House passes divestment legislation . . . Third times a charm

The Pennsylvania House, by a vote of 185-15, approved the latest divestiture legislation. The bill (HB1086), sponsored by Rep. Shapiro, calls for the PERS and SERS pension funds to divest in any foreign company who does business with Sudan or Iran.

Divestment initiatives fall into two categories. Targeted divestment focuses on companies doing business with or within terrorist states. Broad divestment covers a host of business activities including indirect investments like mutual funds that may invest in companies that support terrorist states or even businesses that sell products to companies cooperating with “rogue” nations. Shapiro’s legislation requires divestment from both direct and indirect holdings.

Over 20 states have enacted divestiture legislation and the Pennsylvania House is eager to join the bandwagon. So eager, in fact, that this is the third time a divestment bill has been sent to the senate. Last year Rep. Josephs sponsored HB1140 which called for divestment in companies doing business with Sudan. And in 2001 the House approved several bills prohibiting investments in terror supporting nations.

What does divestment mean for the average taxpayer? Approximately $100,000 to hire consultants in order to tell the state which companies are involved with terrorist nations and another $200,000 per year to monitor developments. But that’s just the beginning. If investments fall below their expected returns, after divestiture takes place, the difference will be taken out of the General Fund. Oh and did I mention that the Treasury Department is unable to estimate the total impact of the bill, other than to say, “costs in addition to those identified above are likely.” Uh-oh.