Public pension funds and other state-run trusts face growing pressure from lawmakers and top regulators to kick their tobacco-investing habit.
The heat has been turned up following two events: a recent agreement by the Liggett Group to settle smoking-related class action lawsuits filed by 22 states to recover medical expenses; and the Federal Trade Commission's decision to reopen its investigation of RJR Nabisco Holdings Corp.'s Joe Camel advertising campaign.
Proponents view divestment of tobacco company stocks as a continuation of the same social philosophy that prompted some pension funds in the 1980s to sell shares of companies doing business in segregated South Africa or war-torn Northern Ireland.
Among the activities:
In Maine, trustees of two state trusts - the Maine Lands Reserved for Public Trust Fund and the Several Trust Funds - have sold $500,000 worth of stock in Philip Morris Cos. Inc., following a request for divestiture by state Treasurer Dale McCormick.
But trustees of the $4.6 billion Maine State Retirement System, Augusta, declined to comply with the request. Ms. McCormick is considering asking lawmakers to introduce legislation forcing the pension fund to do so. Maine State has $8 million in tobacco stocks, she said.
Vermont state Treasurer James H. Douglas asked trustees of three state pension funds - the $800 million Vermont State Teachers' Retirement System, the $700 million Vermont State Employees' Retirement System and the $100 million Vermont Municipal Employees' Retirement System - to sell all 290,000 shares of tobacco companies worth more than $21 million. Before making that request, Mr. Douglas consulted with the state attorney general to ensure that divestiture would not violate the trustees' fiduciary duty.
"Some trustees agree with me and some don't, so it will be a matter of persuading those that don't agree," Mr. Douglas said.
The Vermont funds have some of their tobacco investments in an index fund with Alliance Capital Management, but Alliance indicated it can create a tobacco-free index without a problem, Mr. Douglas said.
Massachusetts state Treasurer Joseph Malone, who opposed divestment legislation until a year ago, now openly supports legislation that would give the $18 billion Pension Reserves Investment Management Board up to three years to sell its approximately $190 million of holdings in tobacco companies and bar it from making any new tobacco investments.
Divestment legislation - which died in the Senate last year after passing the House - has been reintroduced and is scheduled for a hearing before the Joint Committee of Public Action on June 10, said Eric Fehrnstrom, assistant treasurer.
In legislative testimony, Mr. Malone has said: "We believe divestment is the only way to get tobacco companies to finally wake up to the fact that they sell a dangerous product."
The Massachusetts legislation has a good chance of passage this year, said Douglas G. Cogan, deputy director of the social issues service at Investor Responsibility Research Center. He added it is not yet clear if Gov. William Weld will sign the bill.
In Texas, state Rep. Diana Davila once again introduced legislation calling for state public pension funds to sell their shares in cigarette makers by Jan. 1, 1999. Ms Davila requested a hearing on the bill by the House Committee on Pensions and Investments, said Francisco Sanchez Jr., her legislative aide. "I think it has a very good chance this session," Mr. Sanchez said.
Ms. Davila's earlier bill, introduced in the last session, died in committee.
Two state funds - the $14.3 billion Texas Permanent School Fund and the $5.7 billion Permanent University Fund - heeded the call by Attorney General Dan Morales last summer and sold their holdings, Mr. Sanchez said. Only two remaining funds - the $50 billion Teacher Retirement System of Texas and the $14 billion Employees' Retirement System of Texas - continue to hold tobacco stocks, Mr. Sanchez said. The teachers' system has about $618 million of tobacco holdings; the employees' system, $55 million.
In Florida, one of 22 states whose attorney general is suing tobacco companies, Gov. Lawton Chiles recently called for the state pension fund to divest tobacco stocks, said Karen Pankowski, a spokeswoman for the governor. Mr. Chiles is one of three people who sit on the board of the Florida State Board of Administration, with $61 billion in assets.
State Controller Robert Milligan and Insurance Commissioner William Nelson, the other two members of the board, have not yet reached the same conclusion as Mr. Chiles.
In Oregon, state Rep. Barbara Ross recently introduced a non-binding resolution calling for the state treasurer and the Oregon Investment Council to stop new investments in tobacco companies. It also asks the council to sell one-fourth of its tobacco holdings each year.
But until any laws require it to dump tobacco stocks, the $25 billion Oregon Public Employes' Retirement System, Portland, intends to resist any such request because of the steep cost of selling out and reinvesting elsewhere, said Michael Parker, a spokesman for state Treasurer Jim Hill.
The state fund has $144 million in tobacco company stock, including an index fund with Barclays Global Investors.
Mr. Parker said Oregon fund officials estimate it would cost $10 million to cash out of tobacco companies.
