BILL ANALYSIS Ó
AB 761
Page 1
Date of Hearing: May 8, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 761 (Dickinson) - As Amended: March 19, 2013
Policy Committee: PERSSVote:5-2
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill 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)Requires the boards to review their investment portfolios on
an annual basis to identify which companies may be subject to
divestment under these provisions.
2)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 will not be subject to
further action.
3)Provides that if a company fails to take substantial action
then the boards are prohibited from making additional or new
investments or renewing investments in that company. Requires
the boards to liquidate investments in the company within 18
months in a manner consistent with its fiduciary
responsibilities.
4)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.
5)Specifies that nothing in this bill would require the boards
to take an action pursuant to the above provisions if the
AB 761
Page 2
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.
FISCAL EFFECT
1)CalPERS estimates administrative costs of approximately $400,000
annually for the first two years of implementation, costing
less in subsequent years.
2)Administrative costs to CalSTRS in the hundreds of thousands of
dollars with possible impacts to the investment portfolio.
3)The restriction could affect portfolio performance for CalPERS
and CalSTRS. Some staff resources will have to be shifted to
administering the bill and reporting as opposed to investing,
and there will be possible increased transaction costs from
disinvestment. Any investment restriction can adversely
affect performance of the portfolios.
COMMENTS
1)Purpose. The author states according to the Office of the
California Attorney General, approximately 2,900 persons were
hospitalized in 2011 due to firearm injuries and approximately
2,800 persons were killed by firearms. The author adds that
statistics compiled by the FBI demonstrate firearms are
overwhelmingly the most common weapon used in California
homicides. The author contends this level of gun violence has
significant fiscal impacts. According to the author, one
study found 80% of the medical costs for gun violence is borne
by taxpayers.
The author introduced AB 761 because 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 responsible for
producing weapons that are a drain on that same public
treasury. Further, the author concludes, AB 761 is not about
undermining the targeted companies, as there will always be a
market-place for shares of weapons-related ventures, however,
good public policy demands that public taxpayer funds not be a
part of that market.
AB 761
Page 3
2)Background . The California Constitution gives the board of
public retirement systems in California plenary authority and
fiduciary responsibility for investment pension assets and
administration. In particular, the Constitution provides that
the retirement boards have sole and exclusive fiduciary
responsibility over the assets of the public pension or
retirement systems, and shall discharge their duties solely in
the interest of, and for the exclusive purpose of providing
benefits to, participants and their beneficiaries. The
Legislature retains the ability to prohibit certain
investments where it is in the public interest to do so,
provided the prohibition satisfies the standards of fiduciary
care and loyalty required of a retirement board. This
provision of the Constitution was added by Proposition 162,
The California Pension Protection Act of 1992.
3)Support. The Coalition Against Gun Violence supports AB 761.
They argue by restricting investment and requiring
disinvestment by CalPERS and CalSTRS, this bill is of great
assistance to California's citizens and further strengthens
the state's gun law.
4)CalSTRS position . The Teachers' Retirement Board According has
adopted a neutral-if-amended position. They have asked for
amendments to limit the bill to companies whose firearms or
ammunition manufacture is a significant portion of the
companies' revenues and to indemnify the Board and CalSTRS
staff against losses to the Teachers Retirement Fund against
possible investment losses. CalSTRS notes 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, individuals in California under state
law. CalSTRS states AB 761 is a broader application of the
intention of the Investment Committee, prohibiting CalSTRS
from investing in not only companies that manufacture firearms
and ammunition illegal for sale in California, but also in
companies that manufacture firearms or ammunition for a
recipient other than the United States military.
5)Opposition . CalPERS opposes the bill, stating CalPERS prefers
constructive engagement as a means of affecting the conduct of
entities in which it invests. CalPERS states divesting
AB 761
Page 4
appears to almost invariably harm investment performance, by
causing transaction costs, compromising investment strategies,
and reducing portfolio diversification. CalPERS adds the
Board is obliged to invest pension assets for the exclusive
purpose of paying benefits to the plan participants, and that
limiting investment opportunities or reducing diversification
results in lower than expected investment returns, which leads
to higher employer contribution rates.
The California Association of Federal Firearms Licensees also
opposes AB 761, stating that while it is designed to hurt law
abiding businesses, it hurts public employees by removing
high-performing assets from their pension fund portfolios.
They conclude the author is trying to send a message to
firearms companies that he opposes their industry, but the
message is being sent at the cost public employees'
retirements.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081