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Leveraging Fiscal Power of State Pension System Against Superfund Cheats

Bipartisan law would prevent public-employee pension system from investing in companies — or countries — that shirk their responsibility to remediate polluted sites

passaic superfund
Credit: NJTV News Online

The investing power of New Jersey’s public-employee pension system has been flexed in the past to punish countries for misdeeds on the international stage, and now lawmakers are considering using the same approach with companies that shirk their legal responsibility to clean up contaminated federal Superfund sites.

A bipartisan bill that lawmakers are hoping to get to Gov. Chris Christie’s desk before the lame-duck legislative session ends early next month proposes banning the state pension system from investing in companies that avoid paying to remediate polluted sites in New Jersey through legal maneuvers like declaring bankruptcy using a subsidiary.

The measure is advancing in direct response to recent efforts by a state-owned Argentinian company and its subsidiaries that seem to be directed at keeping the company from having to pay more than $1 billion to clean up the former Diamond Alkali Superfund site in Newark and related pollution along an eight mile stretch of the Passaic River. If enacted, the investment ban would also apply to Argentina itself by applying the same type of economic sanctions that so far have only been used by the state in response to major international events, such as Iran’s push to develop nuclear weapons during the tenure of former-Pres. Mahmoud Ahmadinejad.

“A business that has profited from polluting New Jersey’s environment and refuses its Superfund cleanup responsibilities shouldn’t be rewarded with the investment of state pension funds,” said Sen. Diane Allen, the bill’s primary sponsor.

“There must be consequences to hold these bad corporate actors accountable,” Allen said.

Significant financial clout

While New Jersey’s public-employee pension is grossly underfunded, it’s still one of the largest state-worker retirement funds in the country, and with assets valued at $76.3 billion, the state retirement system can still have substantial financial influence.

Lawmakers have attempted to exercise that influence on numerous occasions in recent years, including by adopting a ban in 2008 of investments in companies that do business with the state of Iran. In 2005, New Jersey was also among the many states that enacted pension-fund divestment laws in response to the brutal actions of Sudan’s Khartoum regime against villagers in the Darfur region. Last year, lawmakers also passed a law that prohibits the pension system from investing in companies that boycott Israel as a protest of its treatment of Palestinians.

Blocking investments

The bill that’s now making its way through the Legislature would adopt the same approach to block investments in companies that are not living up to their legal responsibility to remediate polluted sites in New Jersey that have been given Superfund status under federal environmental laws.

Allen, a veteran lawmaker who is getting ready to retire from the Legislature in a few weeks, has cited the state’s frustrating experience with Argentina’s state-owned oil company, YPF S.A., as a specific reason for adopting the economic-sanctions model to use as leverage on environmental issues.

The YPF oil firm has been accused of draining subsidiary Maxus Energy of its assets to bring on bankruptcy proceedings to prevent the company from paying for an ordered $1.4 billion cleanup of the contamination in the Passaic River. The widespread dioxin contamination was discovered at the former 80 Lister Ave. site in Newark in 1984, and massive pollution in sediments of the Passaic River has also been detected in succeeding years.

YPF is drawn into the Superfund case involving the former Diamond Alkali site by the intricacies of the landmark federal law, which can hold hundreds of companies responsible for cleanup costs — even if the pollution occurred before they owned the business and never discharged any contaminants. YPF acquired Maxus Energy (formerly the Diamond Alkali Company) in 1995, long after the plant shut down.

Harsh criticism

The YPF case was the subject of a joint legislative hearing that lawmakers held earlier this year, and at the time they harshly criticized what appeared to them to be a purposely effort to shirk its legal responsibility to clean up the site.

“We don’t want this precedent to stand,” said Sen. Bob Smith (D-Middlesex), the chairman of the Senate Environment and Energy Committee.

It’s unclear now whether the pension system has any direct ties to YPF, but under the proposed new investment ban, the state Division of Investment would have 180 days to investigate and produce a report detailing any possible investments that would trigger the ban. The state would also have to wind down any investments that would be flagged under the proposed law within three years, according to the bill.

The proposed ban would also extend beyond just investing in a specific company, but also in any “country, or country’s instrumentality that avoids its Superfund obligations to the State by rendering a company or instrumentality incapable of fulfilling its responsibilities for a Superfund site in the State for which it has been identified as a responsible party,” the bill said.

The measure, which is cosponsored by Sen. James Beach (D-Camden), easily cleared the Senate State Government, Wagering, Tourism and Historic Preservation Committee last week. It is scheduled to be considered today by the Assembly Appropriations Committee.

Allen said that if the bill is eventually signed into law by Christie, she’s hoping other states would be influenced by New Jersey’s action and use their own public-employee retirement systems to apply pressure on companies like YPF.

“If other states and investment funds follow our lead, those with Superfund obligations may find the cost of cleanups to be less than the potential loss of investment,” she said. “That would be good for taxpayers.”

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