Furious backlash continues to mount against Indiana as more businesses, chief executives, and even cities say they will boycott the Hoosier state over its controversial new religious freedom law. 

The response offers a small glimpse of the negative impact such laws, known as Religious Freedom Restoration Act, or RFRA, legislation, can have on state economies. However, some business experts note the reaction is somewhat capricious, as other states with similar legislation have not felt similar wrath from the business community.

Last Thursday, Governor Mike Pence signed a bill, called S.B. 101, that allows business owners in the state to legally discriminate against LGBT customers based on religious objections. Similar legislation, which has arisen in response to federal court rulings allowing same-sex marriage in the 36 states, is pending in about 16 other states. Kansas, Mississippi, and Tennessee already have their own versions on the books, but have not been the subject of a business backlash. Arkansas, the home state of Walmart, Nevada, and North Carolina are also getting close to sending bills to their governors' desks ready for signing. Meanwhile, Texas has 12 similar bills pending in its legislature.

Cities Boycott Indiana

Over the weekend, San Francisco and Seattle mayors announced executive orders banning the use of city funds for employee travel to Indiana.

Here's what San Francisco Mayor Edwin Lee had to say on his city's website on Friday:

We stand united as San Franciscans to condemn Indiana's new discriminatory law, and will work together to protect the civil rights of all Americans including lesbian, gay, bisexual and transgender individuals. Effective immediately, I am directing City Departments under my authority to bar any publicly-funded City employee travel to the State of Indiana that is not absolutely essential to public health and safety. San Francisco taxpayers will not subsidize legally-sanctioned discrimination against lesbian, gay, bisexual and transgender people by the State of Indiana.

Seattle Mayor Ed Murray echoed Lee's comments with his own executive order, announced on Saturday on the city's website.

The Indiana law was met with a swift denunciation from Salesforce.com founder and CEO Marc Benioff on Thursday, who said he will cancel future events in the state. Benioff's move set off a chain reaction from other Silicon Valley executives, including Yelp's Chief Executive Jeremy Stoppelman, and Apple CEO Tim Cook who also condemned the Indiana law, and others like it around the country.

Tim Cook Weighs In

Cook, who announced he is gay in Bloomberg Businessweek in October, also took to the Washington Post on Sunday, to criticize the discriminatory nature of the new religious freedom laws and bills. RFRA laws have existed in about 20 states since 1993, following federal legislation passed during the Clinton era. The legislation stemmed from a Supreme Court case, called Employment Division v. Smith. where the high court ruled against the Native American Church, of Oregon, which incorporated a peyote-taking ceremony into its rites. The federal RFRA was passed unanimously in Congress to allow individuals in states with a way to opt out of federal laws that restrict religious practices, generally speaking. In 1997, the Supreme Court ruled that RFRA only applied to the federal government, not the states. Since that time, states have passed their own RFRA statutes.

Many states are now broadening the scope of the original RFRA laws, into terrritory that could encourage discrimination. Indiana's law, for example, allows people and businesses to claim exemption based only on the likelihood that their religious freedom could be infringed, said Katherine Franke, a professor of law and director of the Center for Gender and Sexuality at Columbia University, in New York. It also trumps local ordinances, such as currently exist in Indianapolis, the state capital, that protect against discrimination based on sexual orientation. 

For his part, Cook's editorial noted the negative impact that such legislation has on business. "America's business community recognized a long time ago that discrimination, in all its forms, is bad for business," Cook wrote, adding: "From North Carolina to Nevada, these bills under consideration truly will hurt jobs, growth and the economic vibrancy of parts of the country where a 21st-century economy was once welcomed with open arms." 

Indianapolis Could Suffer Most

As evidence of the economic impact RFRA laws can have on local economies, ratings and reviews site Angie's List, founded by Bill Osterle and Angie Hicks in 1995, announced over the weekend that it was halting a $40 million expansion of its Indianapolis headquarters, expected to bring with it an additional 1,300 jobs, while it examines the implications of the law. (Angie's List is an Inc. 5000 company.)

While business groups in Indiana, such as the Indiana Chamber of Commerce, have come out decisively against the law, Indianapolis, the center of business conference activity in the state, is now fighting to make sure that businesses don't abandon the city's vital convention industry.

"Indianapolis strives to be a welcoming place that attracts businesses, conventions, visitors and residents," Indianapolis Mayor Greg Ballard said in a statement on Thursday. "We are a diverse city, and...RFRA sends the wrong signal."

That wasn't enough reassurance for organizations such as the Disciples of Christ, a Protestant group that brings in millions of dollars to Indianapolis through its conferences, which said it plans to boycott the city this year. (On the other hand, Indianapolis' largest conference, Gen Con has decided to stay, following reassurances from the city's business community. Gen Con, held at the end of July, is one of the biggest gaming conventions in the world. The conference reportedly brings 56,000 attendees to Indianapolis annually, and an estimated $50 million in revenue.)

Squelching VC Investment

The state economy could also suffer in indrect ways, says Jerry Conover, director of the Indiana Business Research Center at Indiana University, in Bloomington. When Salesforce bought the Indianapolis software maker ExactTarget for $2.5 billion in 2013, that prompted nonstop flights between Indianapolis and San Francisco airports for the first time in the state's history, Conover said. Those flights could potentially be in jeopardy, depending on the extent of the Salesforce boycott. In turn, a suspension of flights could negatively affect Indianapolis startups.

"The direct flights have facilitated access to Bay Area venture capital in this area," Conover said.

Lesson From Arizona

Meanwhile, businesses in Arizona are watching with dismay as events unfold in Indiana. After extensive lobbying from the business community in the state and elsewhere, then-governor Jan Brewer vetoed a RFRA bill in February, 2014.

That was a welcome relief for Ben Bethel, owner and general manger of The Clarendon Hotel and Spa in Phoenix, whose business depends on tourism and conferences. Bethel says business has risen more than 31 percent in the years since the legislation was vetoed. That, he reports, has enabled him to add 20 more employees to his 100 person staff as he's expanded.

Business might not have been as robust if the law had passed, Bethel says. "There would have been a negative impact if there had been a boycott and companies did not have their conventions here," and tourists avoided Arizona he adds.

Governor Pence's office did not respond to a request for comment.

Published on: Mar 30, 2015