Boycotting the boycotters: California’s legislature set to lead the way?

Dear businesses: If you boycott Israel, California will boycott you.
December 16, 2015

Dear businesses: If you boycott Israel, California will boycott you. 

That’s the message a bill by Assemblyman Travis Allen (R-Huntington Beach) is set to bring to the California legislature in January. 

His bill, if passed and signed into law by Gov. Jerry Brown, would direct the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) to divest from any investments they have in companies that boycott or engage in political or economic “discrimination against Israel.” This would include Israel proper or “territories controlled by the State of Israel,” such as the West Bank, according to a press release put out by Allen’s office. 

CalPERS and CalSTRS have portfolios worth nearly $500 billion and are the nation’s largest public retirement fund and teachers’ retirement fund.

“The BDS [Boycott, Divestment and Sanctions] efforts worldwide have grown, and there needs to be a response,” Allen told the Journal in a recent interview. “For our pension system to be investing in companies that actively are boycotting the State of Israel doesn’t reflect the desires of Californians.”

Allen, a Christian, has attended numerous Jewish and pro-Israel events in recent months, including in Washington, D.C., and he supports a number of pro-Israel groups. He refers to the West Bank as “Judea and Samaria,” the biblical names of the area that are often used by supporters of Israel who believe the West Bank is rightfully Israel’s.

“In this context, Israel is most important to California in terms of the bilateral trade that we have,” Allen said. “For me personally, Israel is the only democracy in the Middle East. It is our strongest ally on that side of the world and maintaining our strong, close relationship is extremely important.”

While the BDS movement’s effectiveness in the United States has been mostly limited to symbolic votes of support in student governments on dozens of American campuses, and within the Presbyterian Church and several academic associations, Europe is a different story. There, the movement recently achieved a major victory when the European Union, Israel’s top trading partner, mandated that some imported products originating from the West Bank be labeled “made in settlements.” 

While this move may have negligible impact on Israel’s overall trade with the EU, there are fears that growing opposition to Israeli settlements in the West Bank could lead the EU to target companies that do business in the area.

This isn’t the first bill of its kind. Earlier this year, Illinois passed a law barring its pension funds from investing in companies that boycott Israel. And South Carolina passed a law requiring state contractors to affirm they’re not involved in any boycott against Israel. Allen’s bill, however, would make California the first state to focus on both state pensions and contractors.

Nationally, President Barack Obama and the Senate tentatively agreed in June to a version of a massive trade bill with Pacific Rim countries known as the Trans-Pacific Partnership, which included language calling on the U.S. government to discourage its trading partners from participating in boycotts against Israeli businesses in “Israeli-controlled territories.” Congress is not expected to vote on the trade bill until after the November 2016 elections.

There is precedent in the state to Allen’s proposal — although it concerned the Iranian government. In 2007, with overwhelming bipartisan support, Gov. Arnold Schwarzenegger signed a bill introduced by Sen. Joel Anderson (R-San Diego) that ordered CalPERS and CalSTRS to divest from any company that does at least $20 million in business with Iran’s petroleum or natural gas industries. The retirement funds are still held to the law despite Obama’s recent nuclear agreement with Iran, a clause of which seeks to “actively encourage officials at the state or local level” to “refrain from actions inconsistent” with the federal government’s lifting of its sanctions.

Allen, who is a partner in a money management firm in Orange County in addition to his full-time duties as state legislator, said he expects his bill to pass “with widespread support.”

One possible challenge, though, could be getting CalPERS and CalSTRS quickly on board, which did not happen with Anderson’s bill. Both funds opposed the legislation before it passed, and it took years to divest from any of the companies specified by the bill. Officials for the retirement funds argued that the financial losses and transaction costs of divesting would hurt their stakeholders. Eventually, in May 2011, CalPERS divested from four companies. So far, CalSTRS has divested from nine.

A spokesperson for CalPERS declined comment, but said the fund will review the legislation if and when it’s introduced. CalPERS’ official divestment policy states that due to its fiduciary duties, it’s generally forbidden from “sacrificing investment performance for the purpose of achieving goals that do not directly relate to CalPERS operations or benefits.”

Ricardo Duran, a spokesman for CalSTRS, said its staff “will not make a recommendation to the Teachers' Retirement Board until it is introduced and we have had an opportunity to analyze it.”

“I think that a lot of institutions like to resist change,” Allen said, “And there may be some resistance, but it’s something that I think needs to be done.”

On top of requiring CalPERS and CalSTRS to divest from companies boycotting Israel, Allen’s bill also would require companies or individuals with whom the state government contracts to “certify that they do not participate in boycotts or any discrimination against Israel,” his office said.

Much could be at stake. In 2014, California exported just over $2.3 billion in goods to Israel — including manufactured goods, electronics and agricultural products — making it the Golden State’s 18th-largest export partner. That year, Brown and Israeli Prime Minister Benjamin Netanyahu signed a nonbinding agreement to boost high-tech cooperation between California and Israel, aimed at solving problems related to water, alternative sources of energy and cybersecurity. In September, Los Angeles County and Beverly Hills signed separate nonbinding agreements to cooperate with Israel on matters such as water scarcity as well. 

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