New legislation, same old cost

It appears Louisiana’s Legislature did not learn from last year.

This April, a Louisiana lawmaker filed Senate Bill 7, which would require managers of publicly managed assets, proxy firms, or contractors of any public retirement system to discharge their duties solely for the exclusive purpose of providing financial benefits to participants and their beneficiaries.

At first blush, that sounds in-line both with common sense but also our beliefs here at the Alliance for Prosperity and a Secure Retirement: investments free of political interference that are made in the best interest of retirees. But, in digging deeper, this bill isn’t as straightforward as it sounds.

The bill would prohibit financial considerations with any purpose to further environmental, social, political, or ideological goals, objects, or outcomes. And previous experience has shown that limiting investment strategies often results in lower investment returns – especially when the prohibited “considerations” are ambiguous or open to interpretation. The Louisiana Legislative Auditor (LAA) estimates Senate Bill 7 would do just that.

The LAA reports the bill would, “limit the universe of public and private investment consultants, managers, and proxy voting services willing to do business with Louisiana public retirement systems.” The auditor further found, “If investment opportunities are limited…the retirement systems may need to hire additional internal staff and adjust their asset allocations, ultimately lowering expected future investment returns.”

What is confounding is the Louisiana Legislature has been down this road before. Last year, the LAA estimated similar legislation would cost the state nearly $6.3 billion. And they’re not alone with their costly legislation.

As highlighted in a recent blog, Missouri’s Senate Bill 272 would require companies doing business with that state’s public entities to certify they are not engaged in boycotting companies that produce oil and gas or manufacture ammunition and firearms. The bill also allows the Attorney General to interfere in contracts between private businesses if DEI (diversity, equity, and inclusion) issues are considered.

Missouri has another bill, Senate Bill 338, that would require the State Treasurer to maintain a list of financial institutions engaged in a boycott of companies that engage in the exploration, production, utilization, transportation, sale, or manufacturing of fossil fuel-based energy, timber, mining, or agriculture.

SB 338 would allow the State Treasurer to disqualify financial institutions from the competitive bidding process, or from any other official selection process for any banking contract that they deem necessary.

Missouri’s Committee of Legislative Research Oversight Division stated in the bill’s fiscal note that the bill, “could potentially be construed as conflicting with several existing statutes.” Seemingly inviting costly legal challenge for the state that will end up costing taxpayers while the courts attempt to resolve the conflicting statutes.

For both Louisiana and Missouri, it’s new legislation with the same old costs. We’ve seen the impact of similar laws in other states and it’s not good for pensioners and taxpayers. What is the word for doing the same thing over and over, but expecting different outcomes?

States, like Louisiana and Missouri, need to learn from others who have recognized that they should protect taxpayers and retirees alike and avoid interjecting politics into pensions and public finance.