Pennsylvania lawmakers look to pull public funds from Russia amid war in Ukraine

The exact economic impact will vary. But backers say every dollar will count

By: - February 28, 2022 11:55 am

*This story was updated at 2:25 p.m. 2/28/22 with comment from Gov. Tom Wolf and House Majority Leader Kerry Benninghoff, R-Centre, 2:47 p.m. with additional comment from Stacy Garrity’s office, and 5:22 p.m. from SERS.

From liquor to pensions, top Pennsylvania policy makers in both parties are looking at cutting off the commonwealth from doing business with Russia amid its invasion of Ukraine.

The exact impact of each move will vary, from $1.1 million in Russian-made vodka to potentially billions in retirement funds, but each dollar will count, legislators argued.

“We have a moral obligation to ensure that our public fund investments are not inadvertently supporting those who are engaging in an unprovoked invasion of their democratically elected neighbors,”  House Majority Leader Kerry Benninghoff, R-Centre, said in a Monday memo.

In it, he floated legislation to divest state assets, such as those in Pennsylvania’s  teachers’ and state workers’ pension systems, “that are connected to the Russian government and its critical supporters.”

A 2010 state law already prevents those systems and the state Treasury Department from investing public dollars in Sudan and Iran. Benninghoff’s proposal would add Russia to the list of sanctioned countries.

It isn’t just Republicans making the ask. Democratic legislators, such as state Sen. Sharif Street, D-Philadelphia, offered similar legislation late last week, arguing that Pennsylvania “must send a message…at every level of government.”

“We cannot, must not and should not ignore the atrocity of Russia’s unprovoked and illegal invasion of the sovereign nation of Ukraine,” Street, whose father pushed Philadelphia to divest from apartheid-era South Africa, said in a Friday statement. “If the nations of freedom across the world allow Vladimir Putin to get away with the persecution and murder of the people of the Ukraine, he will only be emboldened to attack others.”

At least one agency both Benninghoff and Street were looking at, the state Treasury, has already taken preemptive action.

In a statement, Treasurer Stacy Garrity said that after the invasion of Ukraine last week, her office immediately began divesting its holdings in all Russian-based companies, and that the divestment will be complete by the end of business on Monday. 

“While these holdings were very minimal, immediate action was necessary to protect Pennsylvania taxpayers and to show our support for Ukraine,” Garrity added.

The Treasury Department is responsible for directly managing about $40 billion in investments, including state administered savings accounts for college, people with disabilities, local governments and nonprofits. A spokesperson said Monday that just $2.9 million of it was invested in Russian companies, mostly in the energy sector.

Garrity also helps manage billions more in Pennsylvania’s three state-run pensions funds: One for school employees, one for state workers, and one that covers some municipal workers.

Of them, the Public School Employees Retirement System, or PSERS, is by far the largest. The system has about $72 billion in assets to cover the current and future retirement of more than 500,000 former teachers, janitors, and principals.

How exactly the assets are invested is hard to tell. The system has more than 100 money managers, and PSERS dollars have been linked to such diverse interests as California pistachio groves and Iraqi oil fields.

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Checking in on this spending has meant pension staff have crisscrossed the world in recent years, pre-COVID-19. But staff have not reported traveling to Russia for meetings for the three years between 2017 and 2020, according to PSERS travel data.

An October 2021 report to the pension’s board found that out of $10 billion invested into private equity firms, $2.5 billion was parked outside of North America or western Europe.

In an email, system spokesperson Steve Esack said that the investment office “has been examining the System’s portfolio holdings as it relates to exposure to Russia and Ukraine,” and offered no further comment.

Pam Hile, spokesperson for the smaller State Employees Retirement System, said that staff determined that “the fund’s exposure to Russia-related investments amounts to a fraction of one percent” of almost $40 billion in assets.

Speaking after a press event Monday, GOP leader Benninghoff added he was planning to meet with Garrity about the pension systems.

“She’s already digging in, and they will be calculating what may or may not be invested by Pennsylvania [in] Russian funds,” he said. “But I think we need to send a strong message to Pennsylvania  that was stand strongly behind the Ukrainian people.”

Garrity spokesperson Samantha Heckel added that the treasurer “is urging the state’s pension systems to divest from Russian holdings to the greatest extent possible.”

Regardless of the exact numbers, divesting the state’s pension funds will likely be a more costly move than dropping Russian liquor, which was an early cause célebre for those opposed to the invasion of Ukraine.

At first, the Pennsylvania Liquor Control Board, one of America’s largest importers of booze, said they would keep Russian products on the shelves.

Pa. Liquor Control Board will yank Russian products from its shelves

“We believe that consumers and licensees should have the freedom – within the constraints of federally imposed sanctions – to make their own purchase decisions,” board spokesperson Shawn Kelly told the Capital-Star on Friday.

Just two brands of Russian vodka are regularly available in Pennsylvania’s roughly 600 state-owned liquor stores, which accounted for just $1.1 million out of $1.7 billion in sales in the past year.

Gov. Tom Wolf even appeared willing at first to let the board make its own choice. But over the weekend, as the invasion dragged on, Wolf changed his mind, joining with Republican legislators, and a growing national trend in asking for a Russian liquor boycott.

On Sunday, the board relented, and removed the products from store shelves. In a statement Monday, Wolf spokesperson Elizabeth Rementer said that the governor applauds the PLCB’s “swift action.”

Rementer added that the administration is reviewing all Commonwealth procurement contracts to ensure that they are not providing any financial support to Russia, and supports the Treasurer’s action to divest from Russian assets.

As for legislation forcing the pensions to divest, Rementer said it would be reviewed.

Capital-Star Editor John L. Micek contributed reporting.

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Stephen Caruso
Stephen Caruso

Stephen Caruso is a former senior reporter with Pennsylvania Capital-Star. Before working with the Capital-Star he covered Pennsylvania state government for The PLS Reporter.