States Throwing Their Weight Around

April 5, 2021 – Former Supreme Court Justice Salmon P. Chase (1808-1873) notably said, “States’ rights died at Appomattox.” The quote speaks to the country’s propensity for hyperbole around the age-old states’ rights debate. But it also speaks to the duration of the conversation, one that Woodrow Wilson said would preoccupy “every successive stage of our political and economic development.” The reality is “states’ rights”—often conflated with right-leaning issues, given its role in the Civil War, the Civil Rights Act, and segregation—is, and has always been an extraordinary weapon in politics for both the right and the left. Both sides use it to get what they want and to fight what they don’t—when it suits them. 

It can be tempting, especially with Democratic control of the White House and Congress, and on the heels of the federal $1.9 trillion stimulus package, to fall back into the over-simplistic thinking that states will play second fiddle in the myriad of policy catalysts that will be in play in the next four years. 

But if they are supposed to take a backseat, no one told state policymakers. 

Capstone has long written about the power that state and local governments can wield to influence the national narrative, shape policy action, and encourage political compromise. And rest assured, the role of states in the national conversation is not going anywhere, no matter who is in the White House. America’s political divide often creates split-screen moments. And those moments mean investors cannot afford to take state-level policy for granted.  

We would highlight the role that states play in energy markets. Capstone Energy analyst Stephanie Grumet has long pointed out that strong trends in state decarbonization policy will be supportive of the industry. Seven states have already enacted legislation to achieve 100% clean energy between 2040 and 2050, before Biden was elected. Those states represent nearly 30% of the nation’s GDP. We believe more are likely to follow. 

State policymakers also are throwing their weight around the technology sector as well. From Arizona to Maryland, tech companies are watching statehouses across the country push wave after wave of local bills to limit Silicon Valley’s power—often with bipartisan support from lawmakers. Ian Tang, an analyst on our Technology, Media, and Telecom team recently highlighted a lawsuit against Google, led by Texas Attorney General Ken Paxton (R), that will set the course for the coming years as it gains momentum and may spark US lawmakers to introduce new legislation compelling federal regulators to take more aggressive enforcement action against tech companies. States as diverse as Indiana and Connecticut are considering new taxes on Big Tech companies to help fund rural broadband or online bullying prevention programs. 

States also are leading the way on several consumer finance issues. Capstone Analyst John Donnelly believes more pain in ahead for shares of Credit Acceptance Corp. (CACC). The subprime auto lender is currently facing ongoing litigation in Mississippi and Massachusetts regarding its business model, and other states are likely to consider filing similar lawsuits. We expect states to continue being active in the consumer finance space, as well as actively pursuing policies such as state-sponsored retirement plans. 

Our Healthcare team expects states to be active in the fight to end Surprise Medical Bills. And states will continue to be at the forefront of the legalization of cannabis for medical and recreational use. We also expect states to look to expand Medicaid under new incentives from the Biden administration under the American Rescue Plan.

These are just a smattering of areas across our sectors that we believe investors should be paying attention to. Our outreach and research team continues to set up high-level meetings—from our ongoing series with current and former officials in the ERCOT and Texas power markets to discussing fiscal matters with the CFO of the state of Illinois—all to bolster our knowledge and analysis of the matters. 

State policy will have enormous implications for several companies and industries, and the goings-on at the Statehouse are as influential and relevant for investors as they have been. There will be noise, and there will be substance. We look forward to helping you figure out which is which. 

– Cordell Eddings, Capstone Supervisory Analyst