By Patrick M. Gleason
New Yorkers toil under the nation’s highest state tax burden and have been hit with 20 federal Obamacare tax hikes over the last eight years. Adding insult to injury, New York State lawmakers are now considering a bill that would further imperil an already woefully underfunded state pension system and put taxpayers across the Empire State on the hook for billions in higher taxes.
The New York State Fossil Fuel Divestment Act, whose supporters stalked the halls of the statehouse in Albany recently to lobby for the measure, would require the state comptroller to divest New York’s more than $170 billion in state pension funds from fossil fuel industry companies.
New York legislators have many reasons to reject this proposal. For starters, it wouldn’t benefit the environment. More importantly, the state currently has $10 billion invested in fossil fuels, and divestment of these funds would have negative unintended consequences for state finances, taxpayers and pensioners.
A new report led by University of Chicago law professor Daniel Fischel highlights the financial hit New York would take were state lawmakers to enact the Fossil Fuel Divestment Act. Fischel’s report, which looks at 11 of the nation’s top pension funds, quantifies the fiscal damage wrought by pension divestment from fossil fuels. The report looks at the impact of both narrow divestment (barring pension fund investment in coal, oil and gas companies) and broad divestment (barring investment in utilities, coal, oil and gas companies).
On average, narrowly divested funds face an annual shortfall of 0.15 percent, whereas broadly divested funds face an annual shortfall of 0.2 percent. That might not sound like much, but it makes a huge difference when dealing with billions of dollars in forgone gains compounding over time.
By reducing the rate of return on pension fund investments, passage of the Fossil Fuel Divestment Act would dramatically reduce the amount of pension funds available for payout in the future, requiring state officials to cut payments to retirees or increase taxes, or a combination of the two in order to make up the difference.
New York State Comptroller Thomas DiNapoli, who is the state pension system’s sole trustee and fiduciary, has come out against the proposal because it would force him to put special interests above those of cops, firefighters and other public employees whose retirement funds he is tasked with managing.
Maximizing returns on investment would no longer be the top goal directing the comptroller’s management of state pension funds. The New York pension system already faces unfunded liabilities of more than $250 billion. By reducing investment returns, divestment of state pension funds from fossil fuels would only increase the massive unfunded liability for which taxpayers are ultimately on the hook.
By rejecting one of the most misguided pieces of legislation introduced in any state capital this year, New York lawmakers will be protecting public employees and taxpayers statewide.
Patrick M. Gleason is director of state affairs at Americans for Tax Reform.