“I have clients asking for North Carolina free portfolios, including divestment from North Carolina municipal bonds,” said Matthew Patsky, chief executive officer of Trillium Asset Management LLC.

BRADENTON, Fla. – Investment firms and public pension managers called for North Carolina to repeal a law seen as discriminatory to lesbian, gay, bisexual, and transgender people, saying that it does not bode well for the triple-A rated state.

Some 58 firms, managers, and organizations in a joint statement Monday said House Bill 2 has "troubling financial implications for the investment climate in North Carolina" that is also affecting demand for municipal bonds.

"I have clients asking for North Carolina-free portfolios, including divestment from North Carolina municipal bonds," said Matthew Patsky, chief executive officer at Trillium Asset Management LLC, a firm that integrates environmental, social, and governance factors into its investment strategies.

Trillium is an employee-owned firm that manages more than $2 billion in assets in four offices across the country, including one in Durham, N.C. The firm offers tax-exempt options for its fixed-income clients.

"North Carolina has written discrimination into state law," Patsky said. "The unintended consequence has been a backlash that is having material, negative impact on the economy of the state."

Signed by Republican Gov. Pat McCrory in March, HB2 overturns municipal and state non-discrimination protections and prohibits transgender people from using restrooms consistent with their gender identity.

The bill has seen backlash from the LGBT community. It has resulted in lawsuits being filed against the state by civil rights groups and the U.S. Department of Justice, and some cities and states have imposed North Carolina travel bans for their employees.

Businesses pulled plans for new and expansion projects, high-profile entertainers cancelled concerts, and sports events have been removed from the state.

The National Basketball Association – citing the law – pulled its 2017 All-Star Game out of Charlotte in July.

The National Collegiate Athletic Association moved scheduled 2016-2017 tournament events in seven sports out of North Carolina in early September, including a regional round of the popular men's basketball Division I basketball tournament.

The Atlantic Coast Conference which has three members in North Carolina, moved eight neutral-site championship events, including the ACC football title game, which had been scheduled Dec. 3 in Charlotte.

This week, the National Association of Intercollegiate Athletics announced its Cross Country National Championships will not be held in Charlotte.

"We, the undersigned investors representing $2.1 trillion in collective assets under management, believe that equality is a fundamental part of a successful workplace and community," said Monday's statement from the investor groups. "Therefore, we stand together against North Carolina House Bill 2."

Among those who demanded repeal of the law were Connecticut Treasurer Denise Nappier, who heads up the state's Retirement Plans and Trust Funds; Dan Simkowitz, head of Investment Management at Morgan Stanley; New York State Comptroller Thomas DiNapoli; and Wanda Brackins, head of RBC Wealth Management.

McCrory did not respond to a request for comment, but his spokesman said the governor's reelection campaign had issued a statement on his behalf calling the "latest attack on North Carolina values" a coordinated effort.

"For New York hedge fund billionaires to lecture North Carolina about how to conduct its affairs is the height of hypocrisy," McCrory's campaign said. "Sadly, we are not in the least bit surprised by this attack."

Campaign spokesman Ricky Diaz told The Bond Buyer in an email that the Tar Heel State is doing well, economically.

"I'd note that despite the political rhetoric coming from out-of-state groups, the N.C. economy continues to outperform the nation with massive budget surpluses, over 30,000 jobs added since April of this year, and falling unemployment," Diaz said. "Moreover, during recent bond sales, the state's AAA bond rating has been affirmed by all rating agencies."

HB2 has not resulted in any negative state or local rating actions.

The law has been cited in several rating reports – one advising that a federal lawsuit could result in downward pressure on the state's rating.

That warning came in July when North Carolina sold $200 million of general obligation bonds as the first financing of McCrory's voter-approved $2 billion Connect NC program to fund various capital projects.

The 20-year bonds were rated triple-A by all three rating agencies.

Moody's Investors Service analyst Genevieve Nolan said the state's recent economic growth is expected to continue over the near term, and its credit is bolstered by strong fiscal management and conservative budgeting practices.

Nolan also said that the federal government filed a complaint against the state in May in the U.S. District Court in the Middle District of North Carolina alleging that HB 2 violated federal antidiscrimination laws.

Prior to filing the suit, the government warned North Carolina that violations of civil rights laws could result in the claw back of federal funds that North Carolina and its public universities receive.

"The federal government has stated it will not withhold any federal aid while litigation is pending," Nolan said in her July 14 rating report. "We note the state's reliance on this revenue stream and as such, any withholding of federal revenues may result in downward pressure on the state's credit profile."

McCrory earlier this month dropped a countersuit the state filed against the federal government saying that it would save the state money.

The North Carolina State Treasurer's office, which issues the state's debt, did not immediately respond to questions asking if investors had made inquiries about the law or when the next tranche of Connect NC bonds would be issued.

The General Assembly's passage of HB2 was sparked by an ordinance adopted by the city of Charlotte in February, which extended the city's nondiscrimination protections to lesbian, gay, bisexual and transgender people.

Legislators and McCrory responded quickly, enacting HB 2 and applying it statewide, although Charlotte has not rescinded its ordinance.

In addition to requiring transgender people in schools and state government buildings to use restrooms that match the sex on their birth certificates, the law excludes gender identity and sexual orientation from state anti-discrimination protections, and bars local governing bodies from passing nondiscrimination policies of their own.

Investment companies that conduct business in the state said Monday that they are "concerned that HB2 is making it difficult for portfolio companies to provide the safe, open, and inclusive environment necessary for a successful workplace."

New York City Comptroller Scott Stringer, who could not travel to Raleigh for Monday's press conference because of his state's travel ban, issued a statement saying that long-term investors "can't sit idly by as HB2 undermines fundamental human rights at our expense."

For the last 25 years, Stringer said New York City's pension funds have pushed more than 100 companies to enact non-discrimination policies that protect LGBT individuals.

"These policies are essential if we want companies – and our economy – to succeed, and we can't let a hate-filled law get in the way," he said.

In addition to the growing chorus of opponents to the law, nearly 60% of the state's voters believe that HB2 has damaged North Carolina's reputation, according to a poll by Elon University, a private institution about 20 miles east of Greensboro.

Nearly half — 49.5% — of likely voters in the state oppose the law, the university said Sept. 19.

McCrory, who is up for re-election, has a narrow lead among voters over his Democratic challenger, Attorney General Roy Cooper, the poll found.

HB2 has proven to be a difficult issue for McCrory, said Jason Husser, assistant professor of political science and the director of the Elon University Poll.

"It is easy to imagine the governor enjoying a more comfortable margin if a more popular issue such as the $2 billion in [bond] funding for education, roads, parks and infrastructure projects approved this year was a more central campaign theme than a divisive issue like HB2," Husser said.

Elon conducted its poll of 799 registered North Carolina voters Sept. 12-19. Its margin of error is plus or minus 3.86 percentage points.

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