HOUSE OF REPRESENTATIVES
TWENTY-EIGHTH LEGISLATURE, 2015
STATE OF HAWAII
A BILL FOR AN ACT
relating to the employees' retirement system.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that it is in the public interest to join with major cities such as Seattle, San Francisco, Portland, Boulder, Santa Fe, Madison, and dozens of others around the country, major investment trusts and foundations such as the Rockefeller foundation, religious institutions such as the United Church of Christ, universities such as Stanford University, and more than eight hundred other major global investors who have already pledged to withdraw a total of $50,000,000,000 from fossil fuel investments over the next five years. Divestment is a market-based solution that can help protect taxpayers from having public funds used for purposes that may actually unintentionally harm them.
The legislature further finds that it is the mission of the employees' retirement system to support its beneficiaries without harming taxpayers. However, the employees' retirement system currently invests public funds in fossil fuel companies that are contributing to rising costs to taxpayers. Fossil fuel companies are a significant source of greenhouse gases accelerating climate change, which the State will need to spend billions of taxpayer dollars to address in coming decades. Fossil fuel companies also spend tens of millions of dollars lobbying state and federal governments for policies contrary to the State's energy goals and the public interest. These efforts have set back federal and state efforts to pursue cheaper renewable energy developments intended to save taxpayers money.
The legislature further finds that fossil fuel investments can be extremely volatile, and fossil fuels such as oil are subject to wide fluctuations in price due to global politics and demand outside of the State's control. Technological advances that aid in the transition away from fossil fuels are becoming more affordable, and the demand for renewable energy is increasing, which may leave fossil fuel assets stranded in the near future, making them increasingly risky investments in the long run.
The State has taken action on climate change, but its laws have no effect on companies producing greenhouse gases outside the State, which raises costs for our local taxpayers. Divesting from fossil fuel investments is one of the only ways that the State may have an impact on an industry that is contributing to problems that affect the State.
The legislature believes that, with protections to ensure that there is no negative impact on the employees' retirement system's ability to meet its investment earning obligations, there is no reason not to act.
The purpose of this Act is to prohibit the employees' retirement system from investing in fossil fuel companies and to require divestiture of direct holdings in fossil fuel companies.
SECTION 2. Section 88-119, Hawaii Revised Statutes, is amended to read as follows:
"§88-119 Investments. (a) Investments may be made in:
(1) Real estate loans and mortgages. Obligations (as defined in section 431:6-101) of any of the following classes:
(A) Obligations secured by mortgages of nonprofit corporations desiring to build multirental units (ten units or more) subject to control of the government for occupancy by families displaced as a result of government action;
(B) Obligations secured by mortgages insured by the Federal Housing Administration;
(C) Obligations for the repayment of home loans made under the Servicemen's Readjustment Act of 1944 or under Title II of the National Housing Act;
(D) Other obligations secured by first mortgages on unencumbered improved real estate owned in fee simple; provided that the amount of the obligation at the time investment is made therein shall not exceed eighty per cent of the value of the real estate and improvements mortgaged to secure it, and except that the amount of the obligation at the time investment is made therein may exceed eighty per cent but no more than ninety per cent of the value of the real estate and improvements mortgaged to secure it; provided further that the obligation is insured or guaranteed against default or loss under a mortgage insurance policy issued by a casualty insurance company licensed to do business in the State. The coverage provided by the insurer shall be sufficient to reduce the system's exposure to not more than eighty per cent of the value of the real estate and improvements mortgaged to secure it. The insurance coverage shall remain in force until the principal amount of the obligation is reduced to eighty per cent of the market value of the real estate and improvements mortgaged to secure it, at which time the coverage shall be subject to cancellation solely at the option of the board. Real estate shall not be deemed to be encumbered within the meaning of this subparagraph by reason of the existence of any of the restrictions, charges, or claims described in section 431:6-308;
(E) Other obligations secured by first mortgages of leasehold interests in improved real estate; provided that:
(i) Each leasehold interest at the time shall have a current term extending at least two years beyond the stated maturity of the obligation it secures; and
(ii) The amount of the obligation at the time investment is made therein shall not exceed eighty per cent of the value of the respective leasehold interest and improvements, and except that the amount of the obligation at the time investment is made therein may exceed eighty per cent but no more than ninety per cent of the value of the leasehold interest and improvements mortgaged to secure it;
provided further that the obligation is insured or guaranteed against default or loss under a mortgage insurance policy issued by a casualty insurance company licensed to do business in the State. The coverage provided by the insurer shall be sufficient to reduce the system's exposure to not more than eighty per cent of the value of the leasehold interest and improvements mortgaged to secure it. The insurance coverage shall remain in force until the principal amount of the obligation is reduced to eighty per cent of the market value of the leasehold interest and improvements mortgaged to secure it, at which time the coverage shall be subject to cancellation solely at the option of the board;
(F) Obligations for the repayment of home loans guaranteed by the department of Hawaiian home lands pursuant to section 214(b) of the Hawaiian Homes Commission Act, 1920; and
(G) Obligations secured by second mortgages on improved real estate for which the mortgagor procures a second mortgage on the improved real estate for the purpose of acquiring the leaseholder's fee simple interest in the improved real estate; provided that any prior mortgage shall not contain provisions that might jeopardize the security position of the retirement system or the borrower's ability to repay the mortgage loan.
The board may retain or dispose of the real estate, including leasehold interests therein, as it may acquire by foreclosure of mortgages or in enforcement of security, or as may be conveyed to it in satisfaction of debts previously contracted in the same manner as other investments in interest in real property authorized by this section;
(2) Government obligations, etc. Obligations of any of the following classes:
(A) Obligations issued or guaranteed as to principal and interest by the United States or by any state thereof or by any municipal or political subdivision or school district of any of the foregoing; provided that principal of and interest on the obligations are payable in currency of the United States; or sovereign debt instruments issued by agencies of, or guaranteed by foreign governments;
(B) Revenue bonds, whether or not permitted by any other provision hereof, of the State or any municipal or political subdivision thereof, including the board of water supply of the city and county of Honolulu, and street or improvement district bonds of any district or project in the State; and
(C) Obligations issued or guaranteed by any federal home loan bank, including consolidated federal home loan bank obligations, the Home Owner's Loan Corporation, the Federal National Mortgage Association, or the Small Business Administration;
(3) Corporate obligations. Below investment grade or nonrated debt instruments, foreign or domestic, in accordance with investment guidelines adopted by the board;
(4) Preferred and common stocks. Shares of preferred or common stock of any corporation created or existing under the laws of the United States or of any state or district thereof or of any country;
(5) Obligations eligible by law for purchase in the open market by federal reserve banks;
(6) Obligations issued or guaranteed by the International Bank for Reconstruction and Development, the Inter-American Development Bank, the Asian Development Bank, or the African Development Bank;
(7) Obligations secured by collateral consisting of any of the securities or stock listed above and worth at the time the investment is made at least fifteen per cent more than the amount of the respective obligations;
(8) Insurance company obligations. Contracts and agreements supplemental thereto providing for participation in one or more accounts of a life insurance company authorized to do business in Hawaii, including its separate accounts, and whether the investments allocated thereto are comprised of stocks or other securities or of real or personal property or interests therein;
(9) Interests in real property. Interests in improved or productive real property in which, in the informed opinion of the board, it is prudent to invest funds of the system. For purposes of this paragraph, "real property" includes any property treated as real property either by local law or for federal income tax purposes. Investments in improved or productive real property may be made directly or through pooled funds, including common or collective trust funds of banks and trust companies, group or unit trusts, limited partnerships, limited liability companies, investment trusts, title-holding corporations recognized under section 501(c) of the Internal Revenue Code of 1986, as amended, similar entities that would protect the system's interest, and other pooled funds invested on behalf of the system by investment managers retained by the system;
(10) Other securities and futures contracts. Securities and futures contracts in which in the informed opinion of the board, it is prudent to invest funds of the system, including currency, interest rate, bond, and stock index futures contracts and options on the contracts to hedge against anticipated changes in currencies, interest rates, and bond and stock prices that might otherwise have an adverse effect upon the value of the system's securities portfolios; covered put and call options on securities; and stock; whether or not the securities, stock, futures contracts, or options on futures are expressly authorized by or qualify under the foregoing paragraphs, and notwithstanding any limitation of any of the foregoing paragraphs (including paragraph (4)); and
(11) Private placements. Investments in institutional blind pool limited partnerships, limited liability companies, or direct investments that make private debt and equity investments in privately held companies, including but not limited to investments in Hawaii high technology businesses or venture capital investments that, in the informed opinion of the board, are appropriate to invest funds of the system. In evaluating venture capital investments, the board shall consider, among other things, the impact an investment may have on job creation in Hawaii and on the state economy. The board shall report annually to the legislature on any Hawaii venture capital investments it has made; provided that if the board determines it is not prudent to invest in any Hawaii venture capital investments the board shall report the rationale for the decision. The board, by January 1, 2008, shall develop criteria to determine the amount of funds that may be prudently invested in Hawaii private placement investments.
(b) Notwithstanding subsection (a), investments may not be made in the corporate obligations, preferred and common stocks, or other securities and futures contracts of any fossil fuel company unless:
(1) The investments are indirect holdings; provided that the board of trustees shall contact the fund managers of the indirect holdings in fossil fuel companies to request that the fund managers consider removing fossil fuel companies from the investment fund or create a similar fossil-fuel-free fund; or
(2) The total value of the assets in the system is reduced to 99.5 per cent of the hypothetical value of the assets in the system on the assumption that there had been no divestment; provided that the board of trustees shall report semi-annually to the legislature its reasons for reinvesting or retaining investments in fossil fuel companies.
(c) For the purposes of subsection (b), a "fossil fuel company" means a company that is identified by a global industry classification system code in one of the following sectors:
(1) Coal and consumable fuels;
(2) Integrated oil and gas; or
(3) Oil and gas exploration and production."
SECTION 3. The board of trustees of the employees' retirement system shall:
(1) Identify all holdings in fossil fuel companies by December 31, 2015;
(2) Refrain from acquiring new assets or securities in fossil fuel companies;
(3) Divest all holdings in all publicly traded fossil fuel companies identified under paragraph (1) within five years at a divestment rate of twenty per cent each year as follows:
(A) December 31, 2016 Twenty per cent;
(B) December 31, 2017 Forty per cent;
(C) December 31, 2018 Sixty per cent;
(D) December 31, 2019 Eighty per cent; and
(E) December 31, 2020 One hundred per cent; and
(4) Beginning on December 31, 2015, and annually thereafter, post on its website a list of all fossil fuel companies in which it has holdings.
SECTION 4. The board of trustees of the employees' retirement system shall not be held liable for any action taken in good faith to execute the requirements of this Act.
SECTION 5. New statutory material is underscored.
SECTION 6. This Act shall take effect on July 1, 2015.
ERS; Investments; Fossil Fuels
Prohibits the ERS from investing directly in fossil fuel companies. Requires divestiture.
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.