BILL ANALYSIS Ó
AB 873
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 873 (Furutani)
As Amended June 20, 2011
2/3 vote
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|ASSEMBLY: |78-0 |(May 19, 2011) |SENATE: |39-0 |(August 18, |
| | | | | |2011) |
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Original Committee Reference: P.E.,R.& S.S.
SUMMARY : Strengthens revolving door and lobbying restrictions
for board members and high level staff at the California Public
Employees' Retirement System (CalPERS) and the California State
Teachers' Retirement System (CalSTRS). Specifically, this bill :
1)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.
2)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.
3)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.
4)Makes these actions a violation of the Political Reform Act of
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1974 (PRA), subject to administrative, civil, and criminal
penalties.
5)Declares the intent of the Legislature to further the purposes
of the PRA.
The Senate amendments narrowed the applicability of the
provisions relating to working on projects tied to a former
employer by prohibiting the person from aiding, advising or
consulting with, for compensation a business entity in obtaining
contracts with the retirement systems. The amendments also
revised the definition of "business entity" for purposes of the
bill.
EXISTING STATE LAW :
1)Prohibits individuals serving in senior investment and key
executive positions of the Public Employees Retirement System
or the State Teachers Retirement System 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.
2)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. The Political Reform Act also prohibits
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.
3)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. For a one-year period after 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.
4)Requires placement agents who wish to do business with CalPERS
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or CalSTRS to register as lobbyists and be subject to all
related reporting and compliance requirements under the
Political Reform Act that apply to lobbyists.
5)Makes a violation of the PRA subject to administrative, civil,
and criminal penalties.
EXISTING FEDERAL LAW :
1)Sets a one year ban or cooling-off period, with regard to such
activities as lobbying, for "senior employees" and a two year
ban for "very senior employees," as well as a permanent ban on
"switching sides" for executive branch employees who worked on
a matter involving contracts, grants or lawsuits, while a
federal employee.
2)Prohibits, generally, employees from accepting employment with
an entity with which they have had substantial contract
dealings (valued above $10 million) in the one year following
their separation.
AS PASSED BY THE ASSEMBLY, this bill was substantially similar
to the version approved by the Senate.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS : The following information was provided to the
Committee by the sponsor of the bill, the State Controller's
Office:
In early 2009 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.
In the months that followed the scandal rippled
westward, catching former CalPERS board members and a
chief executive who had received tens of millions of
dollars for arranging investment deals that, in some
cases, lost the state hundreds of millions of dollars.
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In 2010 there were two related developments to address
the unfolding placement agent scandal.
First, early that year the Controller's Office,
CalPERS, and Treasurer's Office sponsored legislation,
AB 1743 (Hernández), Chapter 668, Statutes of 2010,
requiring placement agents who wanted to do business
with CalPERS and the CalSTRS to register as lobbyists.
Under this new law placement agents are subject to all
existing limits on lobbyists, including annual filing
requirements and limits on gifts to board members.
Second, CalPERS commissioned a study by the respected
Washington DC law firm Steptoe and Johnson to review
CalPERS' investment decision making and identify
ethical vulnerabilities. The initial findings of that
report, which included a recommendation to further
limit the "revolving door" of employment, between
pension fund investment work and private firms seeking
those investments, was released in November 2010. In
March 2011 a more detailed description of the incidents
leading to Steptoe and Johnson's recommendations was
issued, explaining the role prospective employment
played in recommendations about investment decisions at
CalPERS.
This measure is modeled on current federal
post-employment restrictions and 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.
As noted in the Steptoe report, Mr. Buenrostro (former
Chief Executive Officer at CalPERS) and Mr. Villalobos
(former board member) were still lobbying CalPERS five
years after they left. A longer ban should, on a
going-forward basis, effectively (and importantly)
sever the relationship between CalPERS and CalSTRS and
placement agents.
This proposal addresses a key ethical issue associated
with former CalPERS board members and staff tied to the
placement agent scandal. By enacting stronger
revolving door and lobbying restrictions CalPERS and
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CalSTRS investments will be better insulated from undue
influence, restoring the systems' performance and
credibility in the public eye, while reducing the
likelihood that investment decisions would be
influenced by job offers and former employees'
"insider" knowledge.
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957
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