Bill Text: NJ S3044 | 2014-2015 | Regular Session | Introduced
Bill Title: Prohibits investment by State of pension and annuity funds in companies that boycott Israel or Israeli businesses.
Spectrum: Moderate Partisan Bill (Democrat 7-1)
Status: (Engrossed - Dead) 2015-11-09 - Received in the Assembly, Referred to Assembly State and Local Government Committee [S3044 Detail]
Download: New_Jersey-2014-S3044-Introduced.html
LEGISLATIVE FISCAL ESTIMATE
SENATE, No. 3044
STATE OF NEW JERSEY
216th LEGISLATURE
DATED: AUGUST 20, 2015
SUMMARY
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Synopsis: |
Prohibits investment by State of pension and annuity funds in companies that boycott Israel or Israeli businesses. |
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Type of Impact: |
Potential expenditure decrease or increase to the State and local governments. |
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Agencies Affected: |
Department of the Treasury. Local Subdivisions of State Government. |
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Office of Legislative Services Estimate |
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Fiscal Impact |
Fiscal Year 2016 |
Fiscal Year 2017 |
Fiscal Year 2018 |
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State Employer Contributions |
Potential Decrease or Increase Depending on Investment Performance |
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Local Employer Contributions |
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· The Office of Legislative Services (OLS) cannot reliably assess the ramifications on State and local government finances of prohibiting investments of pension and annuity funds in companies that boycott the goods, products or businesses of Israel. The bill has the potential to directly alter pension and annuity fund investment returns either positively or negatively. If it does, it could, in turn, indirectly affect the amount of actuarially determined employer contributions to the funds by the State and local governments.
· On three grounds the OLS cannot determine the difference between future pension and annuity fund investment returns with and without the bill's prohibition. First, for reasons stated below, it is unclear to what extent pension and annuity funds are currently placed in investments prohibited by the bill. Second, it is equally unclear when the Division of Investment in the Department of the Treasury would sell any prohibited holdings, as the bill allows an 18-month period for the divestment. Third, it would be highly speculative for the OLS to make assumptions on future gyrations in financial markets and the division's future investment decisions with and without the bill's prohibition.
BILL DESCRIPTION
Senate Bill No. 3044 of 2015 prohibits the State of New Jersey from investing any assets of any pension or annuity fund under the management of the Division of Investment in the Department of the Treasury in companies that boycott the goods, products or businesses of Israel. The prohibition does not apply to the activities of any company providing humanitarian aid to the Palestinian people through either a governmental or non-governmental organization. The division has up to 18 months to disengage from any existing investment that violates the prohibition.
FISCAL ANALYSIS
EXECUTIVE BRANCH
None received.
OFFICE OF LEGISLATIVE SERVICES
The OLS cannot reliably assess the ramifications on State and local government finances of prohibiting investments of pension and annuity funds in companies that boycott the goods, products or businesses of Israel. The bill has the potential to directly alter pension and annuity fund investment returns either positively or negatively. If it does, it could, in turn, indirectly affect the amount of actuarially determined employer contributions to the funds by the State and local governments.
Conceptual Considerations: The bill's fiscal impact will equal the difference in the pension and annuity funds' future investment performance with and without the bill's prohibition on investments in companies boycotting the goods, products or businesses of Israel.
The bill will have no impact if investment returns remain identical with and without the bill's prohibition. This scenario might materialize, for example, if the division never intended to invest pension and annuity funds in companies boycotting the goods, products or businesses of Israel with or without the bill's prohibition.
In contrast, the bill will generate a gain to the pension and annuity funds, and potentially a reduction in State and local government employer contributions thereto, if investment returns are greater with the bill's prohibition than without it. This scenario would materialize if absent this bill the division were to invest pension and annuity fund resources in companies boycotting the goods, products or businesses of Israel, and if the ensuing returns were to be inferior to the returns of other investments the division would make with the prohibition.
Conversely, the bill will produce a loss to the pension and annuity funds, and potentially an increase in State and local government employer contributions thereto, if investment returns are smaller with the bill's prohibition than without it. This scenario would materialize if absent this bill the division were to invest pension fund resources in companies boycotting the goods, products or businesses of Israel and if the resultant returns wound up superior to the returns of other investments the division would make with the prohibition.
Impediments: Three unknown variables preclude the OLS from quantifying the difference between future pension and annuity fund investment returns with and without the bill's prohibition.
First, it is unclear to what extent pension and annuity fund resources are currently placed in investments outlawed by the bill. It may even be impossible for the State to identify all investments in prohibited companies with absolute certainty. This is so because of the vagaries of investing in hedge funds and private equity firms, which generally treat their investments and investment strategies as proprietary information that they do not share with investors. It is therefore possible for the division to unwittingly place pension and annuity fund moneys indirectly in companies boycotting the goods, products or businesses of Israel through the conduit of its hedge fund and private equity holdings. Irrespective of this source of uncertainty, Illinois may provide a rough indication of the number of investments New Jersey may find to be in violation of this bill. In July 2015, Illinois became the first State to enact legislation similar to this bill. The Executive Director of the Illinois State Board of Investment preliminarily estimated that Illinois' State-funded retirement systems' existing placements in some 25 to 30 companies could run afoul of the prohibition on pension fund investments in companies boycotting Israel ("Illinois Passes Bill for Pension Funds to Divest from Companies Boycotting Israel." Pensions & Investments, May 19, 2015.).
Second, it is equally unclear when the division would divest from any prohibited holdings, as the bill allows an 18-month window for the divestment.
Third, it would be highly speculative for the OLS to make assumptions on future gyrations in financial markets and the division's future investment decisions with and without the bill's prohibition.
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Section: |
Revenue, Finance and Appropriations |
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Analyst: |
Thomas Koenig Lead Fiscal Analyst |
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Approved: |
Frank W. Haines III Legislative Budget and Finance Officer |
This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).
