BILL ANALYSIS
AB 2337
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Date of Hearing: April 21, 2010
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Alberto Torrico, Chair
AB 2337 (Ammiano) - As Introduced: February 19, 2010
SUBJECT : Public retirement system: investments: predatory
investment practices.
SUMMARY : Prohibits the California Public Employees' Retirement
System (CalPERS) and the California State Teachers' Retirement
System (CalSTRS) from investing in a company 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, as specified.
Specifically, this bill :
1)Prohibits CalPERS and CalSTRS from investing public employee
retirement funds in a company that engages in predatory
investment practices that: (1) is 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, or (2) has demonstrated
complicity with business operations that are engaged in
investment or lending practices with the same result.
2)Defines "company" means a sole proprietorship, organization,
association, corporation, partnership, venture, or other
entity, its subsidiary or affiliate that exists for profit
making purposes or to otherwise secure economic advantage.
3)Defines "predatory investment practices" as investments that
rely on, or result in, the displacement of persons residing in
rent-regulated housing in order to generate profits to
investors.
4)Requires CalPERS and CalSTRS, on or before June 30, 2011, to
determine which companies are subject to divestment and sets
forth a process and timeframe for contacting these companies
and requesting they curtail the predatory investment
practices.
5)Prohibits CalPERS and CalSTRS from making additional or new
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investments in companies that fail to curtail the predatory
investment practices, as specified, and to liquidate
investments in that company within a specified timeframe.
6)Specifies that CalPERS and CalSTRS are not be required to take
any action pursuant to this section unless they determine that
such action is consistent with their plenary authority and
fiduciary responsibility for investment of retirement system
assets pursuant to Section 17 of Article XVI of the
Constitution.
7)Requires CalPERS and CalSTRS to report to the Legislature by
January 1, 2012, and annually thereafter, on their investments
in companies with business operations with predatory
investment practices, as specified.
EXISTING LAW : As provided in the state Constitution by
Proposition 162, The California Pension Protection Act of 1992,
the boards of California's public retirement systems have
"plenary authority and fiduciary responsibility for investment
of monies and administration of the system". Under Proposition
162, the Legislature also retained it's authority to, by
statute, "continue 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."
The Constitution also states, "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."
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, "CalPERS and CalSTRS have
historically promoted their leadership role in socially
responsible investing despite recent real estate investments
premised on evicting tenants for profit. Managing over $300
billion in pension funds CalPERS and CalSTRS not only impact the
lives of individuals, but major markets with their investment
decisions. CalPERS invests public pension funds in businesses
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practicing 'predatory equity', an inherently risky form of real
estate speculation predicated on the harassment and eviction of
renters from affordable housing. CalPERS has lost over $600
million from the retirement funds of working people, by
investing in businesses involved in predatory equity. These
predatory schemes are occurring across the nation, and have
caused great harm to communities in Stuyvesant Town and Peter
Cooper Village, New York and East Palo Alto, California. The
consequences of CalPERS investing in businesses partaking in
predatory equity reach beyond financial losses and include the
displacement of thousands of working low and middle-income
renters. For over a year, CalPERS has failed to respond to
tenants' rights organizations call to voluntarily adopt
'predator free' investment criteria."
Supporters state, "Predatory equity is a particularly nasty form
of real estate investment in which investors pay more for
rent-regulated housing than can be justified by the actual
rental income at the time of purchase, as part of a plan to
force rent-regulated tenants out of their homes and replace them
with higher-rent tenants or purchasers. It is a business model
premised on abusing tenants. Public pension funds should not
invest in these schemes. It is unacceptable for the retirement
funds of working people to be used to displace working people
from their homes."
Opponents state, "While the intent of the bill is admirable, the
practical impact on both CalSTRS and CalPERS can have long-term
consequences for current and future retirees of these systems.
This fiscal impact of this measure could be quite substantial as
it could impact multiple layers of investments. AB 2337 does
not indemnify the retirement systems, meaning the real costs
associated by this measure will be borne by the members of
theses systems."
Additionally, opponents also state, "?a state law that adds
perceived barriers to investment in rent control communities is
unwarranted and unnecessary, especially in light of local
regulatory protections. Rent control laws have created a
disincentive for investors and developers to build or upgrade
housing in these communities. It is these same jurisdictions
that have an imbalance between housing supply and demand, and
they should not face another law that gives the perception that
investment is unwelcome."
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The Committee is informed that the author will be offering
amendments in Committee that eliminate the provisions from the
bill requiring CalPERS and CalSTRS to divest from companies
engaged in predatory investment practices and instead do the
following:
1)Require all public retirement systems to adopt and implement,
by June 30, 2011, a policy prohibiting investments in
companies that engage in predatory investment practices that
result in excessive rent increases imposed upon, or the
eviction or displacement of, person residing in rent-regulated
housing in order to generate profits, as specified.
2)Require these systems to identify any existing private equity
investments that involve companies engaged in predatory
investment practices and to report to their respective boards,
prior to the effective date of the policy and annually
thereafter, on the impact these investments are having on
tenants and to recommend a strategy, consistent with the
board's fiduciary duties, to address and mitigate these
impacts.
3)Require the above report to be provided to the Legislature by
January 1, 2012, and annually thereafter.
4) Require investment proposals involving acquisition of
occupied, rent-regulated housing to include a statement from
the applicant indicating they have reviewed the investment
policy that the proposal is not prohibited by the policy.
5)Prohibit the systems from using investment managers who have
violated the policy for new investments.
6)Require the systems to adopt a complaint procedure for alleged
violations of the policy.
7)Require the investment partner acquiring the rent-regulated
property to notify tenants about the policy and the complaint
procedure.
8)Specify that nothing in the bill requires a public retirement
system board to take an action that is inconsistent with the
board's fiduciary duties.
The introduced version of this bill is similar to AB 221
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(Anderson), Chapter 671, Statutes of 2007, which prohibited
CalPERS and CalSTRS from investing public employee retirement
funds in companies that have specified energy- or
defense-related operations in Iran and AB 2941 (Koretz), Chapter
442, Statutes of 2006, which prohibited CalPERS and CalSTRS from
investing public employee retirement funds in a company with
active business operations in the Sudan.
As proposed to be amended, this bill is similar to AB 1584
(Hernandez), Chapter 301, Statutes of 2009, which, in part,
required all public pension systems to adopt a policy requiring
the disclosure of fees paid to investment placement agents, and
specifies that placement agents disclose campaign contributions
and gifts made by the agents to public retirement board members.
REGISTERED SUPPORT / OPPOSITION :
Support
East Palo Alto Rent Coalition (Co-sponsor)
Tenants Together (Co-sponsor)
Asian Law Caucus
California Reinvestment Coalition
Community Legal Services in East Palo Alto
County of San Mateo
San Francisco Tenants Union
Tenants & Neighbors
Opposition
Association of California School Administrators
California Apartment Association
California Bankers Association
California Retired Teachers Association (unless amended)
California Teachers Association
Faculty Association of California Community Colleges
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957