BILL ANALYSIS Ó
AB 761
Page 1
Date of Hearing: April 24, 2013
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Rob Bonta, Chair
AB 761 (Dickinson) - As Amended: March 19, 2013
SUBJECT : Public retirement systems: investments.
SUMMARY : Prohibits the California Public Employees' Retirement
System (CalPERS) and the California State Teachers' Retirement
System (CalSTRS) from investing in companies that manufacture
firearms or ammunition for a recipient other than the United
States military. Specifically, this bill :
1)Prohibits the boards of CalPERS and CalSTRS from investing
public employee retirement funds in companies whose business
operations involve the manufacturing of firearms or ammunition
for a recipient other than the United States military.
2)Requires the boards to review their investment portfolios on
an annual basis to identify which companies may be subject to
divestment under these provisions.
3)Requires the boards to notify any company manufacturing
firearms or ammunition for a recipient other than the United
States military and request the company take substantial
action, as specified. Companies that take substantial action
or have made progress to this effect, as specified, will not
be subject to further action.
4)Requires that the boards' determination as to whether a
company has taken substantial action must be based on credible
information available to the public and supported by findings
adopted by a roll call vote in open session during a properly
noticed public hearing of the full board.
5)Requires that all proposed findings of the boards be made
public 72 hours before they are considered by the full board,
and requires the boards to maintain a list of interest parties
who are required to be notified.
6)Provides that if a company fails to take substantial action,
as defined, then the boards are prohibited from making
additional or new investments or renewing investments in that
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company, and, requires the boards to liquidate investments in
the company within 18 months in a manner consistent with its
fiduciary responsibilities.
7)Requires the boards to report to the Legislature by January 1,
2015, and annually thereafter, on their investments with
companies with business operations involving the manufacturing
of firearms or ammunition, as specified.
8)Specifies that nothing in this bill would require the boards
to take an action pursuant to the above provisions if the
boards determine, in good faith and based on credible
information available to the public, that an action would fail
to satisfy the fiduciary responsibilities of the board as
described in the California constitution. However, any
determination that an action would fail to satisfy fiduciary
responsibilities shall be made in a public hearing of the full
board that is properly noticed and offers an opportunity for
public comment, as specified.
EXISTING LAW : As provided in the state Constitution by
Proposition 162, The California Pension Protection Act of 1992,
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."
FISCAL EFFECT : Unknown.
COMMENTS : The author states, "According to the Office of the
California Attorney General, approximately 2,900 persons were
hospitalized in 2011 due to injuries from a firearm, and
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approximately 2,800 persons were killed by firearms either by
homicide, suicide, or accident. Statistics compiled by the
Federal Bureau of Investigation demonstrate that firearms are
overwhelmingly the most common weapon used in California
homicides. According to the FBI, while California ranks 30th in
gun deaths per capita, California had the highest number of
total gun deaths out of any state last year, accounting for 68%
of all gun murders in the United States.
"Nationally lifetime medical costs for gunshot injuries total an
estimated $2.3 billion, or $6 million/day. U.S taxpayers pay
for almost half of those lifetime costs ($1.1 billion).
California accounts for more than 12% of gun violence in this
country and state taxpayers are paying a substantial share of
associated costs. One study found that up to 93% of gunshot
victims in Alameda County were uninsured. This is likely
reflected in many other urban and suburban California counties.
Medical care associated with gun violence is a burden upon
taxpayers and upon the costs of medical care insurance.
According to research, 80% of the medical costs for firearm
injuries are borne by taxpayers.
"At a time when the state's public treasury struggles to supply
funding to cover CalPERS and CalSTRS' retirement and health care
cost liabilities, it is inconsistent public policy to allow
those taxpayer supported pension funds to be invested in
companies that are responsible for producing weapons that are
implicated in violent acts and which are a drain on that same
public treasury."
According to CalSTRS, "?at its meeting on January 9, 2013, the
Investments Committee directed staff to implement the CalSTRS
Divestment Policy, in a timely and prudent fashion consistent
with fiduciary duties, in order to divest of companies that
manufacture firearms or large capacity magazines that are
illegal for sale to, or possession by, private individuals in
California under state law.
"AB 761 is a broader application of the direction the Investment
Committee provided staff by prohibiting CalSTRS from investing
in companies that not only manufacture firearms and ammunition
that are illegal for sale in California but manufacture any
firearms or ammunition for a recipient other than the United
States military. The bill does not include a threshold standard
to exempt companies whose manufacturing of firearms or
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ammunition make up a small percentage of their total business. A
minimum percentage of 15 percent is recommended. Such a
threshold would reduce the impact of the bill to an estimated $4
million of the CalSTRS portfolio, excluding the companies
currently subject to divestment under the board's direction."
CalPERS is opposed to the bill stating, in part, "Generally,
CalPERS prefers constructive engagement as a means of affecting
the conduct of entities in which it invests. Divesting appears
to almost invariably harm investment performance, such as by
causing transactions costs (e.g., the cost of selling assets and
reinvesting the proceeds), compromising investment strategies,
and reducing portfolio diversification. AB 761 will also have a
significant fiscal impact on CalPERS. The Board is obliged to
invest pension assets for the exclusive purpose of paying
benefits to the pan participants. Limiting investment
opportunities or reducing diversification results in lower than
expected investment returns which leads to higher employer
contribution rates."
According to the California Association of Federal Firearms
Licensees, "This bill is designed to hurt law abiding
businesses. But instead, it hurts public employees by removing
high-performing assets from their pension fund portfolios.
Clearly, the author is trying to send a message to firearms
companies that he opposes their industry. However, such a
message should not be sent at the cost our public employees'
retirements."
AB 221 (Anderson) Chapter 671, Statutes of 2007, prohibited
CalPERS and CalSTRS from investing public employee retirement
funds in companies that have specified energy- or
defense-related operations in Iran.
AB 2041 (Koretz), Chapter 442, Statutes of 2006, prohibited
CalPERS and CalSTRS from investing public employee retirement
funds in a company with business operations in the Sudan, as
specified, and required the boards of these retirement systems
to sell or transfer any investments with these companies and
report to the Legislature regarding these investments, as
specified.
REGISTERED SUPPORT / OPPOSITION :
Support
AB 761
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None on file
Opposition
California Public Employees' Retirement System
California Association of Federal Firearms Licensees
Gun Owners of California
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957