BILL ANALYSIS Ó AB 1379 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 1379 (Bradford) As Amended September 1, 2011 Majority vote ----------------------------------------------------------------- |ASSEMBLY: |51-27|(June 2, 2011) |SENATE: |27-10|(September 7, | | | | | | |2011) | ----------------------------------------------------------------- Original Committee Reference: P.E.,R. & S.S. SUMMARY : Authorizes public retirement systems with assets over $4 billion to report annually to the State Controller (Controller) on investments in California and emerging domestic markets, as specified. Specifically, this bill : 1)Makes various legislative findings and declarations related to the benefit California could realize by adopting and implementing more effective economic development policies with better information on California and its emerging market investments by the public retirement systems in the state and encourages retirement systems with sufficiently diversified portfolios adopt California emerging market investment policies. 2)Requires a state or local public retirement system with assets over $4 billion to report to the Controller on California investments and California emerging market investments, as specified, obtained and held in its portfolio on and after July 1, 2012. 3)Permits the report to include an estimate of the number of jobs created and retained because of the retirement system's investments. 4)Limits the information reported by the public pension systems to that which is required by the California Public Records Act. 5)Clarifies that a state or local public retirement system may elect to satisfy the reporting requirements by reporting on its total portfolio, rather than those investments made after July 1, 2012, if the information is provided and identified consistently, as specified. AB 1379 Page 2 6)Specifies that nothing in the bill requires a retirement board to take any action that is not consistent with its constitutionally granted plenary authority and fiduciary responsibilities. 7)Defines "California investment" and "California emerging market investment" for purposes of these provisions and authorizes a retirement system to modify the definitions and parameters of the reporting requirements to ensure consistency with adopted investment policies and to limit its reporting costs. 8)Requires for the 2011-12 and 2012-13 fiscal years the boards of the California Public Employees' Retirement System and the California State Teachers' Retirement System to share with other public pension systems streamlined and cost-effective methods for identifying investments within their portfolios, as specified. 9)Authorizes the Controller, at his/her discretion, to compile and publish on its Internet Web site the information provided by the state and local public retirement systems, as specified. 10)Requires the Controller, if he or she decides to publish the information received from the retirement systems to publish the information on its Web site within 12 months of receipt of the information, or no later than 18 months after the end of the fiscal year on which the information is based. 11)Sunsets these provisions on January 1, 2017. The Senate amendments : 1)Make changes to the legislative findings and declarations provisions of the bill. 2)Limit the information reported by the public pension systems to that which is required by the California Public Records Act. 3)Specify that nothing in the bill requires a retirement board to take any action that is not consistent with its constitutionally granted plenary authority and fiduciary AB 1379 Page 3 responsibilities. 4)Clarify the definitions included in the bill and authorizes a retirement system to modify the definitions and parameters of the reporting requirements to ensure consistency with adopted investment policies and to limit its reporting costs. 5)Require, for the 2011-12 and 2012-13 fiscal years, the boards of the California Public Employees' Retirement System (CalPERS) and the California State Teachers' Retirement System (CalSTRS) to share with other public pension systems streamlined and cost-effective methods for identifying investments within their portfolios, as specified. 6)Make other technical and clarifying changes. 7)Sunset the provisions of the bill on January 1, 2017. EXISTING LAW : 1)Requires public pension funds to annually report to the Controller on a variety of issues including the fiscal condition of state and local public retirement systems. 2)Provides, under the state Constitution by Proposition 162, the California Pension Protection Act of 1992, that the boards of California's public retirement systems have "plenary authority and fiduciary responsibility for investment of monies and administration of the system." Under Proposition 162, the Legislature also retained its authority to, by statute, "continue to prohibit certain investments by a retirement board where it is in the public interest to do so, and provided that the prohibition satisfies the standards of fiduciary care and loyalty required of a retirement board pursuant to this section." The Constitution also states, "The members of the retirement board of a public pension or retirement system shall discharge their duties with respect to the system solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administering the system." AS PASSED BY THE ASSEMBLY, this bill was substantially similar AB 1379 Page 4 to the version approved by the Senate. FISCAL EFFECT : According to the Senate Appropriations Committee, CalPERS indicates that if the system is allowed to use its own definitions as it relates to "emerging domestic market" for reporting the data required in the bill, costs will likely be minor. CalSTRS indicates that the information required in this bill is already compiled for a similar report, and therefore, costs would be minimal. AB 1379 authorizes, but does not require, the State Controller to compile and publish the information reported by pension systems on its Internet Web site. The Controller's office indicates the need for PY at costs of about $27,000 annually if it chooses to do so. COMMENTS : Both CalPERS and CalSTRS have special initiatives on California investments and investments in emerging domestic managers. According to information provided to the Public Employees Committee by CalPERS, the capital that CalPERS invests in California is usually not explicitly directed to the state but is the consequence of a process weighing the financial merits of particular companies, properties and projects, regardless of location. The size of CalPERS, and of California's economy, is the primary driver of the System's significant exposure to local communities and the related benefits that this brings, like job creation. At June 30, 2010, CalPERS invested: 1)$6.1 billion in 644 California-headquartered public companies, which employ over 700,000 people in the state - nearly 5% of the total workforce. 2)$4.7 billion of fixed income capital in California, $810 million of which is invested in 14 California headquartered corporate bond issuers employing over 85,000 workers in the state. 3)$2.9 billion in 1,331 California-headquartered private companies, which support more than 140,000 local jobs. 4)$3.3 billion in 387 California-based real estate projects. 5)$80 million in six California-based infrastructure projects. CalPERS invested approximately $17 billion in companies, AB 1379 Page 5 properties and projects located in California across five key asset classes - public equities, private equities, fixed income, real estate, and infrastructure. According to the author, "Existing law is not sufficiently specific on the contents of the state economic development strategy. This has resulted in a lack of concrete recommendations relating to the use and attraction of private investment. "California communities represent a potentially significant investment opportunity for institutional investors generating appropriate risk-adjusted returns. The State, however, does not track investments made by public pension funds and does not engage private investors on how to make the State a more attractive place in which to invest. More private investment, in turn, could result in increased financial opportunities for the state's historically underserved capital markets, also known as emerging domestic markets." The author concludes, "AB 1379 mitigates these limitations by directly engaging private investors and beginning to track the large, fully diversified, public pension funds. The bill does not require investments in either California or historically underserved areas; rather the bill would permit a state or local pension system with assets over $4,000,000,000 to provide a report to the Controller on California's investment in emerging domestic markets. It also encourages the State to create the economic environment that encourages California investments. Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916) 319-3957 FN: 0002506