The United States has long been Israel’s primary international backer, lending it vast political, diplomatic and financial support.
This has only increased since Israel began its assault on Gaza last October, even as it gradually expanded the parameters of its war, in which it is widely accused by human rights groups of committing genocide. According to Brown University’s Watson Institute, the US government provided Israel with almost $18bn in weapons and military aid in the first year of Israel’s war.
But Israel is also increasingly dependent on another source of funds: bonds, bought by states and municipalities across the US.
Between October 7, 2023 – when the Palestinian group Hamas attacked Israel and the latter subsequently began its war on Gaza – and April 18 this year, nearly three dozen states and counties have bought $1.7bn worth of bonds, according to Israel Bonds, a US-based company that raises foreign funds for Israel.
This money has gone straight into Israel’s general fund, where it can then be funnelled into Israel’s ballooning military budget. An email from Israel Bonds to an Ohio county treasurer noted the bonds were used in part to “refund the United States Government for security equipment”.
The world’s single largest purchaser of Israel’s war bonds is Palm Beach County – the wealthy Florida county home to President-elect Donald Trump’s Mar-a-Lago residence. Palm Beach holds a startling $700m worth of Israel bonds – a loan large enough to cover the purchase of multiple F-15 fighter jets.
But now, after more than a year of an escalating and internationally condemned conflict, Israel’s economy is stumbling. Tens of thousands of Israeli firms are predicted to shut this year, the budget deficit has ballooned from 4 percent to 8 percent of gross domestic product (GDP), direct investment has fallen about 30 percent and US rating agencies have downgraded Israel’s credit.
All this means that when local treasurers buy Israeli bonds, they increasingly risk violating their own policies, which require them to invest taxpayer money in a responsible way.
In fact, a review by Al Jazeera found that at least two states appear to face violating their state treasury investment policies if they buy more Israeli bonds.
At least four other states that have bought Israeli bonds since October 2023 could also face non-compliance if Israel’s credit is lowered further.
A risky investment
When a state or county buys Israeli bonds, they essentially loan the Israeli government money with an agreement that they will get those funds back in an agreed-upon number of years, plus interest. After October 7, the staff of the underwriter for Israel Bonds directly contacted treasurers in Florida, Louisiana, Ohio, and other states. Those treasurers quickly bought tens of millions of dollars worth of Israeli bonds.
But as Israel’s economy weakens, it appears increasingly difficult to justify these investments.
In April, Fitch, one of the three leading US credit rating agencies, warned that the conflict could “lead to a large deterioration of Israel’s credit metrics”. By August, Fitch had downgraded Israel’s credit. The next month, another agency, Moody’s, also downgraded Israel’s credit rating to Baa1 for the first time in its history, and in October, the third agency, S&P, downgraded Israel as well.
Moody’s even warned of further downgrades in light of Israel’s conflict with the Lebanese group Hezbollah. A ceasefire between Israel and Hezbollah was agreed to in late November, but Fitch warned “the ceasefire is likely to be fragile”, and predicted a rise in Israel’s 2025 budget deficit.
All three major credit rating agencies project a negative outlook for Israel’s credit. All together, it indicates Israel is less able to pay back its loans.
This places some US states in a precarious position, as some state investment policies specify that treasurers can only invest in foreign entities if they are above specific credit ratings.
Al Jazeera has found that two states – Florida and Nevada – may face violating their investment policies if they buy more Israel bonds.
The Treasury policies of both states require foreign obligations to have ratings of AA- or higher from at least one credit rating agency. Israel Bonds stopped meeting that standard in April.
Florida’s Chief Financial Officer last announced purchases of Israeli bonds in March, bringing the state’s holdings to $250m. Nevada bought Israeli bonds last October, according to the CEO of Israel Bonds.
Neither the Florida nor Nevada Treasury office responded to requests for comment.
If Israel’s credit is further downgraded, at least four other US states may also have to halt purchases of Israeli bonds: Ohio, Georgia, Louisiana, and Oklahoma.
Rachel Ziemba, a geo-economic and country risk expert and adjunct senior fellow at the Center for a New American Security, said that further purchases of Israeli bonds would appear to violate these states’ policies after she reviewed the policy documents.
“Reading their guidelines suggests that it’s in violation… they would have to sell their Israeli bonds especially if there are further downgrades,” Ziemba said, though she added that state investment committees could also decide to make exceptions.
“Ultimately I think they’re doing it [buying Israeli bonds] for political and what they believe are moral reasons [but] given the credit rating outlook, it’s probably something that will come up more and more, and probably there will be more legal cases around this issue.”
Daniel Garrett, an assistant professor of finance at the Wharton School of the University of Pennsylvania, was more cautious.
He noted that Florida had multiple portfolios, some of which have higher rating requirements, and that it was unclear which portfolio the Israeli bonds sit in.
Garrett added that all state policies tend to give investment managers flexibility when a security falls out of compliance, and “getting your credit downgraded doesn’t lead to immediate divestment, even if it doesn’t meet these portfolio standards any more”.
Still, he added, “If I saw increasing investments in a security that has a declining and no longer complying credit rating, that would be out of line with these policies”.
If an investment falls out of compliance, Florida’s portfolio manager must make a written request to hold the security for longer than 90 days. The request is then voted on by an Investment Working Group. Al Jazeera has filed a public record request to determine whether such an exchange has taken place, but has yet to receive a response.
Political investments
The bonds’ declining returns also undermine the claims made by some state treasurers who say the purchases are based on sound financial reasons, rather than political ones.
The Louisiana treasurer, John Fleming, for example, who has bought $40m worth of Israeli bonds since last October, said the purchase “is based on sound financial principles”.
Yet, Fleming bought $10m worth of Israeli bonds in April, and again in August – both months in which Israel’s credit was downgraded. With Moody’s latest downgrade, the bonds are also now bumping up against Louisiana’s legal requirements.
A look at the data challenges the idea that Israeli bonds are sound investments. Within Louisiana’s portfolio, “when we aggregate all of the other bonds together, they’re improving in value since September. Whereas the Israel bonds have actually decreased in value since September”, says Ayyub Ibrahim, a data scientist at the Berkeley Institute for Data Science, who examined Louisiana’s holding of Israeli bonds.
“Israel bonds are very, very, very important in terms of the ongoing war,” added Ibrahim. The data he reviewed “goes to the argument that not only are these bonds immoral – they’re also financially not advantageous, given you’re losing money on them.”
Other treasurers have openly indicated they are using taxpayer funds to buy Israeli bonds for ideological reasons. Palm Beach County Comptroller Joseph Abruzzo has repeatedly referred to the need to protect and support Israel as a justification for the purchase.
This, too, could be a violation of state law: Several states that hold Israel bonds – including Florida – have passed legislation that forbids treasurers from making investments for social or political reasons. Abruzzo has – despite his overt backing for Israel – stressed that the investments were not “done for a political purpose whatsoever”.
Legal challenge
As local governments use taxpayer money, they typically invest only in safe, reliable assets. But in Palm Beach County, Abruzzo has invested a startling 16 percent of the county’s portfolio in Israeli bonds – a highly unusual move, and in excess of its legal maximum of 15 percent. That cap was increased from 10 percent by the county in March.
Last spring, lawyers in Palm Beach filed a suit arguing that Abruzzo had violated both state law and a local investment policy that he spearheaded, which says Israel bonds can be bought as long as they are rated A by S&P and Moody’s – a standard Israel fell below in September.
Lydia Ghuman is one of the legal researchers working on the lawsuit. She notes that the bonds, bought with property tax money, amount to roughly the same as Palm Beach County’s budget deficit of $730m.
“Florida is going through a housing crisis right now. We’re going through a huge workers’ rights crisis,” stressed Ghuman. “There’s things that need to be funded here, and this is where the money should be,” she said. She added that she would like to see funds “reinvested in local needs determined by constituents”.
Financial experts cited in the complaint note that it was very unusual for a city to invest such a high percentage of its portfolio in any single entity, never mind a foreign bond.
Justin Marlowe, a research professor at the University of Chicago, said that he did not know of another jurisdiction that had such a high percentage of holdings in a single type of investment. “It does represent a much greater concentration of risk in any portfolio for a public entity that I’ve seen in a long time,” Marlowe was quoted in the complaint note as saying.
Garrett, the University of Pennsylvania assistant professor, noted that if a security falls out of compliance, investment managers are typically legally required to disclose that to a state investment board. Ghuman, the legal researcher on the lawsuit, stated that, according to public records, Abruzzo had not made this required disclosure.
Abruzzo has moved to dismiss the lawsuit, arguing among other points that he should have sovereign immunity, which protects government employees from liability.
“No for-profit company investing its own money would want to dump that much” in a foreign bond, said Ghuman, “but he gets to invest constituents’ taxpayer money”.
“That’s where it’s coming from – it comes from property taxes, so it’s no risk to him personally. And it is unusual. It’s very odd… they actually decreased their investment in US Treasury bonds, which are earning more money, and are more stable, and are beating inflation, to put [funds] into Israel bonds, which are not beating inflation, so they’re not making market return on the investment, and they’re more unstable, and have a lower credit rating.”
Kathy Burstein, Abruzzo’s chief communications officer, said in an email that the county has not bought Israeli bonds since March 2024. The office declined to comment further, in light of the pending lawsuit.
As taxpayer funds are sent to prop up Israel’s war effort, some argue the entire arrangement is in violation of federal law.
In April, the organisation Democracy for the Arab World Now (DAWN) wrote to the US Department of Justice, the Security Exchange Commission and the State Department, urging them to classify the Israel Development Corporation, the organisation that sells Israeli bonds, as a foreign agent.
Israeli bond profits “get handed out largely to [Israeli] government coalition agreements, which oftentimes are where budgets for settlements come from”, explained Michael Omer-Man, DAWN’s director of research for Israel-Palestine, referring to illegal Israeli settlements in the occupied West Bank.
For this reason, he said, “Anybody investing in Israel bonds is risking violating the settler sanctions”, which Biden issued in February and expanded in November, amid an increase in settler violence against Palestinians.
DAWN has not received any response to its letters to federal agencies.
Campaigns to stop the purchase of Israeli war bonds are ongoing in Illinois, Ohio, Louisiana and Florida. In the European Union, all Israeli bond sales go through the Central Bank of Ireland, where calls are growing for the bank to halt these sales amid accusations they violate both EU law and an International Court of Justice ruling that the Israeli occupation of the West Bank and East Jerusalem is illegal.
The Israel Development Corporation and other underwriters of Israeli bonds “are companies that are controlled by foreign governments and advancing their political and other interests”, said Omer-Man – but “they’re not used to having to answer for these things”.
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