After Congress’s deadline to block Barack Obama’s nuclear deal with Iran expired Thursday, Republicans are taking the fight to the states by vowing to preserve local sanctions.
Thirty states and the District of Columbia restrict investments by pensions and public entities in companies doing business in the country, according to the group United Against Nuclear Iran. Fifteen Republican U.S. governors, including four presidential candidates, last week sent a letter to Obama saying they would fight to keep their constraints if the administration lifts its nuclear-related sanctions.
A new nonprofit, Defund Iran, is also seeking state constitutional amendments next year that would mandate divestment. Florida alone has withdrawn more than $1.1 billion since 2007 from companies involved with Iran including Royal Dutch Shell Plc, Cnooc Ltd., and Daelim Industrial Co., according to Chief Financial Officer Jeff Atwater.
Republicans say Obama’s agreement won’t prevent nuclear proliferation, and will unleash Iran’s economy and its ability to support terrorism. Focusing on states gives the party another angle of attack.
“It enables them to take a stand against President Obama and, in the bargain, take a stand for the rights of the states,” said Jack Pitney, a political science professor at Claremont McKenna College near Los Angeles.
The lifting of federal sanctions would allow a few U.S. aerospace companies to seek business in Iran, such as Boeing Co. and General Electric Co., according to a report from Bloomberg Intelligence. Overseas firms including Shell and BP Plc also could seek business there, it said. States shouldn’t help, said Sarah Steelman, chairwoman of Defund Iran and a former Republican candidate for U.S. Senate in Missouri.
The governors, including presidential aspirants Bobby Jindal of Louisiana, New Jersey’s Chris Christie, John Kasich of Ohio and Wisconsin’s Scott Walker, point to a provision in the deal that says the federal government will “actively encourage” state and local officials to “take into account” U.S. policy lifting some sanctions.
“We intend to ensure that the various state-level sanctions that are now in effect remain in effect,” the governors said in their Sept. 8 letter.
Opponents of Obama’s deal said they expect the administration to push states to ease their rules. Oil companies and banks would benefit most from looser sanctions, said Bob Williams of State Budget Solutions, a nonpartisan group in Alexandria, Virginia.
Betsy Bourassa, a spokeswoman for the U.S. Treasury Department, said the nuclear deal doesn’t require states to change laws. The administration will brief local governments to “inform their decisions,” Bourassa said.
Mistrustful, Defund Iran is seeking to place constitutional amendments requiring divestment on ballots in 2016. The group is starting in Arizona, Colorado, Florida, Missouri and Ohio, said Steelman, who sought divestment policies as Missouri treasurer in 2006.
The organization’s national heads also include Ohio Treasurer Josh Mandel, who ran for Senate as a Republican in 2012, and former Colorado House Republican Leader Mark Waller, with current or former officials as co-chairmen in targeted states. The goal is to raise $10 million for an initial effort in 25 states, Steelman said.
The group proposes prohibiting states and their retirement systems from investing in or contracting with companies that do business in strategic industries, including military equipment and power production, in countries the State Department designates as terrorism sponsors. Holdings would be divested by 2019.
Eleven states with Republican governors who signed the letter to Obama, including Florida, Indiana and New Jersey, have prohibited public entities from contracting with companies invested in certain Iranian sectors, according to United Against Nuclear Iran.
Indiana Governor Mike Pence told his congressional delegation last week that he will fight to keep a pension divestment law and a restriction on contractors from providing goods and services to Iran’s energy industry or lending more than $20 million.
Pence said he would “examine whether there are any new steps the state can take to bolster our sanctions or show support for Israel.”
The Defund Iran proposal is drawing opposition from fund managers who say rules governed by politics or social concerns are bad policy, said Alicia Munnell, director of the Center for Retirement Research at Boston College.
Such restrictions conflict with fund managers’ duty to invest in members’ best interests, and divestment has little effect when there is ample demand for securities, Munnell said.
“It allows them to take their eyes off the prize, which should just be getting the highest return for the lowest risk,” Munnell said.
Since the 1980s, the California State Teachers’ Retirement System has divested from South Africa Iran, Sudan, tobacco and firearms, leading to about $5.1 billion in losses, according to the fund. This month, state lawmakers required pensions to dump coal holdings as well.
The Ohio Public Employees Retirement System in 2007 began discouraging investments in companies with ties to Iran and Sudan. The fund said it has reduced holdings to $12.6 million in Gazprom PJSC, a Russian oil and gas company with subsidiary operations in Iran.
“We, like every American are concerned about foreign policy,” said Karen Carraher, the fund’s executive director. “But it is not our role to dictate foreign policy.”
Mandel, who pushed for divestment as an Ohio lawmaker, said states can spurn the nation’s enemies without hurting returns.
“If the bureaucrats at the pension funds want to argue that they need to invest in terror-sponsoring nations in order to make a good return on behalf of taxpayers, they will get laughed at,” Mandel said.