BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1379
                                                                  Page  1

          CONCURRENCE IN SENATE AMENDMENTS
          AB 1379 (Bradford)
          As Amended September 1, 2011
          Majority vote
           
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          |ASSEMBLY:  |51-27|(June 2, 2011)  |SENATE: |27-10|(September 7,  |
          |           |     |                |        |     |2011)          |
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           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.








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          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 








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            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 








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          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, 








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          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 


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