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ARIZONA STATE SENATE
Fifty-Sixth Legislature, Second Regular Session
VETOED
public funds; foreign adversaries; divestment
Purpose
Prohibits publicly managed funds from holding certain investments or investing or depositing public monies in a bank that is domiciled in a foreign adversary. Prescribes requirements for the State Board of Investment (BOI).
Background
The State Treasurer is responsible for the safekeeping of all securities for which the State Treasurer is the lawful custodian. The State Treasurer invests state monies and operates the Local Government Investment Pool for the benefit of participating units of local government. The BOI reviews investment activities of the State Treasurer and serves as trustee of the Permanent Land Endowment Trust Fund, any state, tribal and political subdivision endowment funds, Arizona's Education Savings Plan and any public pension prefunding plan investment accounts (Ariz. Const. art. 10 § 7).
At BOI monthly meetings, the State Treasurer must provide the BOI a report of the performance of current investments and a report of the current investments as of the close of business for the previous month. The State Treasurer must make these performance reports available to the public for at least two years after the report date (A.R.S. § 35-311).
The BOI must adopt a policy for the purpose of identifying countries currently designated as state sponsors of terrorism by the U.S. Department of State. The policy must include: 1) the procedure to identify companies in violation of the federal Export Administration Act; 2) the process for communicating its findings with the companies and appropriate federal officials; and 3) the process for divestment from the companies in violation. The State Treasurer must notify the Governor, President of the Senate, Speaker of the House of Representatives and Arizona Department of Administration of any divestments and the reasons for the divestments (A.R.S. § 35-392).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
1. Prohibits a publicly managed fund from:
a) holding an investment in a foreign adversary, a state-owned enterprise of a foreign adversary, a company domiciled with a foreign adversary or any other entity owned by or domiciled in a foreign adversary; or
b) investing or depositing public monies in a bank that is domiciled in, or has a principal place of business in, a foreign adversary.
2. Requires a publicly managed fund to immediately begin divestment of any prohibited holdings or investments and complete the total divestment within two years after the general effective date.
3. Requires, within six months after the general effective date, the BOI to:
a) review all publicly available information regarding companies that are state-owned enterprises of and are domiciled within a foreign adversary or whose primary affairs are conducted within a foreign adversary, including information provided by nonprofit organizations, research firms and governmental entities;
b) contact asset managers and fund managers contracted by a publicly managed fund that invest in companies and funds that are state-owned enterprises of, or are domiciled within, a foreign adversary or whose primary affairs are conducted within a foreign adversary;
c) contact other institutional investors that have divested from or engaged with companies that are state-owned enterprises of, or are domiciled within, a foreign adversary or whose primary affairs are conducted within a foreign adversary;
d) retain an independent research firm to identify companies that are direct or indirect investment holdings of a publicly managed fund that is a state-owned enterprise of, or is domiciled within, a foreign adversary or whose primary affairs are domiciled within a foreign adversary; and
e) compile and distribute a list to publicly managed funds of all companies or entities in Arizona that are state-owned enterprises of and are domiciled within a foreign adversary.
4. Specifies that the publicly managed fund prohibitions and requirements do not inhibit, conflict, impede or otherwise interfere with a publicly managed fund's financial safeguards, fiduciary requirements or other sound investment criteria.
5. Applies the publicly managed fund prohibitions and requirements to contracts entered into or renewed from and after the general effective date.
6. Defines foreign adversary as a country determined to be a foreign adversary pursuant to federal law.
7. Defines publicly managed fund as the State Treasurer or a retirement plan or system established by or pursuant to Arizona law.
8. Defines terms.
9. Designates this legislation as the Foreign Adversary Divestment Act.
10. Makes conforming changes.
11. Becomes effective on the general effective date.
Amendments Adopted by the House of Representatives
· Redefines foreign adversary and publicly managed fund.
Governor's Veto Message
The Governor indicates in her veto message that S.B. 1340 would be detrimental to Arizona's economic growth and investment portfolio.
Senate Action House Action
FICO 2/12/24 DP 4-2-1 GOV 3/13/24 DPA 6-3-0-0
3rd Read 2/29/24 16-12-2 WM 3/20/24 DP 5-3-1-1
Final Read 4/17/24 16-14-0 3rd Read 4/4/24 31-28-1
Vetoed by the Governor on 4/23/24
Prepared by Senate Research
April 23, 2024
MG/AB/sdr