BILL NUMBER: AB 2337 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 22, 2010
INTRODUCED BY Assembly Member Ammiano
FEBRUARY 19, 2010
An act to add Section 7513.75 to the Government Code, relating to
investments.
LEGISLATIVE COUNSEL'S DIGEST
AB 2337, as amended, Ammiano. Public retirement system:
investments: predatory investment practices.
The California Constitution provides that the Legislature may by
statute prohibit retirement board investments if it is in the public
interest to do so, and providing that the prohibition satisfies
specified fiduciary standards.
Existing law prohibits the Public Employees' Retirement System and
the State Teachers' Retirement System from investing public employee
retirement funds in a company with active business operations in
Sudan and Iran, as specified. Existing law also requires these
retirement systems to sell or transfer any investments in a company
with business operations in Sudan. Existing law requires these
retirement systems to submit an annual report to the Legislature
regarding any investments in a company with business operations in
Sudan and the sale or transfer of those investments. Existing law
requires the state to indemnify, from the General Fund, and hold
harmless the present, former, and future board members, officers, and
employees of, and investment managers under contract with, these
retirement systems by reason of any decision to restrict, reduce, or
eliminate investments in Sudan, as specified.
This bill would additionally prohibit the Public
Employees' Retirement System and the State Teachers' Retirement
System boards of public pension or retirement systems,
as defined, from investing public employee retirement funds in
a company with business operations engaged in predatory investment
practices that rely on, or result in, the displacement of persons
residing in rent-regulated housing in order to generate profits to
investors and would require the boards to establish a policy in
regard to investing in rent-regulated housing, as
specified . The bill would require the Board of
Administration of the Public Employees' Retirement System and the
Teachers' Retirement Board of the State Teachers' Retirement System
to sell or transfer any investments in a company with business
operations engaged in predatory investment practices, as specified.
This bill would make related legislative findings and
declarations.
This bill would require these boards to report to the Legislature
any investments in a company with specified business
operations engaged in predatory investment practices and the sale or
transfer of those investments, subject to the fiduciary duty of these
boards, regarding real estate investments in
rent-regulated housing and compliance with the provisions of the
rent-regulated housing investment policy by January 1, 2012,
and by January 1 of every year thereafter.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. (a) The Legislature finds and declares that investments
by public retirement boards in companies that engage in predatory
investment practices, which rely on, or result in, the displacement
of persons residing in rent-regulated housing in order to generate
profits to investors, are not only harmful to the persons displaced
by these practices but also to the entire community in which those
persons reside.
(b) The Legislature further finds and declares that it is in the
public's interest to enact legislation to prohibit the investment of
retirement funds in companies engaged in, or investing in companies
engaged in, predatory investment practices that result in excessive
rent increases imposed upon, or the eviction or displacement of,
persons residing in rent-regulated housing.
SEC. 2. Section 7513.75 is added to the Government Code, to read:
7513.75. (a) As used in this section, the following definitions
shall apply:
(1) "Board" means the Board of Administration of the Public
Employees' Retirement System or the Teachers' Retirement Board of the
State Teachers' Retirement System, as applicable.
(1) "Board" means the retirement board of a public pension or
retirement system, as defined in subdivision (h) of Section 17 of
Article XVI of the California Constitution.
(2) "Company" means a sole proprietorship, organization,
association, corporation, partnership, venture, or other entity, its
subsidiary or affiliate that exists for profitmaking purposes or to
otherwise secure economic advantage.
(3) "Invest" or "investment" means the purchase, ownership, or
control of stock of a company, association, or corporation, the
capital stock of a mutual water company or corporation, corporate
bonds or other debt instruments issued by a company, or the
commitment of funds or other assets to a company, including a loan or
extension of credit to that company.
(4) "Predatory investment practices" means investments that rely
on, or result in, the displacement of persons residing in
rent-regulated housing in order to generate profits to investors.
"Predatory investment practices" shall not include investment in
strategies that create new, or redevelop existing, rent-regulated
housing units provided that the following minimum criteria are met:
(A) Any rent-regulated housing units that are demolished as part
of the investment or project are replaced with new rent-regulated
housing units.
(B) Any person lawfully residing in rent-regulated units who is
displaced as a result of such strategies receives relocation benefits
in accordance with relocation requirements as mandated by the local
housing authority or by state or federal laws, if applicable.
However, in all cases, relocation benefits shall, at a minimum, be
equal to benefits required under the federal Uniform Relocation
Assistance and Real Property Acquisition Act.
(C) Displaced tenants shall have the right to return to the
replaced, rent-regulated housing at rents not to exceed their rents
prior to displacement.
(5) "Public employee retirement funds" means the Public Employees'
Retirement Fund described in Section 20062 of this code, and the
Teachers' Retirement Fund described in Section 22167 of the Education
Code.
(6) "Substantial action" means curtailing business operations with
a company that engages in predatory investment practices.
(b) The board shall develop and implement, on or before June 30,
2011, and thereafter maintain, a policy containing the following
requirements:
(b)
(1) The board shall not invest public employee
retirement funds in a company that engages in predatory investment
practices as identified by the board through, as the board
deems appropriate, publicly available information including, but not
limited to, information provided by nonprofit and other organizations
and government entities, or meets any of the
following criteria:
(1)
(A) The company invested in, or is engaged in business
operations with, entities engaged in investment or lending practices
that resulted in excessive rent increases imposed on, or the
eviction or displacement of, persons residing in rent-regulated
housing.
(2)
(B) The company has demonstrated complicity with
business operations that are engaged in investment or lending
practices that resulted in excessive rent increases imposed on, or
the eviction or displacement of, persons residing in rent-regulated
housing.
(c) On or before June 30, 2011, the board shall determine which
companies are subject to divestment.
(d) After the determination described in subdivision (c), the
board shall determine, by the next applicable board meeting, if a
company engages in predatory investment practices as described in
subdivision (b). If the board plans to invest or has investments in a
company that meets the criteria described in subdivision (b), that
planned or existing investment shall be subject to subdivisions (g)
and (h).
(e) Investments of the board in a company that does not meet the
criteria described in subdivision (b) are not subject to subdivision
(h) if the company does not subsequently meet the criteria described
in subdivision (b). The board shall identify the reasons why that
company does not satisfy the criteria described in subdivision (b) in
the report to the Legislature described in subdivision (i).
(f) (1) Notwithstanding subdivisions (d) and (e), if the board's
investment in a company described in subdivision (b) is limited to
investment via an externally and actively managed commingled fund,
the board shall contact that fund manager in writing and request that
the fund manager remove that company from the fund. On or before
June 30, 2011, if the fund or account manager creates a fund or
account devoid of companies described in subdivision (b), the
transfer of board investments from the prior fund or account to the
fund or account devoid of companies that engage in predatory
investment practices shall be deemed to satisfy subdivision (h).
(2) If the board's investment in a company described in
subdivision (b) is limited to an alternative fund or account, the
alternative fund or account manager creates an actively managed
commingled fund that excludes companies described in subdivision (b),
and the new fund or account is deemed to be financially equivalent
to the existing fund or account, the transfer of board investments
from the existing fund or account to the new fund or account shall be
deemed to satisfy subdivision (h). If the board determines that the
new fund or account is not financially equivalent to the existing
fund, the board shall include the reasons for that determination in
the report described in subdivision (i).
(3)
(2) The board shall make a good faith effort to
identify any private equity investments that involve companies
described in subdivision (b). If the board determines that a
private equity investment clearly involves a company described in
subdivision (b), the board shall consider, at its discretion, if
those private equity investments shall be subject to subdivision (h).
If the board determines that a private equity investment clearly
involves a company described in subdivision (b), and the board does
not take action as described in subdivision (h), the board shall
include the reasons for its decision in the report described in
subdivision (i).
(g) Except as described in subdivisions (e) and (f), the board, in
the board's capacity of shareholder or investor, shall notify any
company described in subdivision (d) that the company is subject to
subdivision (h) and permit that company to respond to the board. The
board shall request that the company take substantial action, no
later than 90 days from the date the board notified the company under
this subdivision. If the board determines that a company has taken
substantial action or has made sufficient progress towards
substantial action before the expiration of that 90-day period, that
company shall not be subject to subdivision (h). The board shall, at
intervals not to exceed 90 days, continue to monitor and review the
progress of the company until that company has taken substantial
action. A company that fails to complete substantial action within
one year from the date of the initial notice by the board shall be
subject to subdivision (h).
(h) If a company described in subdivision (d) fails to complete
substantial action by the time described in subdivision (g), the
board shall take the following actions:
(1) The board shall not make additional or new investments or
renew existing investments in that company.
(2) The board shall liquidate the investments of the board in that
company no later than 18 months after this subdivision applies to
that company. The board shall liquidate those investments in a manner
to address the need for companies to take substantial action and
consistent with the board's fiduciary responsibilities as described
in Section 17 of Article XVI of the California Constitution.
(i) On or before January 1, 2012, and every year thereafter, the
board shall file a report with the Legislature. The report shall
describe the following:
(1) A list of investments the board has in companies with business
operations that satisfy the criteria in subdivision (b), including,
but not limited to, the issuer, by name, of the stock, bonds,
securities, and other evidence of indebtedness.
(2) A detailed summary of the business operations a company
described in paragraph (1).
(3) Whether the board has reduced its investments in a company
that satisfies the criteria in subdivision (b).
(4) If the board has not completely reduced its investments in a
company that satisfies the criteria in subdivision (b), when the
board anticipates that the board will reduce all investments in that
company or the reasons why a sale or transfer of investments is
inconsistent with the fiduciary responsibilities of the board as
described in Section 17 of Article XVI of the California
Constitution.
(5) Any information described in subdivisions (d) and (e).
(6) A detailed summary of investments that were transferred to
funds or accounts devoid of companies with business operations that
involve predatory investment practices as described in subdivision
(f).
(7) An annual calculation of any costs or investment losses or
other financial results incurred in compliance with the provisions of
this section.
(j) If the board
voluntarily sells or transfers all of its investments in a company
engaged in predatory investment practices, this section shall not
apply except that the board shall file a report with the Legislature
related to that company as described in subdivision (i).
paragraph (1).
(3) The board shall direct staff to review investments made before
the effective date of the policy to determine appropriate
implementation of the policy relating to existing investments. Staff
shall make a report to the board regarding existing investments that
appear inconsistent with the objectives of this policy. The report
shall describe the impacts, and anticipated impacts, of those
investments on tenants living in rent-regulated housing, and set
forth a recommended strategy to address and mitigate these impacts
consistent with the board's fiduciary duties. Thereafter, staff shall
prepare an annual report to the board regarding real estate
investments in rent-regulated housing and compliance with this
policy. The annual report shall be provided to the Legislature on or
before January 1, 2012, and on or before January 1 of every year
thereafter. Any report filed pursuant to this paragraph shall comply
with Section 9795 of the Government Code.
(4) Any investment proposal submitted to the pension fund, or its
agents, that involves the acquisition of occupied, rent-regulated
housing shall include a statement from the applicant stating that the
applicant has reviewed the pension fund's policy on real estate
investment strategies impacting rent-regulated housing units, and
either the proposed investment strategy does not rely on or result in
eliminating rent-regulated housing units, converting those units to
market rate units, or raising rents above regulated levels as
determined by the appropriate governing authority, or the proposed
investment does not meet the criteria set forth in subparagraph (A)
of paragraph (1).
(5) If, after the effective date of this policy, an investment
manager makes investments that are materially inconsistent with this
section, the pension fund shall not use that manager for any new
investments.
(6) The pension fund shall adopt a complaint procedure that can be
used by tenants occupying rent-regulated properties that are
acquired with an investment from the pension fund. Nonprofit
organizations may also utilize the complaint procedure for alleged
violations of this policy.
(7) The pension fund shall require that any investment partner
acquiring rent-regulated property notify tenants living in the
property of the existence of this policy and the complaint procedure
regarding alleged violations of this policy.
(k)
(c) Nothing in this section shall require the board to
take action as described in this section unless the board determines,
in good faith, that the action described in this section is
consistent with the fiduciary responsibilities of the board as
described in Section 17 of Article XVI of the California
Constitution.