Can the state of Minnesota take economic action against Russia?

Amid Russia’s ongoing invasion of Ukraine, states across the country are taking steps to hurt Russia’s economy with financial sanctions, from banning the sale of Russian-made liquor to from divesting pension funds.

On Monday, Gov. Tim Walz said Minnesota is exploring whether the State Board of Investment (SBI) should sell off holdings in Russian-tied companies. Walz said the investment board, which manages primarily pension and savings funds for public workers, has a “fiduciary responsibility” to manage that money wisely. But he said “hiding behind a fiduciary responsibility” shouldn’t get in the way of “taking the actions necessary” that might help force change.

There is precedent for such actions. State law has limits for investing in companies that operate in Iran and Sudan, and the board also has restrictions on investments tied to tobacco and coal production.

How Walz might try and sanction Russia

In the wake of the Russian invasion, Utah Gov. Spencer Cox banned alcohol that is produced in Russia or branded as Russian from state liquor stores, as did governors of New Hampshire and Ohio.

Other states are barring investment with Russian companies. New York Gov. Kathy Hochul, for instance, ordered state agencies to divest money and assets from Russian companies and said the state couldn’t do business with Russian companies or institutions, as well as businesses that are helping the country fight Ukraine.

Governing reported the moves are not likely to inflict much economic pain when compared to the sweeping sanctions imposed by the U.S., the European Union and others. Vodka, for instance, makes up a small share of liquor sales and some famous Russian brands sold in the U.S. aren’t made in Russia. Stolichnaya produced for the U.S. is made in Latvia by a company in Luxembourg.

State Economist Laura Kalambokidis said Minnesota “doesn’t, in aggregate, have a lot of trade exposure to Russia or Ukraine.” The state’s main trading partners are Canada, Mexico and China, she said, noting neither Russia nor Ukraine is even in the top 10 of trading partners.

“That is not to say there aren’t important Minnesota businesses that do have exposure in Russia and Ukraine,” Kalambokidis said.

Walz on Monday said economic sanctions to make sure “Russia is being punished” are “going to be of course on a broader scale” and said he wants to make sure state actions won’t just be symbolic. The governor also said he’s cognizant that average Russians are going to feel economic pain more than Vladimir Putin or oligarchs, and said many Russians are “courageously in the streets protesting about this illegal incursion into Ukraine.”

Walz did not say whether he would consider any state action tied to Russian products like vodka. He also said he opposes suspending or expelling Russian college students, an idea floated by U.S. Rep. Eric Swalwell of California.

“Don’t associate citizens with their governments in many cases,” Walz said. “I think right now expelling Russian students (who) are here, many of whom would be my guess is may end up deciding this is the place they want to live, this is the place that they’d rather stay, I don’t think that gets at it.”

Still, Walz said he’s asked his teams to take a look at money managed by the state’s Board of Investment, noting the state has policies around investment tied to Iran and Sudan.

Past divestment on the investment board

As of Dec. 31, the Board of Investment managed a total of $135.7 billion in assets, made up largely of money connected to pension and retirement funds for public workers. Other assets are tied to things like state trust funds and agency cash accounts.

The SBI itself is made up of the governor, the state auditor, secretary of state and attorney general, though it delegates work to staff and the board’s executive director, Mansco Perry III.

In 2007, sparked by the genocide in Darfur, the legislature passed a law requiring the SBI to divest stock holdings in companies doing business with the Sudanese government. Two years later, the legislature passed a similar law related to Iran. The Star Tribune reported in 2008 that a Jewish community group asked the SBI about any investments tied to Iran and said at the time they were concerned about the country getting nuclear weapons and its support of terrorist organizations.

So far, no legislation has been proposed at the Capitol on the subject, though state Rep. Rick Hansen, DFL-South St. Paul, said on Twitter that the legislature should ask the state and the University of Minnesota to “review its investments to determine if we are doing business with Russia.”

State Rep. Sydney Jordan, a Minneapolis DFLer representing Northeast neighborhoods that are home to many Ukrainian Americans and Ukrainian nationals, said she’s in the early stages of researching potential sanctions, primarily whether state-chartered banks could close accounts linked to Russian businesses or elites.

“I think where this is going to be difficult is making sure that we don’t hurt normal Russian folks who live in our community or who live here and making sure that we’re actually really targeting it where it needs to go,” Jordan said. “So that takes some researching and just looking at banking and business practices in particular.”

Minnesota’s investment board has on its own set limits around investing in tobacco companies and mining or exploration of coal for electricity. For instance, in May of 2020, the board adopted a resolution saying any publicly traded company that gets more than 25 percent of its revenue from coal production is “no longer an authorized investment” for the SBI’s main retirement fund accounts, according to a yearly report released by the board in January. The SBI later expanded that to include non-retirement funds.

Walz didn’t say how much in holdings might be tied to companies doing business in Russia. But he said “there’s an opportunity to go ahead and take a look” at divestment.