BILL ANALYSIS Ó
AB 873
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Date of Hearing: May 3, 2011
ASSEMBLY COMMITTEE ON ELECTIONS AND REDISTRICTING
Paul Fong, Chair
AB 873 (Furutani) - As Amended: April 14, 2011
SUBJECT : Political Reform Act of 1974: postgovernment
employment restrictions.
SUMMARY : Extends existing revolving door bans and establishes
new revolving door bans on board members and high-ranking
employees of the Public Employees' Retirement System (PERS) and
the State Teachers' Retirement System (STRS). Specifically, this
bill :
1)Enacts the following "revolving door bans," and makes them
applicable to board members and specified employees of PERS
and STRS:
a) Four Year Lobbying Ban. Prohibits board members and
specified employees of PERS and STRS from receiving
compensation, for a period of four years after leaving the
office or position, for acting as an agent or attorney for,
or otherwise representing, any other person except the
state, by making a formal or informal appearance before, or
an oral or written communication to, the retirement system,
or an officer or employee thereof, if the appearance or
communication is made for the purpose of influencing
administrative or legislative action, or influencing an
action or proceeding involving a permit, license, grant, or
contract, or the sale or purchase of goods or property.
b) Two Year Contracts Ban. Prohibits board members and
specified employees of PERS and STRS, for a period of two
years after leaving the office or position, from assisting
a business entity to perform, implement, or execute a
contract if, during the period of two years prior to
leaving the office or position, the individual
participated, as an official or employee of the retirement
system, in the award, negotiation, or administration of a
contract, or an amendment to a contract, that has or had a
value of greater than $10 million and to which the business
entity is or was a party.
c) Ten Year Placement Agent Ban. Prohibits board members
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and specified employees of PERS and STRS from receiving
compensation, for a period of ten years after leaving the
office or position, for providing services as a placement
agent in connection with investments or other business of
the retirement system.
2)Makes the following officials subject to the four year
lobbying ban, the two year contracts ban, and the ten year
placement agent ban:
a) A member of the Board of Administration , or an
executive officer, deputy executive officer, assistant
executive officer, general counsel, chief actuary, chief
investment officer, other investment officer or portfolio
manager whose position is designated as managerial, or a
person in an equivalent senior management position, at
PERS; and,
b) A member of the Teacher's Retirement Board, or a chief
executive officer, deputy chief executive officer, system
actuary, general counsel, chief of staff, chief financial
officer, chief investment officer, other investment officer
or portfolio manager whose position is designated as
managerial, or a person in an equivalent senior management
position, at STRS.
3)Makes the following officials subject to the four year
lobbying ban and the two year contracts ban, but not the ten
year placement agent ban:
a) An information technology or health benefits manager
with a career executive assignment designation with PERS;
and,
b) An information technology manager with a career
executive assignment designation with STRS.
4)Defines the following terms, for the purposes of the two year
contracts ban:
a) "Administration of a contract" means the management,
direction, or oversight of a contract, including evaluation
of the contractor's performance; and,
b) "Business entity" means any organization or enterprise
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operated for profit, including but not limited to, a
proprietorship, partnership, firm, business trust, joint
venture, syndicate, corporation or association, and
including a parent or subsidiary of a business entity.
5)Provides, for the purpose of the two year contracts ban, that
a contract to which a business entity is or was a party has a
value of greater than $10 million if the business entity
received or will receive more than $10 million in revenue
during the term of the contract as a result of the contract.
Provides that, with respect to a business entity that is an
external manager and that receives a performance fee, a
contract to which the business entity is or was a party is
presumed to have a value of greater than $10 million if the
external manager managed or manages $50 million or more in an
investment fund or managed or manages, pursuant to contract, a
portfolio of securities or other assets valued at $250 million
or more.
EXISTING LAW :
1)Prohibits members and specified employees of PERS and STRS
from receiving compensation, for a period of two years after
leaving the office or position, for acting as an agent or
attorney for, or otherwise representing, any other person
except the state, by making a formal or informal appearance
before, or an oral or written communication to, the retirement
system, or an officer or employee thereof, if the appearance
or communication is made for the purpose of influencing
administrative or legislative action, or influencing an action
or proceeding involving a permit, license, grant, or contract,
or the sale or purchase of goods or property.
2)Creates the Fair Political Practices Commission (FPPC), and
makes it responsible for the impartial, effective
administration and implementation of the Political Reform Act
(PRA).
3)Makes violations of the PRA subject to administrative, civil,
and criminal penalties.
FISCAL EFFECT : Unknown. State-mandated local program; contains
a crimes and infractions disclaimer.
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COMMENTS :
1)Purpose of the Bill : According to the author:
Two years ago a public pension fund scandal involving the
trade of campaign contributions for pension fund
investments broke in New York State. The individuals at
the center of that scandal were investment middlemen,
called placement agents, and some of those involved were
linked to placement agent firms in California.
The scandal quickly rippled westward, catching former
CalPERS board members, a chief executive, and a senior
investment official, who had received, or arranged
placement agents to receive, tens of millions of dollars
for investment deals that lost hundreds of millions of
dollars.
In 2010 CalPERS commissioned a study to review their
investment decision making and identify ethical
vulnerabilities.
The findings of that report, issued in March, included a
recommendation to further limit the "revolving door" of
employment between state pension fund investment work and
private firms seeking better access to those investments.
AB 873 implements that recommendation and is modeled on
current federal post-employment restrictions. The measure
would not prevent separating employees from working for any
employer with whom CalPERS or CalSTRS does business, as
long as their duties did not involve performing,
implementing, or executing a contract with CalPERS or
CalSTRS.
Additionally, banning former senior staff and board members
from lobbying the funds for 10 years will permanently sever
the link between the funds and placement agents.
AB 873 provides a much-needed barrier to protect the funds
from former insiders who may be tempted to trade their
contacts for contracts and risk public employee and
taxpayer-funded investments in the process.
2)Existing Revolving Door Ban : As noted above, existing law
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already prohibits members and specified employees of PERS and
STRS from lobbying their retirement agencies for compensation
for a period of two years after leaving their office or
position. In addition to increasing the period of the
lobbying ban from two years to four, this bill would
additionally make the FPPC responsible for the enforcement of
this lobbying ban, and would extend the ban to a slightly
larger number of employees than are currently covered by the
two year lobbying ban.
3)Double-Referral : On April 26, 2011, this bill was approved by
the Assembly Committee on Public Employees, Retirement, and
Social Security, on a 6-0 vote.
4)Previous Legislation : AB 1743 (Hernandez), Chapter 668,
Statutes of 2010, prohibits a person from acting as a
placement agent in connection with any potential investment
made by a state public retirement system unless that person is
registered as a lobbyist in accordance with the PRA.
5)Political Reform Act of 1974 : California voters passed an
initiative, Proposition 9, in 1974 that created the FPPC and
codified significant restrictions and prohibitions on
candidates, officeholders and lobbyists. That initiative is
commonly known as the PRA. Amendments to the PRA that are not
submitted to the voters, such as those contained in this bill,
must further the purposes of the initiative and require a
two-thirds vote of both houses of the Legislature.
REGISTERED SUPPORT / OPPOSITION :
Support
California State Controller John Chiang (sponsor)
AARP California
American Federation of State, County and Municipal Employees,
AFL-CIO
California Common Cause
California Faculty Association
California Professional Firefighters
Opposition
None on file.
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Analysis Prepared by : Ethan Jones / E. & R. / (916) 319-2094