation.

Therefore, the Ordinances enjoy a strong presumption that they are not preempted. The evidence with respect to congressional intent is wholly inadequate to overcome this presumption. The relevant legislative history begins 42 in 1985, when the Senate was considering legislation (S.B. 995 and H.R. 1460, known as the Anti-Apartheid Act of 1985) which would have imposed economic sanctions on South Africa. 43 During the debates on the 1985 legislation, Senators Roth and McConnell had circulated an amendment that would have added express preemptive language; however, “in the face of certain defeat,” the proponents of preemption elect ¹¹⁷ ed not to submit the amendment. See 132 Cong.Rec.

S 12533 (daily ed., Sept. 15, 1986) (Remarks of Sen. Kennedy); 131 Cong.Rec. S 18331 (daily ed., July 11, 1985) (Remarks of Sen. Kennedy). 44 In 1986 the preemption debate in the Senate centered around the so-called “D’Amato Amendment,” which concerned state and local legislation barring the award of state and local government contracts to companies doing business in South Africa.

As originally drafted, the D’Amato amendment would have exempted such legislation from the requirement that contracts using federal funds must be awarded to the lowest bidder. 132 Cong.Ree. S 9305 (Remarks of Sen. D’Amato); id. S 9306 (Remarks of Sen.

Moynihan). 45 On the final day of debate, Senator Lugar announced his opposition to the amendment, claiming (132 Cong.Rec. S 11817 (daily ed., Aug. 15, 1986) that the Anti-Apartheid Act preempted such local legislation and that the amendment “muddie[d] the water with regard to the preemption issue.” 46 With little further discussion, the Senate ¹¹⁸ rejected the amendment. Yet immediately thereafter, Senator D’Amato introduced a compromise measure, which was adopted by unanimous consent, id. at S 11818, and became § 5116 of the Act. That section provides: “Notwithstanding section 210 of Public Law 99-349 or any other provision of law— (1) no reduction in the amount of funds for which a State or local government is eligible or entitled under any Federal law may be made, and (2) no other penalty may be imposed by the Federal Government, by reason of the application of any State or local law concerning apartheid to any contract entered into by a State or local government for 90 days after [October 2, 1986].” It is apparent that, by its own terms, § 5116’s preemptive effect, if any, is limited to state or local procurement legislation which, as applied, might cause a federally funded contract not to be awarded to the lowest bidder.

As Professor Tribe observed in a memorandum to Congress, “[t]his leaves the negative implication that investment decisions are not preempted, nor are disbursements not using federal funds.” Memorandum on the Nonpreemptive Effect of the Comprehensive Anti-Apartheid Act of 1986 Upon State and Local Measure, 132 Cong.Rec. S 12534, 12535 (daily ed., Sept. 15,1986) (“Tribe Memorandum ”). In fact, it would be unnecessary to penalize states or localities for applying their own laws if the Anti-Apartheid Act had already invalidated those laws. Consequently, if Congress had intended to preempt state or local anti-apartheid legislation, § 5116 would be superfluous.

Thus, despite Senator Lugar’s comments, it is hardly clear that the Senate intend ¹¹⁹ ed to preempt state or local divestment legislation. 47 Moreover, the proceedings in the House of Representatives provide strong evidence that Congress had no intent to preempt. House Resolution 549, which was passed by an overwhelming margin at the same time as the Anti-Apartheid Act, declared that the House intended that the Act not preempt state or local law. The Resolution provided in part: “ ‘Resolved, That in passing the bill, H.R. 4969, as amended by the Senate, it is not the intent of the House of Representatives that the bill limit, preempt, or affect, in any fashion, the authority of any State or local government or the District of Columbia or of any commonwealth, territory, or possession of the United States or political subdivision thereof to restrict or otherwise regulate any financial or commercial activity respecting South Africa.' ” 48 In addition, while speaking in support of the Resolution, numerous Representatives expressed their understanding that the federal statute had no preemptive effect. 132 Cong.Rec. H 6757-6767 (daily ed., Sept. 12, 1986) (Remarks ¹²⁰ of Reps.

Gray, Leland, Solarz, Weiss, Levine, Rangel, Biaggi, Dixon, and Wheat). In light of the foregoing legislative history, we cannot conclude that it was the intent of the Congress to preempt state or local legislation such as the Ordinances. Finally, we consider whether the Ordinances may be preempted because they actually conflict with federal law. As mentioned previously, a conflict occurs when compliance with both the federal law and state law is impossible or where the state law impedes accomplishment of the purposes of the federal law.

Courts will not hold that a state law is preempted by conflict where the conflict with federal law is merely potential or speculative. See, e.g., Exxon Corp. v. Governor of Md., supra, 437 U.S. at 130-131 , 98 S.Ct. at 2216; Huron Portland Cement Co. v. Detroit, 362 U.S. 440, 446 , 80 S.Ct. 813, 817-818 , 4 L.Ed.2d 852 (1960). In the present case, the Trustees argue that the Ordinances are preempted because they impose inflexible “sanctions” that conflict with the Act’s “carrot and stick” approach to South Africa. We disagree.

Unlike the federal statute, the Ordinances are not aimed directly at the conduct of the South African government but rather at the conduct of businesses in which the City has investments. The Ordinances do not attempt to impose sanctions on South Africa. Moreover, nothing in the Anti-Apartheid Act suggests that Congress believed that divestment efforts would interfere with its system of sanctions and incentives. The Trustees also point out that the federal statute does not require American companies to relinquish their South African holdings; rather, the Act provides only that companies doing business in South Africa must adhere to the Sullivan Principles.

See §§ 5034-5035. Therefore, the Trustees argue, the Anti-Apartheid Act conflicts with the Ordinances which require the City to divest even from companies complying with the Sullivan Principles. We find no conflict in this regard. The Anti-Apartheid Act does not require that American companies both remain in South ¹²¹ Africa and adhere to the Sullivan Principles; it merely prescribes a code of fair employment practices for companies that choose to remain in that country.

Consequently, the Anti-Apartheid Act does not contemplate that change can occur in South Africa only if American businesses are affirmatively encouraged to remain there. In fact, some provisions of the Act, such as the prohibition on new investment, may actually discourage businesses from remaining. 49 Therefore, even assuming that the Ordinances may also discourage businesses from remaining in South Africa, they cannot be said to frustrate the narrow congressional objectives underlying the federal Act. Cf Nash v. Florida Industrial Comm’n, 389 U.S. 235 , 88 S.Ct. 362 , 19 L.Ed.2d 438 (1967).

VI

The Trustees and the Intervenors maintain that the Ordinances impermissibly intrude upon the federal government’s general authority to determine and carry out the foreign policy of the United States. The federal government possesses paramount authority to conduct the nation’s foreign affairs. See, e.g., United States v. Pink, 315 U.S. 203, 233 , 62 S.Ct. 552, 567 , 86 L.Ed. 796 (1942); Hines v. Davidowitz, 312 U.S. 52, 63 , 61 S.Ct. 399, 402 , 85 L.Ed. 581 (1941). As a consequence, state laws relating to foreign affairs may be unconstitutional, even if they are not preempted by a federal treaty or statute, if the “State’s policy may disturb foreign relations.” Zsc hernig v. Miller, 389 U.S. 429, 441 , 88 S.Ct. 664 , ¹²² 671, 19 L.Ed.2d 683 (1968). 50 Yet, many state laws are entirely valid even though they “involv[e] matters of significant concern to foreign relations,” Restatement (Second) Foreign Relations Law of the United States, § 2 comment d (1965).

See, e.g., Clark v. Allen, 331 U.S. 503, 516-517 , 67 S.Ct. 1431, 1438-1439 , 91 L.Ed. 1633 (1947); Springfield Rare Coin Galleries, Inc. v. Johnson, 115 Ill.2d 221, 233 , 104 Ill.Dec. 743, 749 , 503 N.E.2d 300, 306 (1986); K.S.B. Tech. Sales Corp. v. North Jersey Dist. Water Supply Comm’n, 75 N.J. 272, 293 , 381 A.2d 774, 784 (1977), appeal dismissed, 435 U.S. 982 , 98 S.Ct. 1635 , 56 L.Ed.2d 76 (1978). See also De Canas v. Bica, 424 U.S. 351, 355 , 96 S.Ct. 933, 936 , 47 L.Ed.2d 43 (1976); Zschernig v. Miller, supra, 389 U.S. at 461, 88 S.Ct. at 681 (Harlan, J., concurring); L. Tribe, American Constitutional Law, § 4-6, at 230 (2d ed. 1988). 51 In determining the boundary between permissible and impermissible state legislation, two decisions of the Su ¹²³ preme Court are particularly significant.

The are Clark v. Allen, supra, 331 U.S. 503 , 67 S.Ct. 1431 , and Zschernig v. Miller, supra, 389 U.S. 429 , 88 S.Ct. 664 . In Clark v. Allen, the Supreme Court considered a California statute under which a nonresident alien could inherit personal property only if, under the laws of the alien’s nation, American citizens had a “reciprocal right” to inherit personal property on the same terms and conditions as the alien’s fellow citizens. German legatees, attempting to sustain a testamentary gift from a California resident, argued that the statute was unconstitutional on the ground that California had sought to “promote the right of American citizens to inherit abroad by offering to aliens reciprocal rights of inheritance in California,” 331 U.S. at 516-517, 67 S.Ct. at 1439. The legatees argued that this “offer of reciprocal arrangements” was “a matter for settlement by the Federal Government on a nation-wide basis,” 331 U.S. at 517, 67 S.Ct. at 1439.

The Supreme Court rejected that argument as “far fetched.” Ibid. Writing for the Court, Justice Douglas observed that rights of succession to property are governed by local law and that no federal treaty preempted the California statute under the circumstances of that case. The Court continued (ibid.): “Nor has California entered the forbidden domain of negotiating with a foreign country ... or making a compact with it contrary to the prohibition of Article I, Section 10 of the Constitution.” Thus, the Court upheld the statute, stating (ibid.): “What California has done will have some incidental or indirect effect in foreign countries. But that is true of many state laws which none would claim cross the forbidden line.” Twenty-one years later, however, the Supreme Court struck down a similar Oregon law on the ground that the statute’s “history and operation” established that it was “an intrusion by the State into the field of foreign affairs,” Zschernig v. Miller, supra, 389 U.S. at 432, 88 S.Ct. at ¹²⁴ 666. 52 Again, writing for the Court, Justice Douglas distinguished his opinion in Clark v. Allen, supra, reasoning that the prior decision was “concerned with the words of a statute on its face, not the manner of its application,” 389 U.S. at 433, 88 S.Ct. at 667.

The Court continued (389 U.S. at 433-434, 88 S.Ct. at 667): “State courts, of course, must frequently read, construe, and apply laws of foreign nations. It has never been seriously suggested that state courts are precluded from performing that function, albeit there is a remote possibility that any holding may disturb a foreign nation—whether the matter involves commercial cases, tort cases, or some other type of controversy. At the time Clark v. Allen was decided, the case seemed to involve no more than a routine reading of foreign laws. It now appears that in this reciprocity area under inheritance statutes, the probate courts of various States have launched inquiries into the type of governments that obtain in particular foreign nations—whether aliens under their law have enforceable rights, whether the so-called ‘rights’ are merely dispensations turning upon the whim or caprice of government officials, whether the representation of consuls, ambassadors, and other representatives of foreign nations is credible or made in good faith, whether there is in the actual administration in the particular foreign system of law any element of confiscation.” The Supreme Court found in Zschemig that the application of the Oregon statute had “led into minute inquiries ¹²⁵ concerning the actual administration of foreign law,” 389 U.S. at 485, 88 S.Ct. at 668.

In the course of such inquiries, Oregon courts, along with the courts of other states applying similar statutes, had engaged in extensive critical commentary concerning the nature and conduct of foreign governments. 389 U.S. at 436-439 & nn. 8, 9, 88 S.Ct. at 668-670 & nn. 8, 9. 53 The Court stated that “as construed,” the Oregon statute “seemjed] to make unavoidable judicial criticism of nations established on a more authoritarian basis than our own,” 389 U.S. at 440, 88 S.Ct. at 670. The Court held that, because of “its great potential for disruption or embarrassment,” the Oregon law had “more than ‘some incidental or indirect effect in foreign countries,’ ” 889 U.S. at 434-435, 88 S.Ct. at 667. In the Court’s view, the Oregon statute, as enforced, “af£ect[ed] international relations in a persistent and subtle way,” 389