Johns Hopkins Finance Professor Jeff Hooke Wary of Montgomery County Divestment Bill

In a recent column in The Montgomery County Sentinel, Jeff Hooke, a finance professor at Johns Hopkins University, commented on a debate that has taken root in Maryland’s Montgomery County – divestment of the employee pension fund from fossil fuel investments.

In a bill presented to the Montgomery County Council, the employee pension fund is under threat for being politicized by opposition groups who seek to have their green agenda fulfilled through divestiture measures. Ironically these actions do not fulfill the environmental objectives that these groups desire; instead it harms the financial reliability of the pension fund. Hooke’s main argument –the downfalls of divestment include financial repercussions that ultimately harm the livelihoods of many retirees.

Hooke specifically applauds the many green projects that Montgomery County has successfully installed in their county, but notes that “using public pension money to push an ideological agenda is the beginning of a slippery slope.” Not only would such decisions be based on the opinion of a party that is not elected (a violation according to the Office of the Montgomery County Attorney), but it would drive an outcome that takes away focus from the financial responsibility the board has to the fund’s beneficiaries. This is ultimately not a suitable project for the County Council whose responsibilities are to the tens of thousands of future and present retirees.

In fact, according to the Boston College Center for Retirement Research and Wilshire Associates, a new study points out that a pension fund that has previously divested has consistently lower returns than those who have not. Hooke gives an example in the amount of “a tiny reduction, like 0.2% per year, on a $2 billion fund’s returns, results in $80 million of lost income over 20 years.” That is a significant amount of money that if lost, will have to be made up in increased taxes on the country residents.

The bill that is before the Montgomery County Council does have a stipulation that allows for the divestment measure to be redacted if the fund suffers from a loss within five years. But as, Hooke points out, why change something that has been so successful for so long?

The Montgomery County Council should be looking at solutions that actually work to strengthen the environmental stewardship goals that are being pushed in front of people – not at solutions that harm retirees by gambling on their future.

 

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