BILL ANALYSIS
Appropriations Committee Fiscal Summary
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| |AB 107 (Knox) |
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|Hearing Date: 8/23/2000 |Amended: 8/8/2000 |
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|Consultant: Maureen Brooks |Policy Vote: P. E & R. |
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BILL SUMMARY: AB 107 prohibits the Public Employees'
Retirement System (PERS) and the State Teachers' Retirement
System (STRS) from investing in tobacco companies effective
January 1, 2001, and requires both systems to divest
existing investments in those companies by July 1, 2002.
Additionally, AB 107 provides indemnification from the
General Fund to board members of STRS and PERS and
specified state officers from all claims and damages of any
nature resulting from any decision not to invest in tobacco
companies.
Fiscal Impact (in thousands)
Major Provisions 2000-01 2001-02
2002-03 Fund
Divestment ---------unknown, potentially
significant---- STRF &
PERF
Indemnification
----------------------unknown-------------------General
STAFF COMMENTS: SUSPENSE FILE.
The divestment of tobacco company holdings will result in
transaction costs as tobacco equities are sold and the
proceeds reinvested in other companies. Additional
ongoing staff time will be required to monitor the activity
of fund managers to ensure that the restricted equities are
not purchased. It is unknown what impact tobacco
divestment will have on the future investment returns of
CalSTRS' and CalPERS' aggregate portfolios.
Staff notes that the CalSTRS Board has recently adopted a
policy to modify its existing benchmark to exclude tobacco
manufacturers. Therefore, that system will not be holding
such investments in its passive portfolio. That decision,
however, does not apply to its active investments.
CalSTRS passively and actively invests a broadly
diversified portfolio valued at over $100 billion. As of
December 31, 1999, STRS held domestic and international
equities in 22 companies that manufacture and distribute
tobacco products valued at $319 million - less than .5% of
equity holdings.
The August 8 amendments define "tobacco company" as a
business entity that derives more than 10% of its net
revenue, excluding excise taxes, from the manufacture of
consumer tobacco products or the processing of leaf
tobacco.
This bill is similar to AB 1744 (Knox) and SB 1433
(Hayden), which both failed passage in 1997.