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Plus: Medicaid expansion marches on; Utah restricts social media for minors; More kids eat free; Development without displacement; and more news you can use from around the country.
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It’s Friday, March 24, and we’d like to welcome you to the weekly State and Local Roundup. This week we’re looking at the ongoing squabble over so-called ESG investing.
The fight centers on whether people in charge of investing other people’s money can—or should—consider environmental, social and governance factors in deciding what assets to buy.
ESG investing has been around for nearly two decades, as a way to accomplish both ideological and practical goals, such as avoiding investments in fossil fuels and limiting risk related to climate change.
But the practice has become a flashpoint in recent years. That debate hit a new frenzy this week, as President Joe Biden used his first-ever veto on an anti-ESG bill and lawmakers in several states sought to curb the use of ESG in their jurisdictions.
Biden rejected Republican legislation Monday to overturn a Department of Labor rule that would allow retirement portfolio managers to weigh climate change and other ESG issues in their investment decisions.
Until now, though, the debate has mostly been in the states, where Republicans have sponsored dozens of measures over the last two years to bar state pension systems from making investment decisions based on ESG guidelines.
Florida Gov. Ron DeSantis, a likely presidential candidate, is pushing anti-ESG measures both in Tallahassee and around the country. Last week, he announced an alliance of 18 Republican governors that promised to fight ESG-related investments in both the public and private sectors.
At least seven states, including Oklahoma, Texas and West Virginia, have already enacted anti-ESG laws. Indiana and Kansas are likely to join those ranks soon, too.
The Kansas House approved a measure Thursday that would force the state pension system to focus solely on monetary gains, instead of social considerations, in its investments. The measure would also prevent state agencies, cities, counties and school boards from using ESG criteria when awarding contracts.
The measure now heads to the Senate, which has been working on its own bill. Kansas Attorney General Kris Kobach, a Republican who gained national prominence fighting immigration and restricting voting rights, supports the anti-ESG proposals. “The agent who is representing or investing on behalf of the principal has a fiduciary duty to put the principal’s interest over the agent’s interest. That principle is such a core of American law,” he told state senators.
Indiana lawmakers are considering a contentious proposal that would force the state pension system to divest from funds that use ESG criteria, but that effort has been slowed because of concerns that the state could lose billions of dollars in investments if the plan became law.
Meanwhile, the state’s public retirement system reportedly became the first state in the country to hire the anti-ESG firm Strive Advisory, LLC and its co-founder Vivek Ramaswamy, a Republican presidential candidate.
Throughout the country, bankers associations and state chambers of commerce have pushed back against the anti-ESG proposals out of fear that state pension systems could see huge losses.
One study from the nonprofit Sunrise Project suggested those efforts cost taxpayers more than $708 million in six states.
The researchers started with a previous study on Texas’s anti-ESG law, which said the law would lead to $532 million in higher interest payments on municipal bonds. The Sunshine Project analysts extrapolated this to six other states—Florida, Kentucky, Louisiana, Missouri, Oklahoma and West Virginia—and estimated the same impacts would cost taxpayers a total of $708 million over the past 12 months.
But Hughey Newsome, the former chief financial officer of Wayne County, Michigan, cautions that GOP objections have some merit. When you put the political grandstanding aside, he wrote for Route Fifty last month, it isn’t so wild that Republicans want to “retain the status quo for investment decisions and use quantifiable financial value as the basis for their investments.”
“Let’s look at Florida,” Newsome wrote. “DeSantis is the chairman of the State Board of Administration. Under Florida law, he has a fiduciary responsibility to manage the assets of the state’s retirement trust on behalf of those who contribute to it and ensure that they receive the maximum return. In other words, if pension holders believe that only financial value should be considered as the criteria to which they invest, then the governor is acting accordingly under their guidance.”
In the case of Texas, Newsome added, “economic output is tied to oil and gas extraction. If the state is constricted by banking policies that limit investment in the oil and gas industries, it would jeopardize future economic activity to support jobs and tax revenue needs.”
Adding fuel to the fire is that there aren’t a lot of standardized metrics and definitions in place.
“ESG evaluation has always been a somewhat contentious issue in the investment community because data on those metrics are not standardized,” Liz Farmer, author of our biweekly Public Finance column, wrote last year in an article about the controversy surrounding S&P Global’s “ESG credit indicators.”
But that’s the point of ESG. “It is a way to quantify environmental and social-related risks,” Newsome wrote. “It allows the incorporation of these risk metrics into data-based, objective decision-making, so if used properly, it could weigh the costs and benefits of extractive-based energy production.”
To act and invest in a state’s best interest means taking every risk into account, including climate change.
“State officials need to be able to balance multiple priorities, including short- and long-term impact, economic growth, environmental impact, social risks and adaptation to climate change,” said Newsome. “Currently, that balance is missing in these discussions.”
Make sure to come back here every Friday for the week’s highlights. If you don’t already and would prefer to get it in your inbox, you can subscribe to this newsletter here. Have a great weekend.
News to Use
Trends, Common Challenges, Cool Ideas, FYIs, and Notable Events
- Medicaid expansion marches on. North Carolina lawmakers sent a Medicaid expansion deal in North Carolina to the governor’s desk Thursday, the same day President Biden marked the 13th anniversary of the Affordable Care Act that authorized broader Medicaid access. Despite initial opposition, more Republican-led states are considering expanding Medicaid. Voters in South Dakota approved expansion in a referendum in November. And lawmakers in Alabama are considering taking advantage of federal incentives to expand the program. When North Carolina Gov. Roy Cooper, a Democrat and longtime expansion advocate, signs the bill, it will leave 10 states that haven’t expanded Medicaid.
- Attacking addicting apps. Utah became the first state in the nation to restrict how minors can use social media apps. Gov. Spencer Cox signed two laws Thursday that will regulate when and how minors in Utah can use social media. One of the goals of these laws is to get tech companies to stop designing “addicting” features in their apps that harm kids. But the tech industry and privacy advocates will almost certainly challenge the laws in court.
- Armed police return to Denver schools. Denver’s school board voted unanimously Thursday to put armed police back in the city’s high schools, a decision that comes a day after two administrators were shot at a high school and nearly three years after the board decided to remove police officers from district buildings.
- More kids eat free. Minnesota’s Democratic Gov. Tim Walz signed a law to provide breakfasts and lunches at no charge to students at participating schools. Better access to free meals proved to be so popular during the pandemic, that at least seven states have stepped in to provide school meals to all students since the federal program ended in June. The issue may pick up more proponents as food insecurity rises amid rising food costs.
- New Orleans recall effort flops. The recall campaign against Mayor LaToya Cantrell failed Tuesday, when election officials revealed it fell woefully short of the required signatures. Recall organizers collected just 27,243 valid signatures. That was some 18,000 short of what they needed to trigger a recall election. The campaign spent six months and $1.2 million to unseat Cantrell.
- Development without displacement. One Boston neighborhood, Uphams Corner, held back a wave of gentrification that is washing over America’s wealthiest cities, reports The Boston Globe. The neighborhood has grown wealthier in recent decades, without displacing the Black and Latino residents who have long called it home. It was one of 193 American neighborhoods that researchers identified for bringing prosperity without forcing out longtime residents.
- Pushing the envelope in public health. California Gov. Gavin Newsom, whose administration is struggling to contain a worsening homelessness crisis, is trying to tap federal health care funding to cover rent for homeless people and those at risk of losing their housing. It’s a bold move. Federal law bars states from using federal Medicaid dollars to pay directly for rent. But Newsom is asking the Biden administration for a waiver to allow California to provide up to six months of rent or temporary housing for low-income enrollees. Meanwhile, Montana health care providers and nonprofits are writing prescriptions for produce, not pills. Using federal agriculture money, dietitians and other providers can give vouchers to people who are chronically ill or have insecure food access.
- The buzz about Utah’s new flag. If you didn’t know Utah is known as the “Beehive State,” its new flag will clue you in. Cox signed a law Tuesday making the switch to a new state flag official. The flag, which took five years to produce, shows a beehive in front of a range of mountains. But a public referendum in Utah could unravel the change. Apparently some in the state just love that old S.O.B., or what vexillologists—those who study flags—call a “seal on a bedsheet.”
- Exposing utilities. The Maryland House, quietly and somewhat unexpectedly, passed a bill last week that would require the state’s electric utilities to be more transparent about some of their internal deliberations and their participation with PJM, the powerful regional electric grid operator. The first-in-the-nation-bill, which now goes to the Senate, could be a bigger deal than it seems like at first blush, reports Maryland Matters. Albert Pollard, a former Virginia state legislator who is advising an Illinois consumers group on electric grid matters, compares the impact of the legislation to “Harry Potter trying to unlock the sorcerer’s sword.” (We’re pretty sure he meant “sorcerer’s stone,” but you get the idea.)
Picture of the Week
Welcome to the first day of the 108th Nebraska Legislature pic.twitter.com/coW9Evy83x— Senator Machaela Cavanaugh (@senatormachaela) January 4, 2023
Nebraska’s state legislature has been unable to pass a single bill this year, largely due to one state senator. At issue is bill LB 574, which bans gender-affirming care for Nebraskans under 19. Democratic state Sen. Machaela Cavanaugh’s “distaste with the bill, coupled with the state’s unique filibustering rules, has brought the session to a standstill,” reports The Washington Post. The bill advanced to a second round of debate on Thursday, which means that Cavanaugh and other senators who oppose it will continue to filibuster for the rest of the 90-day session. She is the first lawmaker, according to lawmakers and political scientists, to filibuster every bill introduced on the floor.
Government in Numbers
The number of days Wyoming could run its government on its savings alone, according to the Pew Charitable Trusts. Wyoming recorded the nation’s largest rainy day reserves as a share of operating costs.
How to Build a Passenger Rail Network from Scratch
Tennessee wants to expand rail in the state. Routes could be a critical link in a national network built with federal money, but right now service is minimal.
BY DANIEL C. VOCK
What Will Congress Do About SNAP Benefits?
Some want to see an increase in food stamps to account for rising food prices. Others want to tighten work requirements. A compromise is certain as the two sides work toward a must-pass farm bill.
BY KERY MURAKAMI
Is Participatory Budgeting Coming to a Local Government Near You?
Amid an influx of billions of federal dollars, some think the tool may see an uptick in use.
BY ELIZABETH DAIGNEAU
California Governor Announces Plan to ‘Create More Housing, Faster’
In an effort to tackle one of the country’s largest homeless populations, Gov. Gavin Newsom last week announced plans to build 1,200 tiny homes and spend $1 billion on local homelessness initiatives.
BY MOLLY BOLAN
States Have the Resources to Clear Criminal Records
COMMENTARY | Most governments already have the capacity and technology to deliver automatic record clearance to all those eligible for relief equitably, expeditiously and at scale.
BY JAY JORDAN AND ALIA TORAN-BURRELL