BILL NUMBER: AB 107 AMENDED BILL TEXT AMENDED IN SENATE JUNE 20, 2000 AMENDED IN SENATE FEBRUARY 29, 2000 AMENDED IN ASSEMBLY MAY 24, 1999 AMENDED IN ASSEMBLY MARCH 10, 1999 INTRODUCED BY Assembly Member Knox (Principal coauthor: Senator Hayden) (Coauthors: Assembly Members Alquist, Aroner,Keeley, Longville,Bock, Honda, Keeley, Longville, Romero, and Strom-Martin)(Coauthor: Senator Perata)(Coauthors: Senators Perata, Solis, and Vasconcellos) DECEMBER 22, 1998 An act to add Chapter65.5 (commencing with Section 16643) to Part 2 of Division 4 of Title 2 of the Government Code, relating to public employee retirement system investments. LEGISLATIVE COUNSEL'S DIGEST AB 107, as amended, Knox. Public employee retirement system investments. The California Constitution provides that the Legislature by statute may prohibit public retirement board investments where it is in the public interest to do so and provided that the prohibition satisfies retirement board fiduciary standards. This bill would prohibit new or additional investments by the Public Employees' Retirement System and the State Teachers' Retirement System, on and after January 1, 2001, in tobacco companies, as defined, and would require a divestment of those existing investments by July 1, 2002. The bill would make related legislative findings and declarations. This bill would also provide for indemnification from the General Fund by the state for present and former members of the governing board of the funds, officers and employees of the state, and investment managers under contract with the state from all claims, demands, suits, actions, damages, judgments, and other costs, charges, and expenses sustained by them at any time by reason of any decision not to invest in tobacco companies. Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. The Legislature hereby finds and declares as follows: (a) The Public Employees' Retirement System and the State Teachers' Retirement System hold investments of nine hundred eighty-nine million ninety-seven thousand five hundred twenty-eight dollars ($989,097,528) in tobacco companies. These substantial holdings are in direct conflict with the aims of California's healthcare programs, and present an unnecessary financial risk to the retirement funds due to the ongoing legal and regulatory problems of the tobacco industry. (b) According to the State Department of Health Services, the cost to the State of California for medical care for persons with tobacco related illness is six hundred thirty million dollars ($630,000,000) annually. An additional fifty million dollars ($50,000,000) is spent each year by the state on antismoking education programs seeking to prevent teen smoking, reduce adult smoking, and educate the public on the health hazards of smoking. Despite these significant expenditures, the state's public pension funds are the largest public institutional investors in tobacco products in the world. (c) In 1999, the leading cigarette manufacturer's stock lost 52 percent of its value. Other public institutional investors, such as the States of New York and Florida, have restricted or ceased tobacco industry investments in recognition of the long-term uncertainty in the industry and instability of the stock prices. (d) It is in the best interests of the people of the State of California and in accordance with the fiduciary responsibilities of the state pension systems to immediately cease any new investments in tobacco products and to divest existing holdings as soon as practicable. SEC. 2. Chapter65.5 (commencing with Section 16643) is added to Part 2 of Division 4 of Title 2 of the Government Code, to read: CHAPTER65.5 . PROHIBITED INVESTMENTS 16643. The definitions in this section shall govern the construction and interpretation of this chapter. (a) "Investment" or "invest" means the commitment of funds or other assets to a business firm, including a loan or other extension of credit made to that firm, or security given for the other assets to that business enterprise, or the beneficial ownership or control of a share or interest in that business firm, or of a bond or other debt instrument issued by that business firm. (b) "Public employee retirement funds" means the Public Employees' Retirement Fund and the Teachers' Retirement Fund. (c) "Tobacco company" means a business entity that makes more than 10 percent of its gross revenue from tobacco products or has more than 10 percent of its personnel involved in tobacco products or has more than 10 percent of its business activity in tobacco products. 16644. On or after January 1, 2001, the governing boards administering the public employee retirement funds shall not make additional or new investments in any tobacco company.16645.16644.1. (a) The governing boards administering the public employee retirement funds shall divest existing investments in tobacco companies so that as of July 1, 2002, those retirement funds shall no longer be invested in tobacco companies. (b) This section shall not apply to any loan or extension of credit for which an agreement is entered into before January 1, 2001. 16644.2. Present and former members of the governing board of any public employee retirement fund, jointly and individually, state officers and employees, and investment managers under contract with the state shall be indemnified from the General Fund by the State of California from all claims, demands, suits, actions, damages, judgments, costs, charges, and expenses, including court costs and attorney's fees, and against all liability, losses, and damages of any nature whatsoever that these present or former board members, officers, employees, or contract investment managers shall or may at any time have sustained by reason of any decision not to invest in tobacco companies pursuant to this chapter.