BILL ANALYSIS Ó
AB 2283
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Date of Hearing: April 20, 2016
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT, AND SOCIAL
SECURITY
Rob Bonta, Chair
AB 2283
(Calderon) - As Amended March 28, 2016
SUBJECT: Public retirement system: investments: securitized
rental homes
SUMMARY: Prohibits the California Public Employees' Retirement
System (CalPERS) and California State Teachers' Retirement
System (CalSTRS) from investing in new securitized home rental
properties or reinvesting in existing investments in securitized
home rental properties before conducting an evaluation of those
investments and ensuring that certain conditions are met.
Specifically, this bill:
1)Requires CalPERS and CalSTRS, prior to investing in new
securitized home rental properties or reinvesting in existing
investments in securitized home rental properties, to evaluate
those investments and ensure all of the following:
a) That the property management group is in compliance with
fair housing laws, as specified;
b) That rents are not inconsistent with the surrounding
rental market and are kept affordable, as specified;
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c) That the properties are in compliance with lawful
eviction guidelines, as specified; and,
d) That the properties are being adequately maintained, as
specified.
2)Requires CalPERS and CalSTRS to appoint an independent
ombudsman to provide oversight and enforcement of these
requirements.
3)Defines "securitized home rental properties" for purposes of
these provisions as single-family homes in California used as
rental properties that are aggregated with other properties
with the resulting income from the properties funding publicly
traded investment products.
4)States that nothing in this bill requires CalPERS and CalSTRS
to take action unless they determine, in good faith, that the
action is consistent with their fiduciary responsibilities as
described in California Constitution Article XVI Section 17.
EXISTING LAW:
1)Pursuant to the California Constitution provides that:
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a) The respective boards of California's public retirement
systems have "plenary authority and fiduciary
responsibility for investment of monies and administration
of the system."
b) The Legislature retains its authority, by statute "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."
c) 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."
2)Prohibits CalPERS and CalSTRS from investing in companies with
active business operations in Sudan and in Iran and in thermal
coal companies, as specified.
FISCAL EFFECT: Unknown.
COMMENTS: According to the author, "Over the last few years,
institutional investors, such as Blackstone, have bought up
billions of dollars-worth of single-family homes. Instead of
renovating and reselling them or just waiting for the real
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estate market to recover, they have converted these properties
into permanent rental homes. Of the five largest metropolitan
areas in the U.S. where concentration of this type of investment
is highest, three of them reside in California: Los Angeles,
Riverside, and Sacramento.
"At the time, the vast majority of these purchases were
foreclosures or short sales; however, purchases of homes coming
from natural sales have recently increased. The CEO of Colony
American Homes, which is one of the largest single-family
landlords in the country, said it himself, 'the first phase was
distressed homes, the second phase is acquiring homes in a more
regular way.'"
In October 2013, an institutional investor created the first
triple-A-rated, mortgage-backed security supported by revenue
from single-family rental properties. The emergence of a new
form of mortgage-backed securities tied to single-family rentals
is certain to have an impact on the housing market, communities,
and tenants. A mortgage-backed security is created by pooling
assets together and then selling interests in that pool to
investors, who then receive regular payments from the asset
pool. This process provides access to a much larger pool of
investors than would otherwise be feasible, increasing liquidity
and generally providing a less expensive source of funding than
traditional borrowing from banks or private investors."
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The author concludes, "As CalPERS and CalSTRS invest more money
into these large-scale, single-family rental bonds, it becomes
more and more important for them to pay closer attention to this
industry. Financial stability concerns in these bonds may
become more significant should debt financing become more
prevalent or if the share of homes owned by investors in certain
markets rises significantly further. In a recent Federal
Reserve brief, they warn that, 'To the extent that public
markets develop for bonds backed by the underlying income or
assets of investor portfolios, there is greater risk of the
development of shadow banking activities on these securities or
derivatives referencing them' and calls for greater monitoring
of these markets. As California's two largest public pensions
become more entrenched in these investments, it's imperative to
ensure these institutional landlords are responsive to the needs
of their tenants and are following the law."
Supporters state, "It is important that our state retirement
funds are investing consciously in businesses that do not harm
our communities. AB 2283 would collect more information on the
activities to these investor-landlords in California and make
recommendations to CalPERS and CalSTRS if these landlords are
violating tenants' rights, charging unfair rents, or failing to
maintain properties."
Opponents state that AB 2283, "?inappropriately uses the
retirement funds of public employees to pursue public policy and
to create a new, unprecedented and costly responsibility for
these funds to provide oversight where regulatory oversight
already exists. The bill unfairly targets one type of business
in which to divest from state retirement funds, starting down a
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slippery slope for divesture from other businesses based on
principles unrelated to fiduciary responsibility to the
retirees. Instead, investment decisions should be made based on
sound economic principles. Although the bill uses a creative
strategy to get at divestiture, its ultimate goal is for the
funds to divest of investments in securitized home rental
properties.
"Furthermore, we oppose setting a precedent for CalPERS and
CalSTRS to double check the regulatory compliance of private
companies because it has no public policy utility and will be
costly. The bill calls for the boards of the retirement funds to
evaluate and ensure compliance with fair housing and other laws,
and to appoint staff to create a system of oversight and
enforcement. California state government has in place mechanisms
within its regulatory agencies to enforce these laws."
Opponents further state, "AB 2283 establishes a rent control
mandate, by requiring that before the STRS or PERS Board chooses
to invest or reinvest in securitized home rental properties that
they ensure that, 'rents are not increased to a level that is
inconsistent with the surrounding rental market; that an
unreasonable financial burden is not placed on the tenant
through unjustly raising rents, and that rents are kept
affordable.' While this provision establishes an alarming
precedent, California law - known as the Costa-Hawkins Rental
Housing Act - prohibits in the market place this type of mandate
on single family homes, condominiums, and new construction built
after 1995 (Civil Code Section 1954.50). This provision is
certainly counter to settled public policy.
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"At the same time, the mandate in AB 2283 that requires STRS and
PERS ensure a property management group is in compliance with
fair housing, eviction, and general housing maintenance laws is
pointless, and the required independent ombudsman is an
unnecessary provision. Rental housing management and ownership
is highly regulated by federal, state, and local governments,
including but not limited to, the California Bureau of Real
Estate, the Attorney General, the Fair Employment and Housing
Agency, the U.S. Department of Housing and Urban Development,
local housing departments, and the courts in general. In
addition, consumer rights organizations receive millions of
dollars in public funding each year that adds to this
enforcement."
The California Association of Realtors and the San Diego County
Apartment Association are opposing the bill unless it is amended
to remove all references relating to rent control like concepts.
Prior/Related Legislation:
SB 185 (DeLeon), Chapter 605, Statutes of 2015, prohibits
CalPERS and CalSTRS from investing in thermal coal companies, as
specified.
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AB 1410 (Nazarian) of 2015 would have prohibited CalPERS and
CalSTRS from investing public employee retirement funds in
specified investments issued by, owned, controlled, or managed
by the government of Turkey. This bill was held on suspense in
the Assembly Appropriations Committee.
AB 1151 (Feuer), Chapter 441, Statutes of 2011, clarifies that
CalPERS and CalSTRS must divest pension funds, as specified,
unless to do so would fail to satisfy their fiduciary
responsibility. The law also modifies the types of companies
that fall within the Act's scope and requires certain findings
and determinations be made in noticed public hearings.
AB 221 (Anderson), Chapter 671, Statutes of 2007, prohibits
CalPERS and CalSTRS from investing in companies that have
specified energy or defense-related operations in Iran.
AB 2941 (Koretz), Chapter 442, Statutes of 2006, prohibits
CalPERS and CalSTRS from investing public employee retirement
funds in a company with business operations in the Sudan, as
specified.
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REGISTERED SUPPORT / OPPOSITION:
Support
Tenants Together
Opposition
California Apartment Association
California Association of Realtors (Oppose, unless amended)
California Chamber of Commerce
San Diego County Apartment Association (Oppose, unless amended))
Analysis Prepared by:Karon Green / P.E.,R., & S.S. / (916)
319-3957
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