BILL ANALYSIS Ó
AB 1052
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CONCURRENCE IN SENATE AMENDMENTS
AB
1052 (Cooley)
As Amended August 19, 2016
Majority vote
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|ASSEMBLY: |77-0 |(May 7, 2015) |SENATE: |39-0 |(August 25, |
| | | | | |2016) |
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Original Committee Reference: P.E.,R., & S.S.
SUMMARY: Allows the California State Teachers' Retirement
System (CalSTRS) to enter into contracts for investment services
under the terms and conditions and utilizing the processes the
board deems necessary and consistent with its fiduciary duties
rather than under state contracting requirements, as specified.
Specifically, this bill:
1)Provides that, notwithstanding any other law pertaining to
state contracting except that making contracts subject to
audit and examination by the State Auditor, CalSTRS, in
exercising its constitutional discretion to invest fund
assets, may contract for services under terms and conditions
and utilizing the processes the board deems necessary and
consistent with their fiduciary duties.
2)Requires the processes utilized by CalSTRS to be competitive,
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except as specified below, and to include all of the
following:
a) Standardized solicitation documents.
b) Minimum qualifications.
c) Public advertisement.
d) Opportunity to protest.
3)Authorizes CalSTRS to contract for investment services without
utilizing a competitive process under the following
circumstances:
a) When allowed under existing law through specific
exemptions in the Public Contract Code (e.g., for an
emergency contract), as specified.
b) When there is an existing contractual relationship with
an investment manager that qualifies that person as an
emerging investment manager, as defined by the board. This
bill requires that CalSTRS monitor and assess contractors
under this exemption, as specified.
4)Authorizes an emerging investment manager who is not selected
in the course of a noncompetitive contract process for
investment services to have the opportunity to protest.
5)Specifies that CalSTRS' authority to contract for investment
services, as specified, does not modify any other law
restricting the eligibility of persons or entities to bid on
or be awarded contracts.
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The Senate amendments:
1)Delete all sections of the bill that affect the California
Public Employees' Retirement System.
2)Require that CalSTRS contracts for investment services be
subject to audit by the State Auditor.
3)Require the contract process utilized by CalSTRS to be
competitive and include certain features, as specified.
4)Create an exemption for CalSTRS from the requirement that the
contract process be competitive for emerging investment
managers, as specified.
5)Provide that an emerging investment manager who is not
selected to contract with CalSTRS has the opportunity to
protest the selection.
6)Stipulate that the board authority over the terms and
conditions and processes regarding state contracts does not
modify any other law restricting the eligibility of persons or
entities to bid on or be awarded contracts.
7)Make other technical and clarifying changes.
EXISTING LAW:
1)Provides, as established by The California Pension Protection
Act of 1992 (Proposition 162) which amended State Constitution
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Article XVI, Section 17, that the retirement board of a public
pension or retirement system has plenary authority and
fiduciary responsibility for investment of monies and
administration of the system.
2)Requires, based on provisions in the California Constitution,
that services provided by state agencies generally be
performed by state civil service employees.
3)Restricts under state law, but does not prohibit, private
contracting by public agencies. Public agencies are
authorized to engage in private contracting in various
instances, as specified.
FISCAL EFFECT: According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS: Most of California's state agencies, including
CalSTRS, must abide by state contracting requirements. In
recognition of the unique nature of the services required of
certain government agencies, often out of the need for
expediency, the Legislature has granted specific exemptions from
state competitive bidding requirements. For example, the
California Housing Finance Agency and the California Health
Benefit Exchange Board have been granted blanket exemptions. In
addition, CalPERS is exempt from competitive bidding
requirements when contracting with health plans and long-term
care insurance plans. General exemptions also apply for any
state agency when obtaining expert witnesses, or for contracts
for legal defense, legal advice or legal services or the
development, maintenance, administration or use of licensing or
proficiency testing examinations.
According to CalSTRS, "The overall purpose of the competitive
bidding requirements set forth in the Public Contract Code is to
stimulate competition conducive to sound fiscal practices;
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protect the public from the misuse of public funds; and guard
against favoritism, fraud and corruption. As fiduciaries, the
CalSTRS and CalPERS boards are bound by standards set forth in
the California State Constitution and federal law to invest plan
assets in a manner that is solely in the interest of members and
beneficiaries. These strict standards require fiduciaries to
discharge duties with care, skill, prudence and diligence at a
level that goes beyond the goals of competitive bidding
requirements.
"In addition to competitive bidding, state law requires that
contractors certify compliance with a myriad of
California-specific statutes and regulations, some of which
require certification prior to even being considered. Many of
these certifications are entirely inapplicable to the highly
specialized nature of investment management. As a result, firms
that desire to compete for a contract must allocate the
necessary time and resources to decipher contract laws when
their expertise is and should be more centered on the management
of investments.
"As a consequence, oftentimes smaller emerging manager firms
that do not employ the extensive marketing staff of larger firms
cannot afford to allocate critical investment staff capacity to
compete for these contracts. These disincentives to compete
reduce the universe of potential manager firms with which to
contract. This can prevent CalSTRS and CalPERS from being able
to invest timely in certain hard-to-reach sectors of the
marketplace, thus resulting in opportunity costs to the funds."
Analysis Prepared by:
Karon Green / P.E.,R., & S.S. / (916) 319-3957
FN:
0004774
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