BILL ANALYSIS Ó AB 2650 Page 1 Date of Hearing: May 4, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair AB 2650 (Nazarian) - As Amended April 26, 2016 ----------------------------------------------------------------- |Policy |Public Employees, |Vote:|5 - 0 | |Committee: |Retirement/Soc Sec | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- 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 Page 2 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 Page 3 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