HB 189: Weaponizing public investments & increasing taxpayer costs — 2023

Rep. Barbara Ehardt (R-Idaho Falls) and Idaho State Treasurer Julie Ellsworth introduced House Bill 189 as part of a broader attack on Environmental, Social, and Governance (ESG) investing.

So, what is ESG? It’s a set of risk management considerations focused on climate-related risks, social and community impacts, diversity of leadership, exposure to regulatory risk, and hundreds of other factors related to “material risk.” Several large firms (MCSI, Sustainalytics and S&P) measure and report on ESG metrics, that investors can use to manage investments. The Security and Exchange Commission (SEC) and others are finalizing rules around ESG reporting, some of which are already the target of litigation from Idaho Idaho Attorney General Raúl Labrador and 24 other states.

The bill would prohibit any state or public contracts with companies and financial institutions that decline to do business with specific sectors (fossil fuels, mining, agriculture, timber, firearms, hydro and nuclear power), unless they have a legitimate business purpose to make that decision.

One of the biggest impacts of HB 189 would be increasing costs to taxpayers due to the higher municipal bond borrowing costs for cities, counties and other public entities that use bonds to finance large capital projects. This includes school, fire, irrigation, water, sewer and other local districts across the state. Bottom line: increased borrowing costs will increase costs to taxpayers across the state.

In 2021 Texas passed a similar bill, and taxpayers faced costs upwards of $532 million in the first 8 months the law was in effect. That’s because reduced competition from bond underwriters resulted when large sources of capital (i.e. recognizable banks like Wells Fargo, JP Morgan, Blackrock, Fidelity Capital Markets, and others) left the state.

A recent study evaluating other states considering similar legislation found the the impacts of similar Anti-ESG to be similarly costly.

As a result, many are concerned the bill violates a central premise of public investing: the Idaho Prudent Investor Act. No prudent investor would make the choice to reduce competition in underwriting, driving up their borrowing costs. Instead, as required by Idaho Code, public entities “shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill and caution.”

Would any “prudent investor” voluntarily jack up their loan rates?