BILL ANALYSIS �
SB 439
Page 1
Date of Hearing: July 5, 2011
ASSEMBLY COMMITTEE ON ELECTIONS AND REDISTRICTING
Paul Fong, Chair
SB 439 (Negrete McLeod) - As Amended: June 27, 2011
SENATE VOTE : 39-0
SUBJECT : Political Reform Act of 1974: PERS: STRS: gift
limits.
SUMMARY : Prohibits board members and high-ranking employees of
California Public Employees' Retirement System (CalPERS) and
California State Teachers' Retirement System (CalSTRS) from
accepting gifts totaling more than $50 in a calendar year from a
person who has secured a contract with or submitted a contract
proposal to the applicable retirement system within the previous
five years. Prohibits contractors that make gifts in violation
of this limit on two separate occasions in a five-year period
from bidding on contracts with the retirement system for two
years. Specifically, this bill :
1)Prohibits a member of the board or a designated employee of
CalPERS or CalSTRS from accepting gifts in a calendar year
with a total value of more than $50 from any single person who
has secured a contract with, or submitted a contract proposal
to, CalPERS or CalSTRS within the previous five years.
Provides that a member or designated employee is not deemed to
have accepted a gift if the gift or the equivalent dollar
amount is returned to the donor within 30 days after its
receipt.
2)Provides that any vendor or contractor that makes gifts in
violation of the limit above on two separate occasions in a
five-year period is disqualified from bidding on, and being
awarded, any contract for a period of two years from the date
of the second assessment of an administrative penalty.
Provides that violations are deemed separate if they occur
more than 60 days apart.
EXISTING LAW :
1)Creates the Fair Political Practices Commission (FPPC), and
makes it responsible for the impartial, effective
administration and implementation of the Political Reform Act
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(PRA).
2)Requires every state and local governmental agency to adopt
and promulgate a Conflict of Interest Code. Requires each
Conflict of Interest Code to include a specific enumeration of
the positions within the agency, with certain exceptions, that
involve the making or participation in the making of decisions
which may foreseeably have a material effect on any financial
interest. Requires all individuals who hold such enumerated
positions, known as designated employees, to file periodic
statements of economic interests (SEIs) disclosing their
financial interests in accordance with the provisions of the
Conflict of Interest Code.
3)Prohibits an elected state or local government official or a
candidate for such a position from accepting gifts from any
single source in a calendar year with a total value of more
than $420, with certain limited exceptions. Prohibits a
member of a state board or commission, or a designated
employee of a state or local government agency, from accepting
gifts from any single source in a calendar year with a total
value of more than $420 if the member or employee would be
required to report the receipt of income or gifts from that
source on his or her SEI. Requires the FPPC to adjust these
gift limits on January 1 of each odd-numbered year to reflect
changes in the Consumer Price Index, rounded to the nearest
$10.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
State-mandated local program; contains a crimes and infractions
disclaimer.
COMMENTS :
1)Purpose of the Bill : According to the author:
In 2010, following charges of unethical conduct
against former CalPERS staff and board members
relative to the influence of placement agents, CalPERS
commissioned a study by the respected Washington DC
law firm, Steptoe and Johnson, to review CalPERS'
investment decision making practices and to identify
ethical vulnerabilities. The initial findings of that
report were released in November 2010 and included a
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recommendation to prohibit gifts to CalPERS board
members and staff.
SB 439 would lower, from $420 to $50, the amount of
allowable gifts made annually to CalPERS and CalSTRS
board members and staff from entities with business
before either entity. Unless otherwise prohibited by
CalPERS and CalSTRS policy, board members and
employees could accept gifts from entities with
business before them up to the current Political
Reform Act reportable threshold of $50. (An outright
ban is impractical as it makes activities such as
inadvertently accepting a cup of coffee, subject to a
fine.)
Additionally, the bill would suspend any vendor or
contractor from being awarded a contract or investment
for a two-year period if that firm is involved in two
gift-limit violations over a five-year period.
2)Current CalPERS and CalSTRS Policies : As noted above,
existing state law already prohibits a board member or
designated employee at CalPERS or CalSTRS from accepting gifts
from a single source in a calendar year with a total value of
more than $420 if the member or employee would be required to
report the receipt of income or gifts from that source on his
or her SEI. A violation of this gift limit can subject a
person to criminal, civil, or administrative penalties. This
gift limit is a part of the PRA, and applies broadly to most
high-ranking state and local government officials.
There is nothing in existing law, however, that explicitly
prevents an agency from adopting a gift policy for agency
employees that is more restrictive than the gift limit
established in the PRA. In fact, both CalPERS and CalSTRS
have adopted policies that, in at least some instances, are
more restrictive than the gift limit established in the PRA.
CalPERS, for instance, has adopted a "Statement of Incompatible
Activities" that establishes a "minimum standard of conduct
for" board members of CalPERS. Among other activities, the
Statement of Incompatible Activities provides that the receipt
or acceptance of any gift by a board member from anyone who is
doing or seeking to do business with CalPERS is inconsistent
with the obligations of CalPERS board members if under the
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circumstances it reasonably could be substantiated that the
gift was intended to influence the board member in his or her
official duties, or was intended to reward a board member for
any official action. Furthermore, pursuant to a policy
adopted in November 2009, CalPERS staff members who are
required to file SEIs are prohibited from accepting gifts of
any value from any person or entity that is doing business or
seeking to do business with CalPERS or is regulated or
controlled by CalPERS.
Similarly, CalSTRS has adopted a "Statement of Incompatible
Activities" that prohibits officers or employees of CalSTRS
from "�r]eceiving?any gift?from anyone who is doing or seeking
to do business of any kind with the State or whose activities
are regulated or controlled in any way by the State, under
circumstances from which it reasonably could be inferred that
the gift was intended to influence him/her in his/her official
duties or was intended as a reward for any official action on
his/her part." Additionally, CalSTRS currently is considering
revisions to its existing gift policy. Among the options that
are being considered is a gift policy that is similar to the
limit proposed by this bill and a policy that would prohibit
CalSTRS employees from receiving gifts of any value from
people or entities that do business with CalSTRS, similar to
the policy adopted by CalPERS.
3)Arguments in Support : In support of this bill, the sponsor of
the bill, State Controller John Chiang, writes:
CalPERS commissioned a study by the Washington DC law
firm Steptoe and Johnson to review CalPERS's
investment decision-making and identify ethical
vulnerabilities. The initial findings of that report
included a recommendation that CalPERS prohibit gifts
to CalPERS board members and staff, but by
substantially lowering the gift limit to a reasonable
amount, we can insure that an occasional lunch does
not lead to unintentional violations.
I believe SB 439 will restore public confidence in
CalPERS and CalSTRS' decision-making process by
limiting opportunities for influence-peddling or to
gain an unfair advantage in consideration for
investment. If enacted, this measure will assure
CalPERS and CalSTRS members and taxpayers that the
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decisions are being made in the best interest of the
funds, and set an enduring ethical precedent for other
states, local agencies, and private investors to
follow.
4)CalSTRS Amendments : CalSTRS which has taken a "Support,
seeking amendments" position on this bill, requests that the
bill be amended so that its provisions are applicable to all
California public pension systems, not just CalPERS and
CalSTRS. CalSTRS argues that such an amendment would ensure
that "all public pension systems are governed by consistent
standards and afforded the same protections against unethical
conduct and unfair influence."
5)Double-Referral : On June 22, 2011, this bill was approved by
the Assembly Public Employees, Retirement, and Social Security
Committee on a 6-0 vote.
6)Political Reform Act of 1974 : California voters passed an
initiative, Proposition 9, in 1974 that created the FPPC and
codified significant restrictions and prohibitions on
candidates, officeholders and lobbyists. That initiative is
commonly known as the PRA. Amendments to the PRA that are not
submitted to the voters, such as those contained in this bill,
must further the purposes of the initiative and require a
two-thirds vote of both houses of the Legislature.
REGISTERED SUPPORT / OPPOSITION :
Support
State Controller John Chiang (sponsor)
AARP
California Retired Teachers Association
CalPERS Board of Administration
CalSTRS (seeking amendments)
Service Employees International Union Local 1000
Opposition
None on file.
Analysis Prepared by : Ethan Jones / E. & R. / (916) 319-2094
SB 439
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