Residents in Irvine and some other Orange County cities soon could see new tax increases or disruptions in service. The same with customers of the South Coast Water District and other government agencies.
That’s because these cities and agencies are considering getting rid of their profitable investments in global oil companies after the recent oil spill off the Huntington Beach coast. But getting rid of good investments means shifting to worse investments – that is, companies or industries with lower profit margins.
If cities have less money invested, then how else will they make up for the lost money but by increasing taxes or reducing services?
Irvine invests $5 million in ExxonMobil Corp. During a Nov. 23 council meeting, mayor Farrah Khan urged, “We have seen devastating fires, oil spills and the growing severity of our drought. And I just want to make sure we’re not investing in companies running counter to our values.” She urged looking for “any and all investments that are with companies that are countering our environmental and social objectives” and “immediately begin the process to divest from those entities” by looking for new investments.
Divestment has become a fad in recent years, especially by universities. On May 19, 2020, the University of California announced its “investment portfolios are fossil free after the sale of more than $1 billion in assets from its pension, endowment and working capital pools.”
On October 22, 2021, Cal State University Chancellor Joseph I Castro pledged the school would “start to transition away from these types of investments.”
But the fact is divestment has precisely zero effect on these companies or the overall use of fossil fuels. A 2019 study by UC Santa Cruz economics professor Donald Wittman found, “The reality is that divestment is ineffectual, and that stigmatizing fossil-fuel companies is misguided….
“The stock price represents the expected return to stockholders. Disinvestment does not change the expected return, so the stock price will remain essentially the same. The same logic holds for politically motivated divestment from any industry.”
Fossil fuels are a vast global industry. Users and investors in China, India, Brazil, Russia and elsewhere don’t care about the opinions of Orange County government bodies. They want energy to heat the homes of their people, and to fuel industrial growth. They look on the boutique political fads of California activists as about as relevant as a flea landing on a dog’s tail.
There should be only one question about government investments: What is best? It could be oil companies. It could be something else. That’s something for investment experts to decide. But any legal company should be a potential place to invest public funds. Investment activism should be kept to private persons or groups that invest, and possibly lose, their own funds.
Things could get really serious if the divestment activism infects the giant California Public Employees Retirement System, which manages retirement funds for employees in Irvine, SCWD and other entities considering divestment. CalPERS said in a statement, “As a government agency, CalPERS is sensitive to public policy issues, but divestment pits social responsibility against our fiduciary obligations.”
CalPERS’ funding status currently is only 82 percent of obligations. Foolish divestment could make that worse, with taxpayers forced to pick up the tab.
The same is true for other governmental bodies, especially those in Orange County, which is supposed to be a more sensible place than the dreamier areas of the state. Public officials’ “fiduciary obligations” first ought to be to the citizens they serve, second to the employees depending on pay, health care, pensions and other benefits.
Private political passions should stay private.
