Arizona Senate Votes to Protect Pensioners and Taxpayers

Last week, the Arizona Senate passed Senate Bill 1500, a bill to keep politics out of state investments. This bill is currently in the Arizona House of Representatives. This effort closely follows one of ALEC’s Essential Policy Solutions for 2023 to protect retirees by keeping politics out of pensions: the ALEC model State Government Employee Retirement Protection Act.

Senate Bill 1500 requires all state investments to be made in the sole interest of the beneficiary taxpayer. This means that anyone who has discretionary authority over plan assets, renders investment advice, or administers a plan can only consider financial factors when making decisions about state investments. If this bill becomes law, Arizona investments will be barred from promoting political crusades, such as Environmental, Social, and Governance (ESG) investing, or other non-pecuniary social goals.

The ALEC annual report on unfunded pension liabilities Unaccountable and Unaffordable, the ALEC report Keeping the Promise: Getting Politics Out of Pensions, and ALEC public comments submitted to the Department of Labor all show that when investment decisions are politically motivated, investment returns become more volatile. When investments don’t meet their targeted returns, taxpayers must pay the difference.

Arizona should learn from its neighbor California, a state that prides itself on using investment funds to support political crusades like divesting from fossil fuels. Over the past 20 years, the Golden State has left over $3 billion in foregone investment returns on the table because of its politically motivated divestment strategies. Taxpayers were expected to pick up the tab.

Last year, Sacramento considered divesting the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) from all fossil fuel investments, but that bill was stopped in June 2022. Unfortunately, another fossil fuel divestment bill was reintroduced this session.

Arizona has done amazing work reforming its pension systems and paying down unfunded liabilities. Keeping politics out of pensions would add to that success by creating additional protections for retirees and taxpayers.