US states are bending over backwards to ensure that American tax dollars continue to finance Israel’s war on Gaza, which has killed nearly 60,000 people, mostly women and children, in the last 21 months.
Florida Governor Ron DeSantis recently signed a law that scraps financial-risk standards for investments in Israeli bonds by local governments in President Donald Trump’s home state.
Individuals and institutions loan money to the Israeli government through Israel Bonds, a corporation tasked with raising long-term funds mainly from US investors. In return, they receive profits of four to five percent of the original amount every year until the bond matures and the original sum is returned to investors.
To protect local governments against the possible loss of their investments, most US municipalities require that their public funds be invested only in top-rated bonds that pose no risk of default.
But each of the three major global credit rating agencies has downgraded the country’s creditworthiness given the economic and financial risks caused by its 21-month-long expensive war on Gaza.
In fact, credit rating agencies have warned investors that Israel Bonds are at risk of default and a potential “junk” rating.
Moody’s Ratings, for example, noted that the geopolitical risk for Israel has intensified “to very high levels”.
All three major credit rating agencies have placed Israel on a negative outlook. The status indicates that the country faces the risk of a further downgrade in its credit rating in the near future.
The downgrading of Israel as an international borrower made it outright illegal for US states and municipalities to keep investing public funds in poorly rated Israel Bonds.
To circumvent the legal restriction, Florida lawmakers did away with the law altogether, thus allowing the funnelling of unrestricted amounts of taxpayer money into Israel Bonds.
Both houses of the Florida legislature voted unanimously in favour of the bill before Governor DeSantis signed it into law.
According to government records viewed by US publication The Lever, the broker for Israel Bonds that operates on behalf of the Israeli government “lobbied for the first-of-its-kind legislation”.
As a result of previous lobbying efforts, many US states like Louisiana, Indiana, New Jersey, and New Mexico have already done away with legal restrictions on purchasing foreign government bonds.
What are Israel Bonds?
The war in Gaza has put Israel under financial strain. Analysts have attributed the unusually high level of borrowing to Israel’s increased military spending, which has widened the gap between its income and expenses.
Israel Bonds, one of the many instruments that Israel uses to borrow from international investors, has raised a record $5 billion for the Israeli government since it launched its genocidal war on Gaza on October 7, 2023.
It is more than twice the amount that Israel Bonds generated in the corresponding period before the start of the Gaza war, reflecting Israel’s growing borrowing needs to meet war expenses.
US investors have been ploughing their funds into Israel Bonds at an increasingly high pace since the onset of the Gaza war.
Unlike most other dollar-based bonds, which can easily be bought and sold at any time, Israel Bonds are not traded in a secondary market.
This means investors have no cash-out option and must hold on to these bonds until they mature in 20 or 30 years.
The absence of the cash-out option makes Israel Bonds appealing to the Jewish retail clientele. It’s common practice for family elders in Jewish households in the US to buy long-term Israel Bonds for their young family members as gifts for Bar and Bat Mitzvah — the coming-of-age ceremony for Jewish boys and girls when they hit their teen years.
But such retail clients hardly constitute the biggest segment of investors for Israel Bonds.
The war hysteria created by Israel has led at least 35 US states and many small municipalities to invest billions of dollars into Israel Bonds that, analysts say, are neither safe nor lucrative.
The single-largest worldwide investor in Israel Bonds is Florida’s Palm Beach County – home to President Trump’s Mar-a-Lago resort – that increased its holdings from $40 million before the war to $700 million.
Analysts say it makes little financial sense for US states and municipalities to buy “held-to-maturity” Israel Bonds. The absence of a secondary market means their funds remain stuck in low-return bonds for years on end — even if better options emerge later on.
But the fact remains that the financial reason is hardly the only motivating factor for US investors to pile up on Israel Bonds. US states and municipalities are increasing their holdings of the risky bonds, mostly to show solidarity with Israel in its war on Gaza.
This is despite the fact that investing municipal funds in support of a country at war is a political, non-financial decision that violates Florida statutes.
Florida law explicitly prohibits its municipalities from investing public money for any social or political reason. Yet Joseph Abruzzo — a non-Jewish, Democratic overseer of Palm Beach County investments — has said repeatedly from public platforms that he considers Israel to be America’s “greatest ally” that needs “our full support”.
“I am proud to show solidarity with the people of Israel and make Palm Beach County the first county in the nation to increase its investment in Israel Bonds following their declaration of war against Hamas,” Abruzzo said after the start of the Gaza war last year.
Municipal finance experts say the Florida legislation could have “widespread financial implications” for US states and municipalities.
“I’ve not seen any attempt to do some sort of a legislative carveout of the sort that we’re talking about here,” Professor Justin Marlowe of University of Chicago’s Center for Municipal Finance was quoted as saying.
