BILL ANALYSIS
AB 107
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 107 (Knox)
As Amended August 8, 2000
Majority vote
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|ASSEMBLY: |42-38|(May 27, 1999) |SENATE: |21-16|(August 29, |
| | | | | |2000) |
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Original Committee Reference: P.E.,R. & S.S.
SUMMARY : Prohibits new or additional investments by the Public
Employees' Retirement System (CalPERS) and the State Teachers'
Retirement System (CalSTRS), on and after January 1, 2001, in
tobacco companies and requires a divestment of those existing
investments by July 1, 2002.
The Senate amendments delete the Assembly version of this bill
and instead:
1)Prohibit, on and after January 1, 2001, CalPERS and CalSTRS
from making new or additional investments in any "tobacco
company".
2)Define "tobacco company" for purposes of this bill 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.
3)Require that CalPERS and CalSTRS divest existing investment in
tobacco companies so that by July 1, 2002, those funds from
those retirement systems are no longer invested in tobacco
companies.
4)Indemnify, by the General Fund, present and former CalPERS and
CalSTRS board members, state officers and employees, and
investment managers from all liability, losses or damages
sustained by reason of any decision not to invest in tobacco
companies pursuant to the provisions of this bill.
EXISTING LAW : States Proposition 162, "The California Pension
Protection Act of 1992," while giving the retirement boards sole
and exclusive authority to administer the retirement systems,
also gives the Legislature the authority to require divestment
AB 107
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of funds it deems are fiscally imprudent investments provided
that the prohibition meets the standard of fiduciary care and
loyalty required of the retirement boards.
AS PASSED BY THE ASSEMBLY , this bill provided employers whose
employees participate in CalPERS health care program (PEMHCA)
the option to extend health benefits coverage to the domestic
partners of their employees and annuitants.
FISCAL EFFECT : This bill would result in unknown but
potentially significant costs to CalSTRS, CalPERS and the state
General Fund. The divestment of tobacco holdings will result in
transaction costs as tobacco equities are sold and the proceeds
are reinvested in other companies. Additionally, it is unknown
what impact tobacco divestment will have on the future
investment returns of CalSTRS and CalPERS.
COMMENTS : As pointed out in the legislative findings and
declarations:
1)The cost to the state of California for healthcare services
for person with tobacco-related illnesses is $630 million
annually.
2)California spends $50 million annually on anti-smoking
education programs.
3)In 1999, the leading cigarette manufacturer's stock lost 52%
in value, and other public institutional investors have
restricted or ceased tobacco industry investments.
Analysis Prepared by : Karon Green / P.E.R. & S.S. / (916)
319-3957
FN: 0006994