Louisiana boycott diluted, but still dangerous

Earlier this month, Louisiana lawmakers protected past and present public employees depending on pensions for their retirement security, but there is still some danger that politics could seep into the state’s public finance.

Legislators proposed joining other states that are boycotting financial advisers who allegedly spurn investments in oil and gas, firearms, and other industries lawmakers want to protect. But in the face of strong opposition from pensions, a legislative committee took retirement plans out of the legislation and held the proposal for further consideration.

The state’s pensions testified on the legislation, and several groups registered their opposition, including the Louisiana District Attorney Association, Baton Rouge Area Chamber, Louisiana Retired Teachers Association, Professional Firefighters Association, Louisiana State Troopers Association, Retired State Employees Association, Louisiana Sheriff Association, and the Baton Rouge Association of Police.

The revisions make the boycott less dangerous. With pensions included, legislative auditors estimated boycotts could require state pension plans to earn an extra $6 billion to keep their obligations. That number has been erased, and the auditor’s estimate has been replaced with a gentler, but still troubling analysis.

“While this bill does not change retirement benefits, some retirement systems and investment industry professionals have expressed concern about the potential for both headline and legal risk to third-party service providers associated with aspects of the proposed law. To the extent there is a significant impact, limiting both the pool of asset managers and asset classes, the anticipated result could be decreased investment returns and increased administrative costs leading to a significant increase in employer contributions over time. However, it is neither clear, nor determinable, if proposed law would have such an impact on the types and number of firms willing to partner with Louisiana retirement systems.” [emphasis added]

Here’s a translation of one phrase in that bolded sentence: “… a significant increase in employer contributions” means the state will have to put more money into pensions if the legislation cuts investment returns and increases costs. The “employer” is the state of Louisiana, and when the state of Louisiana needs more money, it gets it from Louisiana taxpayers.

They just don’t know how much. Yet.