BILL ANALYSIS Ó
AB 2650
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Date of Hearing: May 4, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2650 (Nazarian) - As Amended April 26, 2016
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|Policy |Public Employees, |Vote:|5 - 0 |
|Committee: |Retirement/Soc Sec | | |
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill prohibits California State Teachers' Retirement System
(CalSTRS) and the California Public Employees' Retirement System
(CalPERS) from making additional or new investments or renewing
investments, in any investment vehicle issued, owned,
controlled, or managed by the government of Turkey, contingent
on a federal law that imposes comprehensive or selective
economic sanctions on Turkey or any territory under the
administration of Turkey.
AB 2650
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FISCAL EFFECT:
1)Minor ongoing annual administrative costs for CalPERS and
CalSTRS to routinely monitor federal action against Turkey.
2)Significant one-time administrative costs in the range of
$800,000 for CalPERS and CalSTRS to liquidate securities if
federal sanctions against Turkey are enacted.
3)Unknown impact on public retirement system portfolios if
federal sanctions against Turkey are enacted. CalSTRS and
CalPERS may incur opportunity costs if alternative investments
do not generate greater investment returns than divested
securities would have generated.
COMMENTS:
1)Purpose. According to the author, California's investment in
Turkish government bonds indirectly subsidizes Turkish denial
of the Armenian Genocide. This bill is intended to address the
issue of Turkey's denial and to encourage Turkey to take
accountability for the systematic killing of 1.6 million
Armenian victims in World War I.
2)Impact of divestment on CalPERS portfolio. A 2015 analysis by
Wilshire Associates found that previous divestment efforts
have collectively reduced the present value of the CalPERS
portfolio by a range of $3.8 to $8.3 billion. Divestment
targets that were included in this study were South African
securities, tobacco-related securities, California Iran and
AB 2650
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Sudan Act lists, and firearm-related companies. The largest
driver of this negative portfolio impact was the divestment
from tobacco, which Wilshire Associates found to have reduced
the CalPERS portfolio by an estimated $2 to $3 billion.
3)Prior legislation and policy committee amendments. AB 2650 is
similar to AB 1410 (Nazarian) of 2015. When AB 1410 was heard
in policy committee, the author agreed to make the bill's
provisions permissive and the policy committee requested an
opinion from the Legislative Counsel regarding the
constitutionality of the proposal. In October 2015,
Legislative Counsel concluded that AB 1410, if enacted, would
be preempted by the federal foreign affairs power, even if the
bill were amended to authorize, rather than require,
divestment from Turkey. As a result, AB 2650 was amended in
policy committee to make its provisions contingent upon
federal action against Turkey.
Analysis Prepared by:Luke Reidenbach / APPR. / (916)
319-2081