Texas is still mixing politics into public finance amidst other pressing issues

Texas lawmakers are deciding whether to double down on what has turned out to be an expensive financial and investment policy: Injecting political goals into public finances and pension investments.

Texas jumped into culture-war debates about considering environmental, social, and governance (ESG) factors in public finance four years ago, and still this legislative session they continue to introduce ESG-focused legislation – despite both pushback from a number of voices and even rollback from some companies on the issue.

Under its 2021 law, Texas keeps a list of investment advisers and financial institutions it accuses of incorporating pro-ESG, anti-energy biases into their decisions, and bars them from competing for most pension and other state finance work. The result — in Texas and other states with similar blacklists — is less competition in the marketplace and higher costs for taxpayers.

It all adds up. The Texas Association of Business Chambers of Commerce Foundation estimated the state’s anti-ESG law had cost the state $668.7 million in lost economic activity, more than 3,000 full-time jobs, and $37.1 million in lost state and local tax revenue. “Said differently, the economy would have to produce approximately $2.84 billion in Gross State Product to make up for the excess cost and associated loss of public sector revenue,” those analysts wrote.

Oklahoma achieved the same results from their version of Texas’ law. Before that state’s anti-ESG law was found to violate the state constitution, a study done for the Oklahoma Rural Association by the University of Central Oklahoma found it was costing taxpayers  in the Sooner State $11 million a month and had racked up a total cost of $185 million.

Between last year’s state legislative sessions to this year’s we have detailed the handful of states that were considering similar legislation. From Arkansas, to Kansas, Indiana, and Wyoming – each one brought hefty price tags.

Due to the cost associated with inserting politics – from both sides of the aisle – most of the big asset management companies have moved to highlight their focus on strictly financial returns. They have even provided more voting choice options for their end clients so they can decide whether they want to vote for (or against) various proxy questions.

Given this, Texas lawmakers would hopefully think long and hard about considering changes to existing laws (or even new ones) that will lead to even less competition, increase costs for taxpayers, and lower returns for the state’s retirees. Instead, we are hopeful lawmakers will focus on policies that will help ensure increased access to retirement and savings, and foster an environment that helps ensure pensions and public finance stay steady and safe from political interference.

And Texans certainly need reassuring when it comes to retirement. A recent national survey conducted for BlackRock found 56% of American voters worry about their personal finances at least once a day. Almost one-third (31%) said they would have a difficult time covering an unexpected bill of $500. Just over half said they are more worried about running out of money in retirement than they are of dying. And only 18% said they are confident they’ll have enough savings for their retirement.

No matter what the slant, adding political leanings into public finance and pensions has real effects. Lawmakers should check in with their constituents and realign their focus on the pocketbook issues that matter most to them. Keeping politics out of pensions and public finance would reassure current and future retirees, and taxpayers, and free lawmakers to take on some of the many other issues that deserve their time and attention.