Reddy: A financial remedy that’s worse than the problem
By Kevin Reddy, president of the Federated Fire Fighters of Wyoming, president of the Wyoming State AFL-CIO and chairman of the Wyoming Coalition for a Healthy Retirement.
This past legislative session, Wyoming lawmakers sought to stop ESG investing with Wyoming’s state funds — the state’s investments under the management of the State Treasurer and the Wyoming pension funds under the management of the Wyoming Retirement System (WRS). The goal was to ensure the managers of our investments are focused exclusively on returns — and that the state’s advisors don’t inject non-financial factors into their decisions.
That’s a good idea, in theory. And if it were as simple as that, I would support it. Currently, the State Treasurer and WRS, by policy and statute, only invest with managers focused exclusively on the financial benefit of the State and the members in the pension plans.
But some of the proposed protections in House Bill 80 (“Stop ESG-State funds fiduciary duty act”) would have been a disaster for our investment returns. Thankfully, it has stalled in the Senate.
The first version of HB 80 would have required the state to stop working with financial firms accused of considering environmental, social or governance (ESG) factors in the investments they make on behalf of state pensions and other financial matters.
During a committee hearing, the WRS director testified that the bill was a bad idea that would cost the pension system nearly $1.2 billion, roughly 10%, in the first three years — a real threat to Wyoming’s pension fund stock market returns. He also pointed out that WRS currently doesn’t take any ESG position into consideration in the management of the state’s retirement. The State Treasurer’s office didn’t state a cost, but pointed out that the state funds are three times larger than WRS.
“Every one of our managers are going to say that there is a material change in our contracts, and they’re going to walk out the door. And we’re going to be left with nobody to invest and no markets to invest in,” they pointed out during the House committee hearing.
To their credit, the House of Representatives took the statement to heart, deleting costly financial penalties from the legislation and rewriting sections that alarmed both the Treasurer’s office and WRS. That took some of the sting out of this, but the question remained, why create a law when our state’s financial professionals already abide by the intent of the bill?
It appears the reason is that some lawmakers are following a trend set in other states, where there have been efforts to fight what some activists dubbed “woke” laws that have resulted in bills that oftentimes turn out to be expensive for pensioners and taxpayers.
Texas, Oklahoma, Missouri and Indiana are just a few of the states that have found out the hard way that their investment blacklists are expensive and, after a number of court rulings, often unlawful.
Blacklisting advisors shortens the number of companies bidding for state business. As we know from simple supply-and-demand economics, attracting fewer bidders means higher prices. And the firms that get cut are often the best in the business. A large portion of the state’s revenue comes from investment returns. The pension system has a $65 million payroll every month. Sound investment returns are very important to the state budget and the local economies. The best managers provide for good returns and a secure pension system that our retirees rely on.
What sounds like an attractive political position turns out to be anti-competitive, and unnecessarily costly to Wyoming citizens and businesses.
The Cowboy State is known to be a business-friendly state, with a business-friendly Legislature — and that Legislature stepped up. Though the amended bill cleared the House, the Senate chose not to introduce it for consideration.
Our pension officials and advisors are already required to follow fiduciary principles and seek the best financial returns for their clients. We didn’t need an unnecessary — and potentially harmful — law to remind them, especially when our state’s taxpayers and retirees would bear the cost of it.
I’m grateful our elected officials recognized Wyoming’s financial house is already in order.