BILL ANALYSIS Ó
AB 2650
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Date of Hearing: April 20, 2016
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT, AND SOCIAL
SECURITY
Rob Bonta, Chair
AB 2650
(Nazarian) - As Amended March 17, 2016
SUBJECT: Public employee retirement systems: prohibited
investments: Turkey
SUMMARY: Prohibits the California Public Employees' Retirement
System (CalPERS) and the California State Teachers' Retirement
System (CalSTRS) from making additional, new, or renewed
investments in any investment vehicle issued by, owned,
controlled, or managed by the government of Turkey.
Specifically, this bill:
1)Makes various legislative findings and declarations regarding
the Armenian Genocide and the Republic of Turkey's refusal to
acknowledge its responsibility, and to reach resolution on
compensation for the survivors of, the Armenian Genocide.
2)Prohibits the boards of CalPERS and CalSTRS from making
additional, new, or renewed investments of public employee
retirement funds in any investment vehicle issued by, owned,
controlled, or managed by the government of Turkey.
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3)Requires the boards to liquidate investments meeting the above
criteria on or before
July 1, 2018.
4)Requires the boards in making their determination whether to
liquidate investment to constructively engage with the
government of Turkey to determine if the government is
transitioning to publicly accepting responsibility for the
Armenian Genocide.
5)Requires the boards to file a report with the Legislature and
the Governor, on or before January 1, 2019, that includes the
following information:
a) A list of the Turkish investment vehicles that the board
has liquidated, as required above;
b) A list of Turkish investment vehicles with which the
board engaged with the government of Turkey along with
supporting documentation to substantiate the board's
decision regarding liquidating the investment;
c) A list of Turkish investment vehicles the board has not
liquidated due to a determination by the board that to do
so is inconsistent with their fiduciary responsibilities,
as specified.
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6)Specifies that nothing in this bill shall require a board to
take any action unless the board determines in good faith that
an action is consistent with the board's fiduciary
responsibilities as described in Section 17 of Article XVI of
the California Constitution.
7)Provides that board members and other covered persons, as
described, shall be indemnified from the General Fund and held
harmless by the State of California from all claims, demands,
suits, etc., sustained by reason of any decision to restrict,
reduce, or eliminate investments pursuant to this bill's
provisions.
EXISTING LAW:
1)Pursuant to the California Constitution provides that:
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."
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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, "CalPERS and CalSTRS both
have investment holdings in bonds directly issued by the
Republic of Turkey. CalPERS has an estimated $440 million in
Turkish bonds, while CalSTRS has investment holdings in excess
of several million dollars.
"California's investment in Turkish government bonds indirectly
subsidizes Turkish denial of the Genocide. This bill aims to
address the issue of Turkey's denial of the systematic killings
of 1.5 million Armenian victims during World War I. The
Republic of Turkey's unwillingness to cease teaching genocide
denial in its public schools continues the pattern of
discrimination against Armenians, and minorities. Turkey's
reluctance to take accountability and their encouragement for
discrimination and aggression towards Armenians in their country
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is apparent. This bill continues California's commitment to act
appropriately against countries that have a record of human
rights violations and undermine democracy."
According to supporters, "California has a clear policy of
Armenian Genocide recognition, as demonstrated by decades of
legislative resolutions and gubernatorial proclamations.
Contrary to our state's policy, the Turkish government fosters
the teaching of genocide denial in its public schools, and
continues to discriminate against Armenians and other
minorities. Despite these facts, our state's pension
systems-CalPERS and CalSTRS-have invested nearly approximately
$300 million in Turkish government holdings, thereby indirectly
subsidizing Turkish denial of the Genocide. The purpose of the
bill is to achieve a policy objective of not financially
rewarding and investing in governments which routinely violate
human rights or which promote policies contrary to our own.
Enactment of the bill would make it clear that California will
stand on principle and make our state's investment choices
consistent with our values and policies, such as Armenian
Genocide recognition. And finally, this bill will ensure that
our state will cease indirectly subsidizing Armenian Genocide
denial through our investments in the Turkish government. It is
not an attack on the Turkish people or nation, and does not
impact investments in Turkish businesses nor in California
businesses which invest in Turkey. It is simply limited to
Turkish government investment vehicles."
The Committee has also received a letter from the Consulate
General of the Republic of Turkey, that letter states, in part,
"AB 2650 proposes divestment from Turkey which is a sort of
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economic sanction. Both Turkish diplomats in the United States
and American diplomats in Turkey work tirelessly to improve
political, economic, and cultural relations between the two
countries. More than 1000 American companies operate in Turkey,
many of which, including California ones, bid for multi-billion
dollar projects. This bill undermines all of our efforts in
building a closer cooperation and jeopardizes the good faith and
trust we share."
This bill is similar to AB 1410 (Nazarian) of 2015. When AB
1410 was heard in this Committee, the author agreed to make the
bill's provisions permissive and the Chair stated that the
Committee would request an opinion from the Legislative Counsel
regarding the constitutionality of the proposal. On October 20,
2015, Legislative Counsel issued that requested opinion. In the
opinion, the Legislative Counsel concluded that AB 1410, if
enacted, "?would be preempted by the federal foreign affairs
power, and would continue to be so preempted even if it were
amended to authorize, rather than require, the divestment
contemplated in the bill." Under the supremacy clause of the
United States Constitution, federal law will preempt any state
law that interferes with, or is contrary to, federal law. The
federal government generally has the exclusive and paramount
power to deal with foreign relations. State legislation is
preempted as an infringement upon the federal power to deal with
foreign affairs when the state legislation has a direct impact
upon foreign relations and may well adversely affect the power
of the federal government to deal with those problems.
The Committee, therefore, recommends that the bill be amended to
state that none of the provisions in the bill will take effect
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unless a federal law is passed that imposes comprehensive or
selective economic sanctions on Turkey or any territory under
the administration of Turkey.
Prior/Related Legislation:
SB 185 (DeLeon), Chapter 605, Statutes of 2015, prohibits
CalPERS and CalSTRS from investing in thermal coal companies, as
specified.
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.
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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.
REGISTERED SUPPORT / OPPOSITION:
Support
Armenian National Committee of America - Western Region
Los Angeles County Democratic Party (LACDP)
Opposition
None on file
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Analysis Prepared by:Karon Green / P.E.,R., & S.S. / (916)
319-3957