Fiscal Note & Local Impact Statement
127 th General Assembly of Ohio
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STATE FUND |
FY 2007 |
FY 2008 |
FUTURE YEARS |
|
General Revenue Fund –
Treasurer of State, Attorney General |
|||
|
Revenues |
- 0 - |
- 0 - |
|
|
Expenditures |
Possible increase |
Possible increase |
Possible increase |
|
Other State Funds – Bureau
of Workers' Compensation, Ohio Retirement Systems, Ohio Retirement Study
Council, Ohio Deferred Compensation
Board, and Ohio Tuition Trust Authority |
|||
|
Revenues |
Possible decrease |
Possible decrease |
Possible decrease |
|
Expenditures |
Possible increase |
Possible increase |
Possible increase |
Note: The state
fiscal year is July 1 through June 30.
For example, FY 2007 is July 1, 2006 – June 30, 2007.
·
The
bill requires public investors specified by the bill to make best efforts to
identify and list all publicly traded companies involved in "scrutinized
business operations" in Iran and Sudan, and to provide written notices and
reports. The provisions may increase
the administrative costs of the Treasurer of State, the Bureau of Workers'
Compensation, and the five state retirement systems – School Teachers
Retirement System (STRS), Public Employees Retirement System (PERS), School
Employees Retirement System (SERS), Highway Patrol Retirement System (HPRS),
and Ohio Police and Fire Pension Fund (OP&F) – to comply with the
requirements of the bill.
·
The
requirements that selected public investors divest their "direct
holdings" in the publicly traded companies with "scrutinized business
operations" in Iran and Sudan within a specified timeframe would require
upfront transition costs, increase transaction costs, and reduce investment
income of the state's five retirement systems, which in turn could negatively
impact existing unfunded liabilities.
However, the bill allows the public investors to end any divestment
requirement under certain circumstances specified by the bill.
·
The
bill authorizes the Ohio Public Employees Deferred Compensation Board,
alternative retirement programs, and the Ohio College Savings Program to offer
a terror-free investment option to its contributors. The reporting requirement associated with this provision may
increase administrative costs.
·
The
bill authorizes the Attorney General to enforce the bill's provisions, which
may increase the agency's administrative and operating costs.
·
No
direct fiscal effect on political subdivisions.
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|
The bill requires all public
investors as specified by the bill[1]
to make their best effort to identify and list all publicly traded companies
involved in "scrutinized business operations"[2]
in Iran and Sudan, for which they have direct or indirect holdings or could
possibly have such holdings in the future, within 90 days after the effective
date of this bill. The bill also requires
the public investors to send a written notice to all companies on the list of
their identified status and the specified requirements of this bill.
The bill specifies that the
public investors must encourage a company that has "inactive business operations"
to continue to refrain from initiating "active business operations"
in Iran and Sudan. If any of the
companies identified on the list has "active business operations" in
Iran or Sudan, the public investors must inform the company of its scrutinized
company status and the requirements of the bill. The holdings in this company may be divested within 90 days after
the notice is sent if a clarification on its Iran-related or Sudan-related
activities is not received or the company does not cease or convert its
scrutinized business operations to inactive business operations.
The bill specifies that 90
days after the initial creation of the lists[3]
or immediately after a company is reinstated on the specified lists, the public
investors must divest their "direct holdings"[4]
in the publicly traded companies with "scrutinized business
operations" in Iran and Sudan. Any
company listed on either the active or inactive activities in Iran and/or Sudan
lists that ceases its scrutinized business operations will be removed from the
particular lists unless the company resumes its scrutinized business
operations.
The bill also requires the
public investors to notify asset managers investing on their behalf to remove
any actively managed fund containing any "indirect holdings" in the
identified companies that have "scrutinized business operations" in
Iran and Sudan and replace it with a similar fund, within 12 months after the
initial creation of the lists or immediately after a company is reinstated on
the specified lists.
Furthermore, the bill
requires the public investors to file a report including lists of Iran-related
or Sudan-related scrutinized companies to the President of the Senate, the
Speaker of the House of Representatives, the Minority Leader of the Senate, the
Minority Leader of the House of Representatives, the Ohio Retirement Study
Council (ORSC), and the Workers' Compensation Council, and to make the lists
available to the public, within 30 days after the lists are created and within
30 days after each annual update. In
addition, the public investor must provide an annual report including a summary
of certain correspondence, selected lists, and specified progress related to
the bill to the same specified leaders of the Ohio General Assembly and
councils, and copies to the United States Presidential envoys to Sudan and
Iran.
However, the bill allows the
public investors to end any required divestment and reinvest in the listed
companies with "scrutinized business operations" in Iran and Sudan if
clear convincing evidence shows that the value of all assets under management
by the public investor becomes equal to or less than 99.5% or at least less
than 50 basis points of the hypothetical value of all assets under management
by the public investor assuming no divestment related to this bill had
occurred.
The bill authorizes the Ohio
Public Employees Deferred Compensation Board, alternative retirement programs,
and the Ohio College Savings Program to offer a terror-free investment option
to its contributors. The bill also
requires the Ohio Deferred Compensation Board and the Ohio Tuition Trust
Authority to submit a report on their efforts to identify and provide a
terror-free investment option to the President of the Senate and the Speaker of
the House of Representatives on an annual basis.
Moreover, the public
investors shall cease all requirements and authorizations specified in the bill
if the federal government takes certain actions specified by the bill.
The bill authorizes the
Attorney General to enforce the provisions of the bill. The bill also relieves a public investor of
liability if it complies "in good faith" with the requirements of the
bill. The bill also allows the board of
the retirement systems and the Bureau of Workers' Compensation (BWC) to retain
legal counsel if the Attorney General maintains a civil action against them for
a breach of fiduciary duty to the public fund under their control.
The bill may increase the
expenditures of the Treasurer of State, the Bureau of Workers' Compensation,
and the five state retirement systems – School Teachers Retirement System
(STRS), Public Employees Retirement System (PERS), School Employees Retirement
System (SERS), Highway Patrol Retirement System (HPRS), and Ohio Police and
Fire Pension Fund (OP&F)-to comply with the requirements of the bill. However, the bill has no direct fiscal
impact to the local governments.
The limitations on
investments by public investors under the bill may slightly reduce
diversification and investment criteria for public investors, but it may not
affect their ability to maximize returns on investment. However, the limitations may impact the
state's five retirement systems' investment returns, which in turn could
negatively impact existing unfunded liabilities. Portions of the retirement systems' portfolios are invested in
multinational companies.
Furthermore, if any of the
public investors have to divest any investments in those companies, there would
be upfront transition costs that need to be paid. In addition, the public investors would bear an undetermined loss
of investment income. The transaction
costs, loss of investment income, market risk associated with divestment, and
reduced investment diversification resulting from the bill are undetermined as
the lists of "scrutinized companies" may shrink and/or expand over
time.
The magnitude of the fiscal
effect due to the required divestment would be limited due to the provision in
the bill that allows the public investors to end any divestment requirement
under specified circumstances.
LSC fiscal staff: Ruhaiza Ridzwan, Economist
[1] The bill defines "public investor" as the Treasurer of State, the State Board of Deposit, the Workers' Compensation Oversight Commission, the Administrator of Workers' Compensation, and the board of each of the five state retirement systems.
[2] "Scrutinized business operations" means business operations that have resulted in a company that meets certain criteria specified by the bill.
[3] Approximately 180 days after the effective date of the bill.
[4] The bill defines "direct holdings" as all stocks or bonds of a company held directly by a public investor or held in an account or fund of which the public investor owns all of the shares or interests.