When people question whether state-level divestment is worth the effort, proponents often talk in abstract terms about the cumulative impact of many state and local governments simultaneously yanking their investments in a certain country.
Now, though, Pennsylvania can quantify the impact of divesting from Iran and Sudan.
House Bill 1821, a bill to divest several state funds of companies that do business in those two countries, would require the state to reinvest around $692 million in holdings from three public funds, according to a fiscal note released Nov. 17.
Dropping those holdings and reinvesting the money would cost the state more than $4.5 million in one-time costs, with an additional $150,000 to $200,000 in ongoing monitoring costs to make sure current and future holdings comply with the bill.
Under the current version of the bill, the state must reimburse public funds for the cost of complying with the legislation. The proposed bill covers the Public School Employee Retirement Fund, the State Employee Retirement Fund, the Pennsylvania Municipal Retirement Fund and the Treasury, which oversees the state General Fund.
Treasury policy already requires them to “divest of holdings where they believe the geopolitical situation could create losses, but they believe this bill perhaps goes further than that,” according to the fiscal note. Nevertheless, the note also reports that the Treasury believes “there is possibly a slight gain that would be realized in the amount of approximately $340,000 to the General Fund” under the proposed bill.
Those in favor of divesting from Iran — like the Community and Public Affairs Council of the United Jewish Federation, the Pennsylvania Jewish Coalition and Rep. Josh Shapiro, the Philadelphia-area Democrat who introduced the bill — make both moral and economic arguments for the legislation. They say the state shouldn’t be investing in a country with a history of terror, but also that investments in Iran are inherently risky.
Accurately projecting whether the bill will lead to greater or lesser returns is nearly impossible, though.
Because divestment requires fund managers to reinvest holdings, the possibility of financial benefits to the state depends on whether the new investments perform better than old investments, both in the short term and over the long term.
Guessing performance is important, though, because the current bill would require the state to reimburse public funds for any net loss they incur as a result of the change in investment strategy, meaning taxpayers would assume any loss caused by divestment.
(Eric Lidji can be reached at email@example.com or 412-687-1006.)