BILL ANALYSIS
SB 1928
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Date of Hearing: June 21, 2000
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Lou Correa, Chair
SB 1928 (Haynes) - As Amended: May 9, 2000
SENATE VOTE : 35-0
SUBJECT : Capital Markets Task Force Board
SUMMARY : Creates the Capital Markets Task Force Board to make
recommendations to the boards of administration of the Public
Employees' Retirement System (CalPERS) and the State Teachers'
Retirement System (CalSTRS) regarding national security, human
rights, and social concerns material to the performance of their
investments. Specifically, this bill :
1)Expresses the Legislature's concern that CalPERS has invested
pension funds in foreign companies that may pose threats to
national security.
2)States that the Legislature encourages CalPERS and CalSTRS,
pursuant to their fiduciary standards, not to invest in
foreign companies that pose threats to national security and
fundamental human rights.
3)Creates the Capital Markets Task Force Board (Board),
consisting of the following elected officials or their
designated representatives:
a) The Governor;
b) The Treasurer;
c) The Controller;
d) The Majority and Minority leaders of the Senate and
Assembly.
4)Prohibits any member of the Board from having any direct
personal involvement or economic interest in any CalPERS or
CalSTRS financial transaction while serving on the Board or
for one year after leaving the Board.
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5)Requires that the Board annually elect a chairperson.
6)Requires that the Board meet no less than quarterly, but may
meet upon call of the chairperson.
7)Prohibits the members of the Board from receiving any salary,
compensation or reimbursement for expenses related to their
service on the Board.
8)Requires CalPERS and CalSTRS to pay in equal shares any
expenses incurred by the Board.
9)Requires the Board to make recommendations to CalPERS and
CalSTRS regarding national security concerns, human rights
concerns, and social concerns material to the performance of
investments.
EXISTING LAW gives CalPERS and CalSTRS general guidelines for
the investment of their funds, primarily as directed by the
"prudent person" rule. Additionally, the California
Constitution (Section 17 of Article XVI) gives the retirement
board of a public pension or retirement system plenary authority
and fiduciary responsibility over their respective investment
and administrative decisions.
FISCAL EFFECT : Unknown
COMMENTS : Lawmakers at both the Federal and State levels have
expressed concern about investment by U.S. investors in
companies that may "threaten national security." In May 1999,
the U.S. House of Representatives Select Committee on U.S.
National Security and Military/Commercial Concerns with the
Peoples' Republic of China issued a report (the Cox Report)
which includes in its findings that capital from companies
traded in the U.S. markets is flowing to the Peoples' Republic
of China and ultimately represents funding for that government's
military operations and commercial development.
According to the author, articles published by Investors
Business Daily (IBD) in 1999 revealed that CalPERS had invested
millions of dollars of employee pension funds in companies with
close ties to the Chinese government, the Chinese People's
Liberation Army, and their military intelligence operations.
Additionally, the author states that, "Investment in Chinese
companies is expressly forbidden by CalPERS' own policies, and
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could pose serious financial risks for state employees and
retirees, as well as serious risks to the United States.
In addition, it was revealed that CalPERS invested approximately
$10 million in a Canadian-based oil company, Talisman Energy
Inc., that is a partner with the China National Petroleum
Corporation for the development and construction of oil fields
and pipelines in Sudan. The U.S. State Department has labeled
Sudan as one of seven state sponsors of international terrorism,
and both companies have been internationally condemned for their
role in financing the Sudanese regime and its war of genocide
and slavery against its own people.
Although CalPERS divested its Talisman stock only days before
this matter was considered by the Legislative Audit Committee on
January 5, 2000, CalSTRS continued to hold $1.6 million of
Talisman stock as of January 31, 2000.
As a result of the audit committee hearing, CalPERS was
compelled to respond in writing to numerous questions posed by
Committee Chair Scott Wildman. CalPERS' responses revealed that
its own external investment consultant, Fiduciary Trust
International, actively seeks to invest CalPERS funds in China,
Columbia, Hungary and Poland - all 'prohibited' countries
according to CalPERS' own policies."
The author concludes "CalPERS has proven itself to be uniquely
incapable of monitoring itself or responding to questions of its
investment policies. These fiascoes clearly point to the need
for an external body with expertise in international finance,
national security, and human rights issues, to pre-screen
potential investments and advise CalPERS and CalSTRS
accordingly.
The Capital Markets Task Force will fill this sorely-needed
role, and will ensure that one million CalPERS members will no
longer be placed in the untenable position of unwittingly
helping to finance gross human rights abuses or military
activities harmful to U.S. security interests."
Both CalPERS and CalSTRS have expressed concerns that the bill
creates a task force with the authority to make recommendations
that could conflict with the retirement boards' primary
fiduciary responsibility to their members and beneficiaries, a
responsibility not shared by the task force. Additionally,
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CalPERS staff, in a recent board agenda item, has stated that
the task force is "?duplicative and unnecessary. Five of the
seven proposed members are members of, or appoint members to,
the CalPERS Board. These issues can more effectively be raised
as members of the Board than as a member of a task force with
not responsibility for administration of the system."
REGISTERED SUPPORT / OPPOSITION :
Support
California Correctional Peace Officers Association
Center for Religious Freedom
Opposition
Public Employees' Retirement System
State Teachers' Retirement System
Analysis Prepared by : Karon Green / P.E., R. & S.S. /
(916)319-3957