Crain News Service
AUSTIN, Texas -- A so-called "gangsta rap" restriction on investments by Texas state pension funds will not be enforced following a judge's ruling that its enactment was unconstitutional.
Fund beneficiaries and the music recording industry had sued to have the ban overturned.
The ban, scheduled to go into effect Sept. 1, would have prevented state pension funds from investing in any business that owns 10% or more of a company that records or produces music that glamorizes violence, denigrates women or advocates deviant sexual behavior. The restriction called for the pension funds to sell any existing investments in those companies, an amount estimated by an attorney in the case to be about $600 million to $700 million.
Travis County District Court Judge F. Scott McCown ruled last month the ban did not meet the Texas Constitution's one-subject rule for legislation because it was tacked onto the 1998-'99 state budget as a rider. It should have been considered as a separate bill, the judge said.
The provision was passed as a Texas Senate bill last year. After failing to pass the House, it was attached as a rider to the budget bill.
The lawsuit challenging the ban was filed in January by the Washington-based Recording Industry Association of America and a group of Texas firefighters, teachers and law enforcement officers.
Pension fund beneficiaries and the RIAA attacked the restriction as a violation of free speech and an unnecessary shackle that would limit the funds' earnings.
A spokesman for Texas Attorney General Dan Morales, one of the defendants, said the decision likely will be appealed. He would not comment further on Judge McCown's ruling.
The suit also named among defendants the $72 billion Teacher Retirement System of Texas and the $15 billion Employees' Retirement System of Texas. Representatives of those funds also refused comment.
The restriction would have hurt fund beneficiaries because it would have eliminated a very profitable chunk of the funds' portfolios, said R. James George Jr., a plaintiffs attorney with George, Donaldson & Ford in Austin.
The pension funds have made a lot of money from investments in companies that could have fallen under the ban, including Time-Warner Inc., The Walt Disney Co., Sony Corp. and other media giants, Mr. George pointed out.
"Trustees of the funds believed, and it has been demonstrated, that these are among the best investments that could have been made over the last few years," he added.
The funds do not want to "forgo a whole section of the world economy" when making investments, Mr. George said.
Paul R. Brown, a plaintiff in the suit who is a member of a firefighter's retirement fund in Big Spring, Texas, and chairman of the fund's board of trustees, testified before the House Pensions and Investments Subcommittee on Social Investing in Washington earlier this year. The veteran firefighter said, "If every legislator is successful in enacting a law based on his or her own moral issues, then the investment opportunities for Texas' public employee pensions will be severely limited."
Mr. Brown asked, "Objectionable lyrics may be a hot topic today, but what will the issue be tomorrow?"
Those involved in the litigation said it was unclear how objectionable lyrics would be defined and who would make the determination that they were inappropriate.
Mr. George contended all major recording labels feature some songs that could be interpreted by some people as objectionable. "Most country and western falls into that category," he said. "Someone could make the argument that the Battle Hymn of the Republic glorifies violence."
In a statement released following the decision, RIAA President and Chief Executive Officer Hilary Rosen said the group is "pleased that pension fund managers are now free to focus exclusively on what investments will earn the greatest return, instead of conforming their investment decisions to social objectives found in politically expedient laws."