“Tax Justice Assessments” Tackle Police Brutality with Finance
Ratings also recognize the potential cost of police misconduct, which traditional rating agencies have generally ignored. In one exception that illustrates how police murders can destabilize city budgets, Moody’s downgraded Ferguson, Missouri bonds after a white police officer gunned down Michael Brown, an unarmed black teenager, in 2014. Moody’s cited “The potential financial impact of ongoing litigation costs”, legal settlements and negotiations with the Department of Justice to overhaul the city’s justice system.
“The ability to clearly and accurately distill all of the many tax justice risks into perspective is very much needed in this market,” Wallace said.
Activest, which Wallace founded six years ago with Ryan Bowers, a racial equity consultant, plans to publish research reports and assessments for as many as 50 U.S. cities. The initial objective is to shed light on police establishments, both public and private, and to identify the cities most at risk of not being able to pay them or not meeting other obligations.
But the ultimate goal is to use the bond market to curb police brutality and make cities fairer. As investors seek socially responsible investments, Wallace believes Activest’s tax justice ratings could influence bond prices and, therefore, interest rates. By attracting more investors, a city would lower its borrowing costs, improve budgets, and eventually allow politicians to cut taxes or at least spend money elsewhere. And that could encourage treating citizens more fairly.
ESG for municipal bonds
Municipal bonds were the first socially responsible investment. In ubiquitous TV commercials that ran throughout the 1970s and 1980s, bond seller Jim Lebenthal stood in front of landfills, power plants, and bridges to present the idea that investing in debt of local governments was tantamount to investing money for a better America.
But the modern iteration of socially responsible investing, known as the environmental, social and governance movement, or ESG, has mainly avoided the municipal bond market, and when ESG investing tactics are applied to municipal bonds. , the focus is usually on the environment. problems.
One of the reasons for this, according to municipal market experts, is the lack of data. Larry Bellinger, head of municipal bond research at AllianceBernstein, which manages $ 55 billion in local government debt, said he found relatively adequate research on carbon footprints and natural hazards, but only on the social and justice issues, âdata is a problem. “