BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 2337
Lou Correa, Chair Hearing date: June 28, 2010
AB 2337 (Ammiano) as amended 6/22/10 FISCAL: YES
PUBLIC RETIREMENT SYSTEMS: PROHIBITION ON PREDATORY REAL
ESTATE INVESTMENT PRACTICES
HISTORY :
Sponsor: East Palo Alto Fair Rent Coalition (Co-Sponsor)
Tenants Together (Co-Sponsor)
Prior legislation: AB1584 (Hernandez),
Chapter 301, Statutes of 2009
AB 221 (Anderson),
Chapter 671, Statutes of 2007
AB 2941 (Koretz),
Chapter 442, Statutes of 2006
AB 107 of 2000 (Knox),
Died in Assembly PER&SS Committee
AB 1744 of 1998 (Knox),
Held in Assembly Appropriations Committee
SB 1433 of 1998 (Hayden),
Held in Assembly Appropriations Committee
AB 3445 of 1996 (Knox),
Died in Assembly PER&SS Committee
ASSEMBLY VOTES :
PER & SS 4-2 4/21/10
Appropriations 12-5 5/28/10
Assembly Floor 43-30 6/02/10
SUMMARY :
1) would prohibit California public retirement systems
from participating in predatory real estate investment
practices, as defined;
2) would require public pension or retirement Boards
to develop and implement a policy on or before June 30,
2011 that prohibits the investment of public employee
retirement funds in predatory investment practices; and
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Date: 6/23/10 Page 1
3) would require public pension or retirement Boards
to provide an annual report to the legislature
regarding implementation, compliance and any policy
adopted regarding these provisions.
BACKGROUND AND ANALYSIS :
1)Existing law :
a) The California Pension Protection Act of 1992
(Proposition 162) which amended Article XVI, Section 17
of the State Constitution provides in part:
i. That the retirement board of a public
pension or retirement system has the sole and
exclusive fiduciary responsibility over the assets of
the public pension or retirement system;
ii. That a retirement board's duty to its
participants and their beneficiaries takes precedence
over any other duty;
iii. That the retirement board of a public
pension or retirement system must diversify the
investments of the system to minimize the risk of loss
and to maximize the rate of return, unless under the
circumstances it is clearly not prudent to do so; and
iv. That the legislature may by statute
prohibit certain retirement board investments where it
is in the public interest to do so, provided that the
prohibition satisfies specific fiduciary standards.
b) Prohibits the boards of the California Public
Employees' Retirement System (CalPERS) and California
State Teachers' Retirement System (CalSTRS) from
investing public employee retirement funds in a company
with active business operations in Sudan and Iran, as
specified.
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2)This bill :
a) would prohibit California public retirement systems
from participating in predatory real estate investment
practices related to rent-regulated housing that results
in excessive rent increases, the displacement of
tenants, or conversion of rent-regulated housing to
market rate units;
b) specifies that private real estate investments must
not include real estate investment trusts or other
publicly traded and similar securities;
c) requires public retirement systems to develop, by
June 30, 2011, a policy that prohibits new investment of
funds in entities involved in predatory real estate
investment practices;
d) 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;
e) 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 the requirements of this policy;
f) prohibits the systems from using investment managers
who have violated the policy for new investments; and
g) 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.
FISCAL :
According to the Assembly Appropriations Committee, costs are
unknown with potentially significant costs to public pension
funds to review, monitor, and report on their real estate
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investment holdings.
COMMENTS :
1) CalPERS' Existing Real Estate Policy
The CalPERS Board's Investment Committee recently adopted
changes to its existing Statement of Investment Policy for
Real Estate to more fully integrate the United Nation's
Principles for Responsible Investment into its real estate
investment process as it relates to rent-regulated housing.
The policy was developed with the Board's external
consultants, affordable housing investment managers, and
stakeholders such as local public officials and tenant's
rights groups. Specifically, the policy established
requirements - of which many are mirrored by this bill -
regarding CalPERS' private real estate investment strategies
on rent-regulated housing units, including conversion to
market rate units, rent, creating or redeveloping existing
rent-regulated units and relocation benefits to displaced
individuals.
It is noted that CalPERS began implementation of the new
policy by reviewing multi-family rent-regulated investment
proposals for consistency with the revised policy and will
periodically review the outcome of that policy and propose
additional appropriate measures if additional monitoring be
necessary.
2) Arguments in Support
According to the author:
Public pension systems in California do not have in place
a mechanism to identify and prevent investments in
businesses whose real estate projects cause detrimental
impacts upon tenants and the communities in which they
reside. Without criteria to prevent investments in
predatory equity schemes, CalPERS and CalSTRS have
invested in businesses whose actions have resulted in the
displacement of thousands of renters from affordable
housing and the loss of millions from public pension
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funds.
Supporters contend that "predatory equity" is a 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."
3)Arguments in Opposition
The opposition contends that this bill would disincentive
investors and developers to build and upgrade housing in rent
regulated communities because it ignores the roles of public
pension fund investment in housing development; would
negatively affect job creation and state economic
revitalization; and, does not consider existing federal laws
regarding displacement of individuals due to development
projects and relocation.
Opponents further contend that this bill is unnecessary
because local governments already have the tools in place and
provide protections to tenants of local rent control
communities, such as city and county oversight boards which
oversee rent regulations and eviction; hearings for tenants
who believe that they have been unfairly treated by
landlords; and, requirements that landlords appear before
these local boards to ask for any increases in rent to cover
maintenance at the properties.
4) SUPPORT :
East Palo Alto Fair Rent Coalition (Co-Sponsor)
Tenants Together (Co-Sponsor)
American Federation of State, County and Municipal
Employees (AFSCME), AFL-CIO
Asian Law Caucus (ALC)
California Alliance for Retired Americans (CARA)
California Communities United Institute (CalComUI)
California Reinvestment Coalition (CRC)
California Teachers Association (CTA)
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Central City SRO Collaborative
Community Legal Services in East Palo Alto (CLSEPA)
CRLA Foundation
East Palo Alto Council of Tenants Education Fund
Non-Profit Housing Association of Northern California (NPH)
Rent Stabilization Board, City of East Palo Alto
San Mateo County Board of Supervisors
Santa Monicans for Renters' Rights
Service Employees International Union (SEIU)
Tenants & Neighbors
Urban Homesteading Assistance Board (UHAB)
Western Center on Law & Poverty (WCLP)
Youth United for Community Action
1 Individual letter
5) OPPOSITION :
Apartment Association of Greater Los Angeles (AAGLA)
California Apartment Association (CAA)
California Association of Realtors (C.A.R.)
California Bankers Association (CBA), (Oppose Unless
Amended)
Santa Barbara Rental Property Association (SBRPA)
State Association of County Retirement Systems (SACRS)
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Date: 6/23/10 Page 6