BILL ANALYSIS Ó
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 873
Gloria Negrete McLeod, Chair Hearing date: June 27, 2011
AB 873 (Furutani) as amended 6/20/11 FISCAL: YES
POLITICAL REFORM ACT OF 1974: POSTGOVERNMENT EMPLOYMENT
RESTRICTIONS
HISTORY :
Sponsor: Honorable John Chiang, California State
Controller
Prior legislation: SB 398 (Hernandez), 2011
in Assembly Elections & Redistricting
Committee
SB 439 (Negrete McLeod), 2011
in Assembly Elections & Redistricting
Committee
AB 1743 (Hernandez)
Chapter 668, Statutes of 2010
AB 1584 (Assembly PER&SS Committee)
Chapter 301, Statutes of 2009
ASSEMBLY VOTES :
PER & SS 6-0 4/26/11
E & R 7-0 5/03/11
Appropriations 16-0 5/11/11
Assembly Floor 78-0 5/19/11
SUMMARY :
This bill would strengthen existing restrictions on
post-government employment activities by board members and
high level staff at the California Public Employees'
Retirement System (CalPERS) and the California State
Teachers' Retirement System (CalSTRS).
BACKGROUND AND ANALYSIS :
Michael Bolden
Date: 6/21/11 Page 1
1)Existing State law :
a) pursuant to the Political Reform Act of 1974 (PRA)
and passed by the voters, Proposition 9 created the Fair
Political Practices Commission (FPPC) and codified
restrictions and prohibitions on candidates,
officeholders and lobbyists;
b) 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.
Specifically,
i) prohibits individuals serving in senior
investment and key executive positions of CalPERS or
CalSTRS from influencing the actions of their
respective retirement boards or retirement systems on
behalf of any person, other than the state, within
two years after leaving that position;
ii) restricts, under the Political Reform Act, former
employees and Board members from being paid to appear
before or communicate with their former agency to
influence the agency's actions for a period of one
year following the end of their employment or term;
iii) prohibits, under the Political Reform Act, State
officials from making, participating in, or
influencing government decisions directly relating to
a prospective employer with whom they are negotiating
employment or after they have reached an employment
arrangement;
iv) prohibits, under the Public Contract Code, a
covered former State official from entering into a
contract for which he or she engaged in any of the
negotiations, transactions, planning, arrangements,
or any part of the decision-making process while in
state service for a two-year period after separation;
aa) specifies that for a one-year period after
Michael Bolden
Date: 6/21/11 Page 2
separation, a covered former State official may
not enter into a contract with the former agency
if he or she was in a policy-making position in
that agency in the same general subject area as
the proposed contract;
v) requires placement agents who wish to do business
with CalPERS or CalSTRS to register as lobbyists and
be subject to all related reporting and compliance
requirements under the Political Reform Act applicable
to lobbyists; and
vi) makes a violation of the PRA subject to
administrative, civil, and criminal penalties.
1)Existing federal law :
a) sets a one year ban or cooling-off period, regarding
such activities as lobbying for "senior employees," a
two year ban for "very senior employees," and a
permanent ban on "switching sides" for executive branch
employees who worked on a matter involving contracts,
grants or lawsuits, while a federal employee; and,
b) generally prohibits employees from accepting
employment with an entity with which they have had
substantial contract dealings valued above $10 million
in the year following their separation.
2)This bill :
a) prohibits, for a period of four years after leaving
that office or position, former members of the CalPERS
and CalSTRS boards, senior executives and investment
officers, and general counsels, or an information
technology or health benefits manager with a career
executive assignment designation from accepting
compensation as an agent, attorney for, or otherwise
represent any person, except the State, by making an
appearance before, or communication to, CalPERS or
CalSTRS if the purpose of the appearance or
communication is to influence an action by the entity;
Michael Bolden
Date: 6/21/11 Page 3
b) prohibits, for a period of two years after leaving
that office or position, former members of the CalPERS
and CalSTRS boards, senior executives and investment
officers, and general counsels, or an information
technology or health benefits manager with a career
executive assignment designation from accepting
compensation to aid, advise, consult with, or assist a
business entity in obtaining an award, or in
negotiating, a contract or contract amendment with
CalPERS or CalSTRS;
c) prohibits, for a period of ten years after leaving
that office or position, former members of the CalPERS
or CalSTRS boards, senior executives and investment
officers, and general counsel from accepting
compensation as a placement agent in connection with
investments or other business of CalPERS or CalSTRS;
d) makes these actions a violation of the PRA, subject
to administrative, civil, and criminal penalties; and
e) declares the intent of the Legislature to further the
purposes of the PRA.
FISCAL :
According to the Assembly Appropriations Committee, this bill
would create minor and absorbable costs to CalPERS and
CalSTRS to revise policies and notices, and minor and
absorbable costs to the FPPC and Secretary of State for
handling additional filings of disclosure statements and for
enforcement. In addition, the bill would create unknown,
likely negligible, non-reimbursable local law enforcement
costs.
COMMENTS :
1)Arguments in Support
According to the author:
Michael Bolden
Date: 6/21/11 Page 4
"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."
According to the sponsor:
Michael Bolden
Date: 6/21/11 Page 5
"Over the last several years, Ýmany] have become
increasingly skeptical of how business is conducted at
CalPERS and CalSTRS. This Ýbill] would place stronger
'revolving door' restrictions on CalPERS and CalSTRS
board members and employees, reducing the likelihood
that investment decisions would be influenced by
potential job officers and former insiders, will protect
CalPERS and CalSTRS investments from unsound influence,
and aid in restoring public confidence in our State's
pension systems. Importantly, the 'revolving door'
protection would not prevent former employees from
working for employers whose principal market is
unrelated to the individual's prior service."
2)CalPERS' Proposed Amendment
According to a communication from CalPERS dated May 9,
2011, CalPERS expresses support of the bill, however,
"CalPERS believes the provisions of Ýthe bill] should be
clear in their application and not unduly limit Ýits]
ability to recruit and retain talented and experienced
staff to support its mission and operations.
3)CalSTRS' Proposed Amendment
According to CalSTRS, "This bill restricts the employment
opportunities of CalSTRS employees whose compensation is
set by the board or an executive-level information
technology manager by placing a ban on lobbying a former
state employer for four years. The bill may affect the
retention of current employees and adversely affect
CalSTRS' ability to recruit highly qualified and
experienced individuals as specified in the bill,
especially investment staff."
CalSTRS seeks to expand the bill to apply to all State and
local public pension and retirement systems to avoid
unintended consequences of harming recruitment efforts.
4) SUPPORT :
Honorable John Chiang, California State Controller, Sponsor
Michael Bolden
Date: 6/21/11 Page 6
AARP
California Faculty Association (CFA)
California School Employees Association (CSEA), AFL-CIO
California Public Employees' Retirement System (CalPERS),
Support if amended
California Retired Teachers Association (CalRTA)
California State Teachers' Retirement System (CalSTRS),
Support if amended
5) OPPOSITION :
None to date
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Michael Bolden
Date: 6/21/11 Page 7