BILL ANALYSIS �
------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 439|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
UNFINISHED BUSINESS
Bill No: SB 439
Author: Negrete McLeod (D), et al
Amended: 8/23/11
Vote: 27
SEN. PUBLIC EMPLOYMENT & RETIREMENT COMM. : 5-0, 3/21/11
AYES: Negrete McLeod, Walters, Gaines, Padilla, Vargas
SEN. ELECTIONS & CONSTITUTIONAL AMEND. COMM. : 5-0, 5/3/11
AYES: Correa, La Malfa, De Le�n, Gaines, Lieu
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SENATE FLOOR : 39-0, 5/23/11 (Consent)
AYES: Alquist, Anderson, Berryhill, Blakeslee, Calderon,
Cannella, Corbett, Correa, De Le�n, DeSaulnier, Dutton,
Emmerson, Evans, Fuller, Gaines, Hancock, Hernandez,
Huff, Kehoe, La Malfa, Leno, Lieu, Liu, Lowenthal,
Negrete McLeod, Padilla, Pavley, Price, Rubio, Runner,
Simitian, Steinberg, Strickland, Vargas, Walters, Wolk,
Wright, Wyland, Yee
NO VOTE RECORDED: Harman
ASSEMBLY FLOOR : 78-0, 9/6/11 - See last page for vote
SUBJECT : Political Reform Act of 1974: PERS: STRS:
gift limits
SOURCE : Author
CONTINUED
SB 439
Page
2
DIGEST : This bill (1) prohibits board members and
high-ranking employees of the California Public Employees
Retirement system and the California State Teachers
Retirement System 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, and (2) 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.
Assembly Amendments made clarifying and technical changes.
ANALYSIS :
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 (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 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 limit 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
CONTINUED
SB 439
Page
3
member or employee would be required to report the
receipt of income or gifts from that source on his or her
statement of economic interest. 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.
This bill prohibits board members and high-ranking
employees of the California Public Employees' Retirement
System (CalPERS) and the 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, and 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 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.
2.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.
3.Provides that a vendor or contractor that makes gifts
that are determined to be in violation of the gift limit
to a member of the board or to an employee of the CalPERS
and CalSTRS twice 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.
4.Provides that violations are deemed separate if they
occur more than 60 days apart.
Comments
CONTINUED
SB 439
Page
4
Background
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, D.C. 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 recommendation to prohibit gifts to
CalPERS board members and staff.
Current CalPERS and CalSTRS Policies . 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 in his or
her statement of economic interest. A violation of this
gift limit can subject a person to criminal, civil, or
administrative penalties. This gift limit is 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 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 influence the board
member in his or her official duties, or was intended to
CONTINUED
SB 439
Page
5
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 a statement
of economic interest 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 in 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 form people or entities
that do business with CalSTRS, similar to the policy
adopted by CalPERS.
Related and Prior Legislation
AB 873 (Furutani), 2011-12 Session, prohibits an
individual, who was a member of the board of CalPERS or
CalSTRS, or an administrator, executive officer, investment
officer, or general counsel of the system, from accepting
employment, within two years after separation from the
system, with any employer with which the individual
participated personally and substantially with contracts or
investment valued greater than $10 million any time in the
previous five years while the individual was employed by,
or served on the board of, the system, as specified. (On
Assembly Concurrence File)
AB 1584 (Assembly Public Employees, Retirement and Social
Security Committee), Chapter 301, Statutes of 2009, makes
numerous changes aimed at increasing disclosure and
accountability of investment placement agents, board
members, and others associated with public pension funds in
CONTINUED
SB 439
Page
6
California. Passed the Senate on 9/3/09 with a vote of
38-2.
AB 1743 (Hernandez), Chapter 668, Statutes of 2010,
prohibits a person from acting as a placement agent in
connection with any potential investment made by a state
public retirement system unless that person is registered
as a lobbyist in accordance with, and is in full compliance
with, the requirements of the California Political Reform
Act (PRA), and requires placement agents connected with
investments made by local public retirement systems to
comply with any applicable requirements imposed by a local
government agency on lobbyists pursuant to the PRA. Passed
the Senate on 8/30/10 with a vote of 29-7.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 9/7/11)
Office of the State Controller, John Chiang (source)
American Association of Retired Persons
California Federation of Teachers
California Retired Teachers Association
CalPERS Board of Administration
CalSTRS Board of Administration
Service Employee International Union, Local 1000
ARGUMENTS IN SUPPORT : In support of this bill, the
sponsor, State Controller John Chiang, writes:
"CalPERS commissioned a study by the Washington DC law firm
Steptoe and Johnson to review CalPERS' 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
CONTINUED
SB 439
Page
7
advantage in consideration for investment. If enacted,
this measure will assure CalPERS and CalSTRS members and
taxpayers that the 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 follows."
ASSEMBLY FLOOR : 78-0, 9/6/11
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson,
Donnelly, Eng, Feuer, Fletcher, Fong, Fuentes, Furutani,
Beth Gaines, Galgiani, Garrick, Gatto, Gordon, Grove,
Hagman, Halderman, Hall, Harkey, Hayashi, Roger
Hern�ndez, Hill, Huber, Hueso, Huffman, Jeffries, Jones,
Knight, Lara, Logue, Bonnie Lowenthal, Ma, Mansoor,
Miller, Mitchell, Monning, Morrell, Nestande, Nielsen,
Norby, Olsen, Pan, Perea, V. Manuel P�rez, Portantino,
Silva, Skinner, Smyth, Solorio, Swanson, Torres, Valadao,
Wagner, Wieckowski, Williams, Yamada, John A. P�rez
NO VOTE RECORDED: Gorell, Mendoza
CPM:cm 9/7/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
CONTINUED