Palm Beach County Clerk of Court & Comptroller Foreign Policy

From the Palm Beach County Clerk of the Circuit Court and Comptroller; this was announced last week, but I just got an e-mail promoting it:

Clerk Abruzzo Announces Record-Setting $135 Million Investment in Israel Bonds

WEST PALM BEACH, FL (October 31, 2023) – Palm Beach County will make the single largest one-time investment in Israel Bonds, following a $135 million purchase announced Tuesday by Joseph Abruzzo, Clerk of the Circuit Court and Comptroller for Palm Beach County.

Clerk Abruzzo serves as Palm Beach County's Chief Financial Officer and manages Palm Beach County's investment portfolio, which reached a high of $4.06 billion last fiscal year.

Making the additional investment in Israel Bonds is a good investment for Palm Beach County taxpayers, Clerk Abruzzo said. Palm Beach County has a total of $200 million invested in Israel Bonds and will earn $21 million in interest off the most recent purchases.

"What does this mean for Palm Beach County taxpayers? It means an incredible return, with a very strong and safe investment," Clerk Abruzzo said. "To make that investment with our greatest ally, in one of the safest investments we can make – as Palm Beach County's treasurer and CFO, it's a win."

Watch the video from Clerk Abruzzo's announcement on the ClerkPBC YouTube channel or on the Clerk's Facebook page.

On October 10, Clerk Abruzzo announced a $25 million investment in Israel bonds in an immediate show of support for Israel following their declaration of war against Hamas militants. Palm Beach County was the first county in the United States to increase its investment in Israel bonds following Hamas' attack on Israel in early October.

The increased investment in Israel Bonds is permitted under the County Investment Policy, thanks to a change to County Investment Policy advocated by Clerk Abruzzo in 2021. That change, unanimously approved by the Board of County Commissioners, allowed for the doubling of Palm Beach County's investment in Israel bonds.

Palm Beach County's investment portfolio has enjoyed record-setting returns under Clerk Abruzzo's leadership. The portfolio earned a record $172 million in investment income for the fiscal year that ended on September 30 – money that Palm Beach County will use to help ease the financial burden on Palm Beach County taxpayers.

The Clerk's certified investment professionals proactively manage the investment portfolio to maximize investment earnings while ensuring that tax dollars are protected. The County Investment Policy developed by the Clerk and the County's Investment Policy Committee governs investments, and provides guidelines related to risk management and reporting requirements.

To learn more about the Clerk's management of the County's portfolio, visit the Investments section of www.mypalmbeachclerk.com.

This sort of foreign policy by local and state governments (of course driven by domestic politics, as things in a democracy generally are) is constitutionally permissible, and it's not that uncommon. Whether it's a good idea or not I leave to the reader to decide; in any case, it struck me as worth noting.

Comments

[kkoshkin]

Good. A very worthy cause and investment.

[Rev. Arthur L. Kirkland]

What is the basis for your unqualified declaration? Are you a finance executive? Did you study the relevant bonds and associated documents?

[Raccroc]

Isn't this basically the same as ESG investments?

It would seem to me that government investments should be made based on strict risk vs. return formulas and not based on and sort of cause; no matter how noble or just.

(and maybe this does fit into that... bit suspect based on the location and the timing though)

[SRG2]

At least there's a theoretical rationale in favour of ESG (albeit questionable whether fulfilled in practice.) As I note below, the investment policy itself singles out Israel bonds which I regard as suspicious.

[Armchair]

"Isn’t this basically the same as ESG investments?"

No.

"based on strict risk vs. return formulas"

Israel Bonds appear to be paying between 5% and 6% interest per year (depending on type and length). Slightly better than US treasuries and much better than most European bonds

[Martinned]

Don't forget to include expected exchange rate shifts...

https://en.wikipedia.org/wiki/Interest_rate_parity

[SRG2]

is constitutionally permissible,

But that doesn't make it necessarily legally permissible. If the investment fund were privately managed and the managers were fiduciaries, in principle they would have to demonstrate that their purchase of Israel bonds was prudent and for genuine investment grounds, not on political grounds. I don't know whether the same fiduciary requirements apply to state officials managing public investments.

One obvious question is why the investment policy singles out Israel bonds specifically for investment, unlike all other non-US sovereign debt, I would regard that as evidence for a non-fiduciary rationale for investment,

However, in practice even were the fund to be in violation of fiduciary rules, seldom does anyone care or do anything. I speak from prior experience.

I also think that no public official should be managing investment funds as a part-time component of their job.

[Armchair]

Well, let's take a look at government bond rates worldwide, and compare them to Israel bonds.

Israel Bonds tend between 5 and 6%. Currently their 10 year bond is 5.6 to 5.8%.

Worldwide, that's much better than Europe, slightly better than the US, but not as good as Mexico (9.6%) or Brazil (11.3%). But I view Israel as much less likely to default than Mexico or Brazil.

https://www.bloomberg.com/markets/rates-bonds

[David Nieporent]

But I view Israel as much less likely to default than Mexico or Brazil.

Yes, that's why Mexico and Brazil bonds pay more.

[Michael P]

Conversely, Israel has never defaulted on its bonds, and default risk is far from the only factor that determines bond price/yield.

[Kazinski]

Right, because the market is the rate setter, not the issuer. And even when the issuer sets a nominal rate differently than the market which isn't uncommon, then they sell the bonds at a discount or a premium that comes out to the market rate of return.

[SRG2]

Oh, I have no problem with buying Israel bonds when the yield is commensurate with the risk But singling out Israel bonds is unusual - in fact, exceptional. I've come across policies which prevent investments - for example, when I was at a firm where we managed money for the Abu Dhabi Investment Authority and for Brunei, we couldn't own bonds or equities issued by breweries or distilleries. (They didn't mind receiving interest!) But never referencing a specific non-US issuer.

[Armchair]

"Why single out Israel?"

Great question. See, market prices and yields are set by the relative risk and relative demand for the product. In a perfect world, outside factors wouldn't affect that relative demand. But we don't live in a perfect world. For example, with ESG, a number of large organizations were persuaded to dump their holdings in oil companies. This in turn would make oil companies an abnormally good deal to others. A large segment of the market was not demanding the oil companies for reasons unrelated to the actual risk.

Likewise, a large segment of the global investment community "doesn't like" Israel bonds. This makes them an oddly good deal, for reasons unrelated to the risk.

[Rev. Arthur L. Kirkland]

Have the rates associated with those bonds increased recently to reflect increased risk? If not, your argument fails for more reasons than one.

[Armchair]

Aww, look at you try. But can't be bothered to actually look up the rates. Try harder...

[SimonP]

But that doesn’t make it necessarily legally permissible.

It very likely is not, thanks to anti-ESG laws in Florida.

[Scribe]

So long as he's making money, it's ok.
Lose money, he's not.

[Rev. Arthur L. Kirkland]

This blog attracts a remarkable concentration of especially dumb people.

And by design.

Carry on, clingers. Stumbling toward irrelevance, mostly.

[Kazinski]

The Clerk and Comptroller only consideration should be his fiduciary duty to the taxpayers and the county.

These bonds may well be a good investment but it looks like he is overweighting the portfolio.

I'm reminded of when Orange County, CA went broke 25 years ago:
https://www.ocregister.com/2019/12/06/heres-how-orange-county-went-broke/

[SRG2]

his fiduciary duty

...might not apply to government entities.

I remember that clown Citron, who spend years bragging about his financial expertise and then denied it when it went pear-shaped.

[mydisplayname]

I'm in favor of localities selecting their own investments... and for the citizens of localities accepting responsibility for their selections of both leadership and investments. It's that second part that generally proves troublesome. Before Israel's indebtedness began rising at more than $5B/month (400% higher than last month), S&P had downgraded the colony's credit rating (with a negative outlook) and Moody's had placed it on watch. While the lips of Congress say "We stand behind Israel," the pocketbooks of American [majority Gentile] voters sing a different tune: the most recent AP survey suggests that there is no particular willingness to pay for things other than humanitarian aid for the region. The Colony of Israel also faces significant pressure from the overwhelming majority of world nations and such pressure (along with, well, active warfare) may make trade more difficult. Israeli default is possible. Knowing that Israeli default is possible, I struggle with the fiduciary duty question asked by other commenters.

The Iron Yarmulke is getting a bit rusty and its position as a self-seated crown is tenuous: those monitoring international [Gentile-controlled] media (including Australia, for example) may note an uptick in the use of the phrase "Colony of Israel." Israeli debt may become non-sovereign debt and whatever happens at that point is anyone's guess. Perhaps if-and-when Israel actually adopts a Constitution we can determine if it contains debt provisions similar to our Fourteenth Amendment.

[SimonP]

Hey, Eugene – Here’s another one of those legal issues you comment on but know nothing about!

Palm Beach County is subject to Section 218.415, Florida Statutes, including in particular subsection (24), which states:

(24) INVESTMENT DECISIONS.—

(a) As used in this subsection, the term “pecuniary factor” means a factor that the governing body of the unit of local government, or in the absence of the existence of a governing body, the respective principal officer of the unit of local government, prudently determines is expected to have a material effect on the risk or returns of an investment based on appropriate investment horizons consistent with applicable investment objectives and funding policy. The term does not include the consideration of the furtherance of any social, political, or ideological interests.

(b) Notwithstanding any other law, when deciding whether to invest and when investing public funds pursuant to this section, the unit of local government must make decisions based solely on pecuniary factors and may not subordinate the interests of the people of this state to other objectives, including sacrificing investment return or undertaking additional investment risk to promote any nonpecuniary factor. The weight given to any pecuniary factor must appropriately reflect a prudent assessment of its impact on risk or returns.

Astute observers may wonder if the above-referenced language has anything to do with DeSantis’s anti-ESG push – and, in fact, it is. This stuff was implemented earlier this year, as part of an anti-ESG law. The rule imposed here is unusually strict, as compared to other attempts to limit ESG investing – specifically insofar as it categorically prohibits certain “social, political, or ideological interests” from ever being permissible considerations for public investing activity. Most other approaches will allow you to at least consider those other interests, if relevant to the risk/return of a proposed investment.

In a shocking turn that should surprise no one, the public release really only extends the slightest fig leaf over any argument that the investment of public money in Israel Bonds might be a good investment. Throughout, they speak of “showing support for Israel.” That appears to be in direct conflict with Florida law.

[SRG2]

That seems pretty clear-cut to me, thanks!

Engineers, petards, etc.

[Rev. Arthur L. Kirkland]

Prof. Volokh isn’t writing for people who read the details or care about legal precision.

[John F. Carr]

"a very strong and safe investment"

Market forces want "strong" and "safe" to be mutually exclusive. The advantage of Israel-related bonds is some of the ESG crowd won't touch them and you are bidding against fewer competitors. The same would be true of Hamas bonds if Americans could buy them.