Cities and counties in Oklahoma are getting conflicting information about whether a new law forbidding the state from doing business with banks perceived as hostile to oil and gas applies to their pension funds, bond sales or bank loans.
The uncertainty has frozen a project in Stillwater and led to discussions about taking unilateral action against banks on a list of restricted financial companies at the retirement system for Tulsa County.
State Treasurer Todd Russ released the list of banned companies in early May. The 13 companies include BlackRock Inc., JPMorgan Chase & Co., Wells Fargo & Co., Bank of America and State Street Corp. The list came out of the Oklahoma Energy Discrimination Elimination Act, which lawmakers passed in 2022.
Dozens of states now have laws forbidding business with financial institutions who have pledged to reduce their exposure to oil and gas companies or plans to reduce their carbon footprints. That backlash has been supported by a constellation of conservative groups who have provided model legislation to lawmakers and talking points to state treasurers and other financial officials, including those in Oklahoma.
Stillwater wants to replace aging heating and cooling equipment and replace streetlights with LED lights. But the energy efficiency upgrade project is stalled because of uncertainty over the law.
Stillwater Mayor Will Joyce said Bank of America wants additional assurance a pending loan for the project won’t be affected by the bank’s appearance on the state treasurer’s list. The situation is further exacerbated by rising interest rates and higher materials costs, Joyce said.
“We are completely in limbo,” Joyce said. “We’ve got a contractor who’s ready to move on some of these projects. We are forced to hang around and wait until someone can give us a definitive answer one way or the other that the bank will feel comfortable accepting. They don’t want to be the first one to stick their neck out.”
Alternatively, Joyce said the city could go with a bank that has a higher interest rate than the one offered on the term sheet.
“Our options are to wait to spend more money or try to find a way to fund it out of our city budget,” he said. “I certainly understand the concern that some legislators might have in supporting the oil and gas industry in our state, which is an extremely important part of the economy. But for whatever reason, this law just was not given the time it needed to be vetted and to be fully understood by everybody involved.”
State Pension Systems Affected
The state’s seven pension systems combined manage more than $47 billion in assets. The Oklahoma Public Employees Retirement System, or OPERS, has the largest exposure to companies on the treasurer’s restricted financial companies list. More than 60% of its assets are managed by companies on the list.
OPERS trustees are expected to decide soon whether to exercise an exemption in the law that would forgo that pension system from divesting almost $6.9 billion in assets managed by BlackRock and JPMorgan Chase. OPERS total asset portfolio is worth $10.2 billion. The system’s trustees are expected to discuss the law at their monthly meeting on Thursday.
Legal opinions from other city and county officials describe how the state law only applies to “state government entities” that are pension systems. The pension systems run by Tulsa and Oklahoma counties and the systems run by Oklahoma City and Tulsa aren’t covered under the Oklahoma Energy Discrimination Elimination Act.
Other counties across the state have their retirement assets managed by OPERS, said Chris Schroder, executive director of the Association of County Commissioners of Oklahoma.
“From everything I’ve read, it doesn’t apply to the counties directly in their financial realms,” Schroder said. “It’s the (state) retirement systems and anything dealing with the state treasurer.”
Tulsa County Treasurer John Fothergill said trustees of the Tulsa County Employees Retirement System discussed the law at a recent meeting. They got advice from their investment advisor and the Tulsa County district attorney’s office that it didn’t apply to the county’s pension system, which has $320 million in assets.
Fothergill said the county’s pension system does contract with State Street, which is on the state treasurer’s list of restricted financial companies. He said he expected Russ’s office to update its list to remove State Street, which didn’t respond to the state treasurer’s letter earlier this year.
“We talked as a retirement board as to whether we wanted to take a stance as well because both Tulsa as a city and as a county are very reliant on oil and gas revenue,” said Fothergill, a Republican who took office in 2020. “We talked about it, even if it’s symbolic in nature, to do something as a retirement board.
“When it was all said and done, we didn’t know how effective it would be or if it would create change with such a small investment (portfolio) in the big scheme of things. We just decided as long as State Street was alright, and we weren’t invested with those other 12, that would be enough.”
Meanwhile, officials with the city of Oklahoma City watched with interest as the Legislature took up another bill earlier this year that would put further restrictions on doing business with banks or financial firms perceived to be boycotting oil and gas. The Oklahoma City Employee Retirement System has $816 million in assets. It counted State Street and Wells Fargo, which are on the state treasurer’s list, among its investment managers in 2022.
Rep. Terry O’Donnnell, R-Catoosa, authored House Bill 2547, which would prohibit state pension systems from relying on voting guidance from financial firms on the treasurer’s restricted company list in shareholder proxy elections. The bill passed the House, but didn’t get a hearing in the Senate.
“We don’t think this bill would impact municipal pension systems,” Oklahoma City municipal attorney Richard Mahoney said in a March email to colleagues. “There have been past proposals that would impact municipal pension systems, so we need to be alert for amendments to this bill.”
However, a separate section of the law includes political subdivisions and forbids contracts of more than $100,000 if the contractor is deemed to be boycotting oil and gas companies.
“We have heard from municipalities that are concerned about increased costs, and we will continue to work with municipalities and their municipal attorneys to ensure compliance with the act,” said Mike Fina, executive director of the Oklahoma Municipal League. “We have met with the state treasurer and will continue to consult with him as we move forward.”
State trust funds like the Tobacco Settlement Endowment Trust or the one run by the Commissioners of the Land Office aren’t covered by the oil and gas discrimination law. Despite that, Gov. Kevin Stitt and two other members of the five-person CLO board voted to stop contracting with BlackRock and JPMorgan Chase at the board’s June 7 meeting. Together, those two firms manage more than $300 million in assets for the $2.5 billion school land trust.
The Land Office sent letters June 30 to BlackRock and JPMorgan Chase informing them it wasn’t renewing the investment manager contracts. The agency has more than a dozen other financial companies managing assets in its portfolio.
Oklahoma Watch, at oklahomawatch.org, is a nonprofit, nonpartisan news organization that covers public-policy issues facing the state.
