BILL ANALYSIS
AB 2337
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Date of Hearing: May 28, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2337 (Ammiano) - As Amended: May 6, 2010
Policy Committee: P.E.R. &
S.S.Vote: 4-2
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill prohibits California public pension funds from
participating in predatory real estate investment practices
related to rent-regulated housing that result in excessive rent
increases, the displacement of tenants, or conversion of rent
-regulated housing into market rate housing. Specifically, the
bill:
1)Requires public pension funds to develop, by June 30, 2011, a
policy that prohibits the new investment of funds in entities
involved in predatory real estate investment practices.
2)Requires the pension funds, beginning January 1, 2012 and
annually thereafter, to report to the Legislature on their
compliance with the provision of the rent-regulated housing
investment policy, including a statement on all non-compliant
investments.
3)Prohibits an investment manager, making investments materially
inconsistent with the non-predatory investment policy, from
managing future investments for the pension fund.
4)Requires the pension funds to adopt a complaint procedure for
alleged violations of this policy that can be used by tenants
occupying rent-regulated properties acquired with proceeds
from the pension funds.
FISCAL EFFECT
Unknown, potentially significant costs to public pension funds
to review, monitor, and report on their real estate investment
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holdings. As an example, CalPERS indicates this bill would
result in administrative costs to its fund of about $550,000
annually to monitor investments and respond to complaints of
tenants of their real estate holdings.
COMMENTS
1)Background - pension fund investment policy . As amended by
Proposition 162, The California Pension Protection Act of
1992, California's public retirement systems have "plenary
authority and fiduciary responsibility for investment of
monies and administration of the system". The Legislature is
permitted, however, 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."
2)Background - CalPERS real estate investment losses . This bill
relates to major losses on high-risk real private equity real
estate investments undertaken by CalPERS during the peak of
the real estate boom, some of which involved participation in
plans that involved displacement of tenants in rent controlled
housing. Following internal and external reviews of their
investment losses, CalPERS adopted a policy on April 18, 2010
to prohibit excessive rent increases and the involuntary
displacement of low-income households in its private equity
real estate investments. The policy applies to future
investments and to previous investments insofar as existing
contracts permit it.
The investment prohibition and reporting requirements of this
bill are broader than CalPERS' internal policy, in that they
apply to all real estate holdings in a pension fund's
portfolio - including investments, such as Real Estate
Investment Truss, where the fund may be a limited participant.
3)Rationale . The purpose of the bill is to ensure that public
dollars are not used in speculative investments that displace
tenants from their homes. The co-sponsors (Tenants Together
and The Fair Rent Coalition) argue that predatory equity is a
particularly nasty form of real estate investment - a business
model premised on abusing tenants. They also assert that
predatory equity schemes have not only harmed tenants, but
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also proved to be bad investments on purely economic terms,
noting that CalPERS has lost considerable sums invested in
these speculative deals.
4)Opponents argue that, while the intent of the bill is
admirable, the measure could have unintended consequences in
terms of creating barriers to legitimate real estate
investments in low income housing and hurting pension funds'
rate of returns. CalPERS indicates that the provisions
requiring monitoring all investments and responding to all
tenant complaints would be time consuming and expensive.
5)Related legislation. In recent years, the Legislature passed
two measures prohibiting particular types of investments. AB
221 (Anderson), Chapter 671, Statutes of 2007, prohibited
CalPERS and CalSTRS from investing public employee retirement
funds in companies that have specified energy- or
defense-related operations in Iran. AB 2941 (Koretz), Chapter
442, Statutes of 2006 prohibited CalPERS and CalSTRS from
investing public employee retirement funds in a company with
active business operations in the Sudan.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081