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