There are still challenges for public pension plans in the United States. More promises are made to retirees and employees, but it becomes more difficult to fulfill those promises. Public pensions are still a playground for ideology castles. Employees and retirees have a right to worry about their future pensions, but it will be the taxpayers that pay the price for bad public policy decisions.
The Virginia Legislature is considering two bills (SB 213 and HB 640) that would authorize state and local retirement boards to divest from “fossil fuel companies.” According to the bills, this would include companies involved in coal, oil, and natural gas exploration, production, and distribution. These bills are a testing run since they do not exempt large public pension plans from the bill, however, it is obvious where the legislation is heading.
Maine became the first state in America to implement a fossil fuel withdrawal policy when it was adopted by Gov. Mills has signed the law. De-carbonization supporters in the state legislatures across the country view this as an opportunity to advance their cause. However, is this worth the potential cost?
ESG initiatives include not only fossil fuel divestment but also other aspects. Environmental, social, and governance investing is not really new; social engineering using other people’s money has been around for decades. But today, the proponents are able to feel the wind in their sails.
Public pension plans being forced to sell fossil fuel companies pose a greater risk than previous divestures like those made from tobacco or nuclear weapons. These industries represent a small part of the economy. The fossil fuel industry however, is huge and, despite some wishes, will be an integral part of our economy for many generations. Of course, it is often overlooked that the transition to renewable energy requires fossil fuels for back-up. It is an obvious fact, regardless of how one believes it.
This would mean that it would be harder for public pensions to earn the required investment return benchmarks. The vast majority of public retirement plans are significantly underfunded, it is clear.
You need to be familiar with how public pensions work. Public pension plans are not like a traditional 401(k), which most people know. They promise public workers that they will get a monthly fixed pension benefit once they retire. This obligation must be kept regardless of how much assets are available. The taxpayer is obligated to make up any shortfalls in pension plans assets that aren’t sufficient to fulfil future promises. For taxpayers, the risk of fossil fuel depletion only grows.
The Northeast’s anti-carbon policies have already caused a rise in electricity prices and heating bills. The winter is already proving costly for consumers. Fossil fuel divestment could lead to higher taxes as the government tries to fulfill its pension promises. The cost of fossil fuel diverstment is much higher than the promised benefits.
Although fossil fuel divestment, as well as other de-carbonization efforts, may be warm to your heart, they won’t warm your home. Instead, you will pay more for your utilities and future taxes.
Bette Grande ([email protected]) The Heartland Institute is looking for a State Government Relations Manager.
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