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Given the nations deep political divisions nowadays, it should come as no surprise that some state and local politicians from both sides of the aisle would seek to leverage their governments purchasing power to send messages to corporate America and play to their base by doing so. After all, its not their own money its the publics so why not exploit political power to advance ones partisan posturing?

The most common manifestations of these impulses to make political statements through public funds have historically been public pensions divestment campaigns, starting with South Africa in the 1960s, then with Sudan in the early 2000s and continuing up to this years Russia divestment wave. Critics would say that pension policies focused on corporations environmental, social and governance (ESG) profiles are liberals playbook strategy to pressure companies into bending to their political will. The same might be said about pension funds that avoid investing in firearms manufacturers.

The complaint and its a valid one in my view has always been that these political statements rarely work to the benefit of the pension funds and that the employers taxpayers are ultimately obligated to foot the bill for investment underperformance. That grievance is now popular with 19 Republican attorneys general. However, many ESG advocates would counterclaim that more-sustainable and farsighted corporate policies will produce better investment returns over the long term. That debate in pension-land doesnt look likely to end any time soon; we really cant properly evaluate investment efficacy in less than a decade or even two.

West Virginias legislature has followed suit with similar legislation. Kentucky, Oklahoma and Tennessee have enacted similar laws, all focused on ESG and fossil-fuel extraction. Notably, Kentucky ranks 21st and Tennessee 27th among the states in oil production, so one must conclude that their blackball actions are largely political and not budgetary.

The magnitude of any fiscal impact on Texans debt service costs is a matter for empirical research, which has already begun at Wharton. The topic will probably make for a great doctoral dissertation someday, but we wont know hard numbers any time soon. With multiple states now involved, a fertile field for research has arisen.

In Florida, we have the now-notorious meddling in public finance by state politicians who decided to punish Walt Disney World for the companys public opposition to the states so-called Dont Say Gay law (in support of its employees) by stripping the financial powers of five special districts to rebuke Americas most-beloved family theme park.

Even local governments are getting into the act, including from the left side of the political spectrum. In Pennsylvania, Lehigh County may become the first entity to divest its assets and business from Wells Fargo because of the banks reported support of political candidates opposing abortion rights.

Some of these retaliatory measures may eventually run into First Amendment lawsuits, especially given that the Supreme Courts Citizens United decision equated companies free-speech rights to those of individuals. But given the deepening divisions in the American body politic these days, it doesnt require much imagination to expect that similar political blacklists and financial boycotts will continue to proliferate.

Im sure, for example, that well see a few local governments sympathetic to abortion rights adopt policies prohibiting travel reimbursement for attendance at professional conferences and training events in states that prohibit or severely restrict the procedure. Meanwhile, other governments may ban employee travel to conferences in states that provide sanctuary for abortion-seekers. Whats to stop similar internal policies from popping up with regard to visiting states with open-carry gun laws? At least in the case of conference attendance, most government workers can find alternative professional development opportunities elsewhere, and some of these events now include virtual attendance options in this pandemic era. But for financial services firms serving the public sector, and the efficient market competition they engender, there is no such workaround.

I dont pretend to have all the answers or a universal solution to the dilemmas that these examples present. But Im pretty sure that taxpayers will ultimately be ill-served when public-sector investments and financial transactions are subjected to political favoritism, which is what these back-in-your-face policies really are. The problem, of course, is that in the short run there is very little political downside for these interventions, and the financial costs will be diffuse and initially imperceptible. But that doesnt make it right or smart.

The Big Seven state and local government policy associations and their financial affiliates can do us all a favor by standing up to such partisan grandstanding with policy advisories that emphasize just how ill-advised and ultimately costly these culture war reprisals are likely to be and perhaps already have become.

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The Cost of Mixing Culture Wars With Public Finance - Governing