State tobacco stock ban falls
TALLAHASSEE -- Florida on Tuesday dropped a ban on investing state funds in tobacco companies, despite pleas from health advocates that doing so endorses a ``morally reprehensible'' industry.
The state will become the third in the nation to abandon a prohibition on investing in cigarette companies, saying it wants to take advantage of soaring tobacco stock prices to boost its nearly $100 billion state employee pension fund.
``The standards are pretty clear, we have a fiduciary responsibility and we should not put limits for social policy on that,'' said Gov. Jeb Bush, one of three Republican members of the state Board of Administration who voted for the change. As overseers, Bush said, the board needs to ``put aside personal views or political perspectives and allow the investment managers to make the most prudent decisions.''
But the board agreed to keep the Lawton Chiles Endowment Fund -- created with cash from the state's estimated $13 billion settlement against the tobacco industry -- free of tobacco money. The endowment benefits health programs and medical research.
``There's a moral implication that it's different since this money comes from the tobacco settlement and is used for children's and elders' programs,'' Bush said.
A coalition of health agencies assailed the decision to reinvest in big tobacco -- the ban went into place in 1997, during the Chiles administration -- saying some industries should be ``shunned and avoided.''
``The tobacco industry is one such entity whose business practices are so morally reprehensible that they are beyond compare with any other industry,'' Patrick Kennedy of the American Heart Association told Bush and the state board. ``To invest in tobacco industry securities is to say, `We believe in you and hope that your future is bright.' ''
But Insurance Commissioner and board member Tom Gallagher, who last month proposed dropping the ban, said it was the board's responsibility ``to get the highest return we can'' for the pension fund that covers teachers, firefighters, police officers and other city, county and state government employees who make up the 680,000-person Florida Retirement System Trust Fund. Comptroller Robert Milligan voted to lift the stock ban as well.
Led by then-Gov. Chiles, a Democrat, the state in 1997 sold off $835 million worth of tobacco stocks, largely in one company, Philip Morris. The sale came as the state took the industry to court, seeking to recover the cost of treating poor people for smoking-related illnesses.
Chiles said at the time he thought it was wrong to sue the industry while holding its stock. Then-Insurance Commissioner Bill Nelson, now a U.S. senator, agreed, finding tobacco a risky investment because of the potential for billion-dollar settlements like the one Florida reached months later.
But industry diversification and the 1998 settlement of a mammoth, 46-state tobacco lawsuit has investors eyeing a rebounding industry, said Douglas Cogan, who follows tobacco stocks for the Washington, D.C.-based Investor Responsibility Research Center.
``There's a feeling within elements of the investor community that the worst of the litigation is over,'' Cogan said, noting, however that the industry ``is nowhere near out of the woods when it comes to litigation.''
Still, Florida's pension fund manager, Tom Herndon, told the oversight board that tobacco stocks have ``ballooned in value'' in the past two years and that the state lost about $300 million by selling its tobacco stocks.
Philip Morris stock, for example, sold for $44 a share in 1997 when the state sold its holdings. It hit a low of $18.93 in February 2000, but closed Tuesday at $49.10, up 58 cents.
A spokesman for the company, which was Florida's largest holding of tobacco stocks, declined comment Tuesday.
Though Kentucky and Maryland have also abandoned tobacco investment bans, Cogan said he's uncertain if the five other states with bans will eliminate them. California, he noted, has a Democratic treasurer unlikely to support lifting the recently-enacted ban.
``It'sv ultimately not just a fiscal decision,'' Cogan said. ``It's hard to tell if it's the beginning of a trend, but there are certainly people who will look to whether they made the right decision or not.''