BILL ANALYSIS �
AB 1379
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Date of Hearing: April 13, 2011
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Warren T. Furutani, Chair
AB 1379 (Bradford) As amended: March 14, 2011
SUBJECT : Economic development: public pension funds.
SUMMARY : Authorizes public retirement systems with assets over
$4 billion to report annually to the Controller on investments
in California and emerging domestic markets, as specified.
Specifically, this bill :
1)Permits a state or local public retirement system with assets
over $4 billion to report to the Controller on investments in
California and emerging domestic markets, as specified, that
it adds to its portfolio on and after July 1, 2012.
2)Permits the report to include an estimate of the number of
jobs created and retained because of the retirement system's
investments.
3)Requires the Controller, by June 1, 2012, to develop
streamlined and cost-effective methods of identifying
investments within the retirement system's portfolios that
meet the definitions of California investment and emerging
domestic market investment. These methods are to be updated
at least every 5 years and be made available through the
Controller's Internet Web site.
4)Defines "California investment" and "emerging domestic market
investment" for purposes of these provisions.
5)Makes various legislative findings and declarations related to
the benefit California could realize by adopting and
implementing more effective economic development policies with
better information on California and emerging domestic market
investments by the public retirement systems in the state and
encourages retirement systems with sufficiently diversified
portfolios adopt emerging domestic market investment policies.
EXISTING LAW :
1)Requires public pension funds to annually report to the
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Controller on a variety of issues including the fiscal
condition of state and local public retirement systems.
2)Provides, under the state Constitution by Proposition 162, the
California Pension Protection Act of 1992, that 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 its 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 : The California Public Employees' Retirement System
(CalPERS) and the California State Teachers' Retirement System
(CalSTRS) have special initiatives on California investments and
investments in emerging domestic managers.
According to information provided to the Committee by CalPERS,
the capital that CalPERS invests in California is usually not
explicitly directed to the state but is the consequence of a
process weighing the financial merits of particular companies,
properties and projects, regardless of location. The size of
CalPERS, and of California's economy, is the primary driver of
the System's significant exposure to local communities and the
related benefits that this brings, like job creation. At June
30, 2010, CalPERS invested:
$6.1 billion in 644 California-headquartered public
companies, which employ over 700,000 people in the state -
nearly 5% of the total workforce.
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$4.7 billion of fixed income capital in California, $810
million of which is invested in 14 California headquartered
corporate bond issuers employing over 85,000 workers in the
state.
$2.9 billion in 1,331 California-headquartered private
companies, which support more than 140,000 local jobs.
$3.3 billion in 387 California-based real estate
projects.
$80 million in six California-based infrastructure
projects.
CalPERS invested approximately $17 billion in companies,
properties and projects located in California across five key
asset classes - public equities, private equities, fixed income,
real estate, and infrastructure.
According to the author, "Existing law is not sufficiently
specific on the contents of the state economic development
strategy. This has resulted in a lack of concrete
recommendations relating to the use and attraction of private
investment.
"California communities represent a potentially significant
investment opportunity for institutional investors generating
appropriate risk-adjusted returns. The State, however, does not
track investments made by public pension funds and does not
engage private investors on how to make the State a more
attractive place in which to invest. More private investment,
in turn, could result in increased financial opportunities for
the state's historically underserved capital markets, also known
as emerging domestic markets."
The author concludes, "AB 1379 mitigates these limitations by
directly engaging private investors and beginning to track the
large, fully diversified, public pension funds. The bill does
not require investments in either California or historically
underserved areas; rather the bill would permit a state or local
pension system with assets over $4,000,000,000 to provide a
report to the Controller on California's investment in emerging
domestic markets. It also encourages the State to create the
economic environment that encourages California investments.
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REGISTERED SUPPORT / OPPOSITION :
Support
California Reinvestment Coalition
California Small Business Development Centers
Latino Business Chamber of Greater Los Angeles
Small Business California
Small Business Finance
Small Business Financial Development Corporation of Orange
County
Opposition
None on file
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957