State Pension Banned from Investing in Companies Boycotting Israel

ACLU says the law may violate the First Amendment by restricting freedom of speech

Credit: Governor's Office/Tim Larsen
New Jersey’s $72 billion public-employee pension system is now banned from investing in companies that boycott Israel to protest its treatment of Palestinians under a measure Gov. Chris Christie signed into law yesterday. But questions are already being raised about the constitutionality of the law and whether it could withstand a court challenge on free-speech grounds.

The legislation seeking to establish the ban was passed with overwhelming bipartisan support by both houses of the state Legislature earlier this year in response to a movement known as BDS, which stands for Boycott, Divestment, and Sanction.

The BDS movement was launched by nonviolent Palestinian activists more than 10 years ago in response to Israel’s longstanding occupation of Palestinian territories. Israel’s government and its supporters have been aggressively pushing back against the movement, saying it is divisive and anti-Semitic, harkening back to Holocaust-era boycotts.

Christie echoed those concerns following an afternoon bill-signing ceremony held in the State House yesterday, and legislative sponsors also stressed New Jersey’s close economic ties to Israel as a reason to enact the ban. But officials from the state chapter of the American Civil Liberties Union, citing First Amendment concerns, promised to keep a close eye on how the ban is implemented and didn’t rule out taking legal action to overturn it.

The new law requires the state Division of Investment, the agency within the Department of Treasury that manages the pension system’s assets on a daily basis, to shed within two years any stakes in companies that boycott “the goods, products, or businesses of Israel.” The law also calls for an annual report updating measures that DOI has taken to comply with the new prohibition. Similar bans are already in place to keep state pension-system assets from being invested in companies doing business with Iran and Sudan.

The bans in New York and South Carolina prevent the state government in those two states from doing business with companies that support boycotting Israel, while the Illinois measure also applies to the investment of state pension-system assets.

The BDS movement takes the same general approach that was used in the 1980s to apply pressure on apartheid-era South Africa. In this case, the movement stresses nonviolent economic boycotts and sanctions as an alternative to terrorism and other violent resistance of Israel’s occupation and settlement building in territories it has controlled since 1967.

Christie said during the event yesterday that maintaining investment deals with companies that have decided to boycott Israel “contradicts the long history of friendship between New Jersey and Israel.” He also said he hopes New Jersey’s new law encourages other states to take similar action against the BDS movement.

“Israel is not just our friend and ally,” said Christie, who visited the region personally during an official trip to the Middle East in 2012. “They are our partners in peace across the world.”

The investment ban’s Democratic sponsors offered similar comments after the bill-signing, pointing to the more than $1 billion in goods and services that are traded each year between New Jersey and Israel.

“Israel has been a vibrant trading partner with New Jersey, and making sure that we are not investing in companies that seek to hurt its interests or those of its people sends a clear message that we will not stand for this kind of discrimination,” said Senate Majority Leader Loretta Weinberg (D-Bergen).

“Our multibillion-dollar pension fund is a formidable disincentive for those considering boycotting Israel,” said Assembly Budget Committee Chairman Gary Schaer (D-Passaic).

It’s unclear exactly how the new ban will impact the overall pension system, which covers the retirement of an estimated 770,000 current and retired public workers in New Jersey but remains deep in debt due to years of underfunding. When asked earlier this year whether any current investments would run afoul of the legislation seeking to enact the ban, a spokesman for Treasury said he was not aware of any.

A fiscal note prepared earlier this summer by the nonpartisan state Office of Legislative Services said the state would likely have to spend some money to hire a firm to conduct the evaluation of companies that could be subject to the new ban. But the legislative analysts said it’s unclear whether the broader ban would help or hurt the health of the system given the imprecise nature of predicting future financial-market conditions. The analysts also said it may be impossible to fully prohibit such investments since outside managers of hedge funds and other alternative investments that the pension system currently owns often shield their investments from disclosure, citing the need to protect proprietary strategies.

Alexander Shalom, senior staff attorney with the New Jersey chapter of the ACLU, said his organization will be watching closely to see how exactly the state will implement the anti-BDS ban. Shalom said by enacting the prohibition against companies boycotting Israel, the state is now effectively putting itself in the position of having to police actions taken by private companies to determine whether those actions constitute a “boycott.” He also cited as a concern longstanding federal legal precedent that has established there is a right to boycott in the U.S. under the First Amendment of the U.S. Constitution.

“We’re concerned about the chilling effect that the law will have,” Shalom said.

He said those who support the BDS movement clearly oppose the Israeli government’s policy as it relates to the treatment of Palestinians, not the entire Jewish religion. The allegation that BDS is anti-Semitic is “a classic trope of a bully,” Shalom said.