BILL ANALYSIS
AB 2337
Page 1
REPLACE - 06/02/2010 Changes per Consultant.
ASSEMBLY THIRD READING
AB 2337 (Ammiano)
As Amended May 28, 2010
Majority vote
PUBLIC EMPLOYEES 4-2 APPROPRIATIONS 12-5
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|Ayes:|Torrico, Furutani, |Ayes:|Fuentes, Ammiano, |
| |Hernandez, Ma | |Bradford, |
| | | |Charles Calderon, Coto, |
| | | |Davis, Monning, Ruskin, |
| | | |Skinner, Solorio, |
| | | |Torlakson, Torrico |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Harkey, Nestande |Nays:|Conway, Harkey, Miller, |
| | | |Nielsen, Norby |
| | | | |
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SUMMARY : Prohibits California public retirement systems 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,
this bill :
1)Requires public retirement systems 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 retirement systems to report annually to their
boards on real estate investments that are inconsistent with
the policy, as specified, and to the Legislature on their
implementation and compliance of these provisions along with a
copy of the policy that has been adopted by the retirement
board.
3)Requires investment managers entering into agreements with the
retirement systems that involve the acquisition of occupied,
rent-regulated housing to agree, in writing, to comply with
AB 2337
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the requirements of this policy.
4)Prohibits the systems from using investment managers who have
violated the policy for new investments.
5)Specifies that nothing in the bill requires a public
retirement system board to take an action that is inconsistent
with the board's fiduciary duties.
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 : According to the Assembly Appropriations
Committee, unknown, probably minor costs to California Public
Retirement System (CalPERS) and California State Teachers'
Retirement System (CalSTRS) to comply with the provisions of
this bill.
COMMENTS : This bill relates to major losses on high-risk
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
AB 2337
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investments and to previous investments insofar as existing
contracts permit it.
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 also proved to be bad
investments on purely economic terms, noting that CalPERS has
lost considerable sums invested in these speculative deals.
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.
In recent years, the Legislature passed two measures prohibiting
particular types of investments. AB 221 (Anderson), Chapter
671, Statutes of 2007, prohibits 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, prohibits
CalPERS and CalSTRS from investing public employee retirement
funds in a company with active business operations in the Sudan.
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957
FN: 0004716