BILL ANALYSIS �
AB 873
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Date of Hearing: April 26, 2011
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Warren T. Furutani, Chair
AB 873 (Furutani) - As Amended: April 14, 2011
SUBJECT : Political Reform Act of 1974: postgovernment
employment restrictions.
SUMMARY : Strengthens revolving door and lobbying restrictions
for board members and high level staff at the California Public
Employees' Retirement System (CalPERS) and the California State
Teachers' Retirement System (CalSTRS). Specifically, this bill :
1)Extends the current two-year ban on lobbying a former state
employer to four years for board members, senior executives
and investment officers, general counsels, and other senior
staff of CalPERS and CalSTRS responsible for large contracts.
Places these provisions into the Political Reform Act where
violations would be subject to Fair Political Practices
Commission enforcement.
2)Prohibits CalPERS and CalSTRS board members, senior executives
and investment officers, general counsels, and other senior
staff who manage contracts valued greater than $10 million
from assisting a new employer on any contracts with CalPERS or
CalSTRS if they had substantial contract dealings (valued
above $10 million) with their new employer in the two years
prior to their separation. This prohibition would last for
two years.
3)Prohibits former CalPERS and CalSTRS board members, senior
executives and investment officers, and general counsels from
accepting compensation as a placement agent for providing
services in connection with CalPERS or CalSTRS, as specified,
for ten years after their separation.
EXISTING STATE LAW :
1)Prohibits individuals serving in senior investment and key
executive positions of the Public Employees Retirement System
or the State Teachers Retirement System from influencing the
actions of their respective retirement boards or retirement
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systems on behalf of any person, other than the state, within
two years after leaving that position.
2)Restricts, under the Political Reform Act, former employees
and Board members from being paid to appear before or
communicate with their former agency to influence the agency's
actions for a period of one year following the end of their
employment or term. The Political Reform Act also prohibits
state officials from making, participating in, or influencing
government decisions directly relating to a prospective
employer with whom they are negotiating employment or after
they have reached an employment arrangement.
3)Prohibits, under the Public Contract Code, a covered former
state official from entering into a contract for which he or
she engaged in any of the negotiations, transactions,
planning, arrangements, or any part of the decision-making
process while in state service-for a two-year period after
separation. For a one-year period after separation, a covered
former state official may not enter into a contract with the
former agency if he or she was in a policy-making position in
that agency in the same general subject area as the proposed
contract.
4)Requires placement agents who wish to do business with CalPERS
or CalSTRS to register as lobbyists and be subject to all
related reporting and compliance requirements under the
Political Reform Act that apply to lobbyists.
5)Makes a violation of the PRA subject to administrative, civil,
and criminal penalties.
EXISTING FEDERAL LAW :
1)Sets a one year ban or cooling-off period, with regard to such
activities as lobbying, for "senior employees" and a two year
ban for "very senior employees", as well as a permanent ban on
"switching sides" for executive branch employees who worked on
a matter involving contracts, grants or lawsuits, while a
federal employee.
2)Generally prohibits employees from accepting employment with
an entity with which they've had substantial contract dealings
(valued above $10 million) in the one year following their
separation.
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FISCAL EFFECT : Unknown.
COMMENTS : The following information was provided to the
Committee by the sponsor of the bill, the State Controller's
Office:
In early 2009 a public pension fund scandal involving the
trade of campaign contributions for pension fund
investments broke in New York State. The individuals at
the center of that scandal were investment middlemen,
called placement agents, and some of those involved were
linked to placement agent firms in California.
In the months that followed the scandal rippled westward,
catching former CalPERS board members and a chief executive
who had received tens of millions of dollars for arranging
investment deals that, in some cases, lost the state
hundreds of millions of dollars.
In 2010 there were two related developments to address the
unfolding placement agent scandal.
First, early that year the Controller's Office, CalPERS,
and Treasurer's Office sponsored legislation, AB 1743
(Hern�ndez), Chapter 668, Statutes of 2010, requiring
placement agents who wanted to do business with CalPERS and
the CalSTRS to register as lobbyists. Under this new law
placement agents are subject to all existing limits on
lobbyists, including annual filing requirements and limits
on gifts to board members.
Second, CalPERS commissioned a study by the respected
Washington DC law firm Steptoe and Johnson to review
CalPERS' investment decision making and identify ethical
vulnerabilities. The initial findings of that report,
which included a recommendation to further limit the
"revolving door" of employment, between pension fund
investment work and private firms seeking those
investments, was released in November 2010. In March 2011
a more detailed description of the incidents leading to
Steptoe and Johnson's recommendations was issued,
explaining the role prospective employment played in
recommendations about investment decisions at CalPERS.
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This measure is modeled on current federal post-employment
restrictions and would not prevent separating employees
from working for any employer with whom CalPERS or CalSTRS
does business, as long as their duties did not involve
performing, implementing, or executing a contract with
CalPERS or CalSTRS.
As noted in the Steptoe report, Mr. Buenrostro (former
Chief Executive Officer at CalPERS) and Mr. Villalobos
(former board member) were still lobbying CalPERS five
years after they left. A longer ban should, on a
going-forward basis, effectively (and importantly) sever
the relationship between CalPERS and CalSTRS and placement
agents.
This proposal addresses a key ethical issue associated with
former CalPERS board members and staff tied to the
placement agent scandal. By enacting stronger revolving
door and lobbying restrictions CalPERS and CalSTRS
investments will be better insulated from undue influence,
restoring the systems' performance and credibility in the
public eye, while reducing the likelihood that investment
decisions would be influenced by job offers and former
employees' "insider" knowledge.
This bill will also be heard in the Elections and Redistricting
Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
John Chiang, California State Controller (Sponsor)
American Federation of State, County and Municipal Employees
California Faculty Association
Opposition
None on file
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957
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