Louisiana legislative auditor puts big price tag on state’s proposed anti-ESG law

Louisiana has a legislative proposal working its way through the state legislature, SB 5, that if enacted would result in significantly lower expected investment returns and increased administrative expenses for the state pension system. In fact, the state legislative auditor found that the pension funds would have to find other ways to increase in value by a staggering $6.2 billion just to cover the costs of the proposal.

“The expected change in the net actuarial present value of expected future benefits and administrative expenses incurred by the retirement systems from the proposed law is estimated to increase significantly.” [auditor’s emphasis]

A 1% decrease in the assumed investment returns for the state’s four retirement systems would increase what’s needed to cover retirement plan benefits by $6.27 billion, the auditor said. If investment returns and administrative costs have that impact, the shortfall will have to be covered by higher contributions from retirees and taxpayers.

“While this bill does not change retirement benefits, it makes several changes that could lower expected investment returns and increase administrative expenses for Louisiana public retirement systems… Even if these outside parties believe they are in full compliance with the bill as written, this exposure could discourage firms from partnering with Louisiana retirement systems, limiting both the pool of asset managers and asset classes. The anticipated result would be decreased investment returns and increased administrative costs.”

The analysis further outlined that the proposed law could be especially hard on smaller pension systems, where greater administrative requirements would have a greater overall impact.

The retirement funds have two sources of revenue, the auditor pointed out: investment returns and contributions from employers (the state, i.e., taxpayers) and employees. If investment returns drop or administrative costs increase as a result of blacklisting advisers who allegedly invest for non-fiduciary reasons, those contributions have to rise to keep the pension funds solvent.

It’s the latest sign that state investment blacklists are expensive, but it’s not the first.

Oklahoma cities like Stillwater have already been hit with higher borrowing costs because their best bidders are disqualified by that state’s anti-ESG laws. For Stillwater’s taxpayers, slipping to the second-best bid added $1.2 million in costs.

The Texas Association of Business Chambers of Commerce Foundation commissioned an economic analysis of that state’s boycotts and found they will cost the economy $668.7 million, 3,034 fulltime permanent jobs, and $37.1 million in local tax revenue.

Lawmakers clearly see some political benefit in these culture-war issues, or they wouldn’t be passing these laws. The bills come due pretty quickly, however, and somebody’s going to have to explain those higher costs to retirees and taxpayers. That could become a real political problem for those same lawmakers.