In 2021, the Texas Legislature passed Senate Bill 13 and Senate Bill 19, which bar the state from contracting with financial institutions that the state alleges discriminate against the oil and gas industry and the gun industry, respectively. Roughly a year after S.B. 13 went into effect, Texas Comptroller Glenn Hegar issued the first edition of his blacklist, arbitrarily dictating the firms with which Texas could no longer contract. Luckily, S.B. 13 had a safeguard provision which allows state investment entities like the Teacher Retirement System and the Permanent School Fund to maintain their investments with blacklisted firms so long as it is in the best fiduciary interest of the funds. Initially, funds were able to exercise the fiduciary duty exemption and avoid any changes to their investment strategies.
Unfortunately, the fiduciary duty exemption alone has not prevented an astronomical increase in costs associated with municipal bonds, nor has it insulated Texas retirees from the threats to their pensions. A year after S.B. 13 was signed into law, researchers at the University of Pennsylvania’s Wharton School of Business published their analysis estimating that the state’s ban on responsible investing had already cost Texas taxpayers up to $532 million in additional interest on bond sales. In March 2024, the Texas Association of Business, the state’s chamber of commerce and political powerhouse, shared a staggering report which found that S.B. 13 and S.B. 19 have cost the state nearly $700 million in lost economic activity and 3,000 lost full-time jobs. Texas quite literally cannot afford sustained losses of this magnitude, particularly as basic needs like strong public schools and health insurance programs go underfunded.
Texas retirees have worked too hard in our schools, in our state agencies, and in our universities to watch their pensions get gambled away by politicians looking for Fox News appearances and political clout. In a 2023 hearing on legislation to remove fiduciary duty protections from S.B. 13, the Texas County & District Retirement System cautioned that stripping those protections would cost their $45 billion retirement fund over $6 billion in returns over ten years. Imagine losses at the same magnitude applied to the $130 billion Texas Teacher Retirement System (TRS) and the $35 billion state Employee Retirement System.
It’s not just retirees and municipal bond costs. The fight over responsible investing has now reached the Permanent School Fund (PSF), the largest K-12 perpetual fund in the country, which uses its returns to fund Texas public schools. In March 2024, the chairman of the Texas State Board of Education (SBOE), Aaron Kinsey, announced his decision to divest SBOE funds in the PSF from BlackRock via X, formerly known as Twitter. Kinsey notes that the duty of the PSF is “safeguarding and growing the approximately $1 billion in annual oil and gas royalties managed by the Texas General Land Office.” Critics argue that in fact the fund’s North Star should be maximizing investment returns to aid our funding-starved public schools and the millions of Texas students they serve.
Far right lawmakers are expected to double down in 2025 after failing to repeal the fiduciary duty exemption in 2023. If successful, they will have stripped away the one remaining protection for Texas retirees, taxpayers, and businesses who rely on sound investments and trusted wealth managers to fund their futures.