BILL ANALYSIS
SB 1928
Page 1
Date of Hearing: August 23, 2000
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Carole Migden, Chairwoman
SB 1928 (Haynes) - As Amended: August 7, 2000
Policy Committee:
P.E.R.&S.S.Vote:7-0
Urgency: No State Mandated Local
Program:NoReimbursable:
SUMMARY :
This bill requires CalPERS and CalSTRS to report on the extent
to which they are invested in foreign companies that pose
threats to national security, and encourages the boards of these
pension funds not to invest in those companies. Specifically,
this bill:
1)States that the Legislature is concerned about foreign
companies that pose threats to national security through
terrorism or the proliferation of weapons of mass destruction
and encourages CalPERS and CalSTRS not to invest in those
companies.
2)Requires internal and external fund managers for CalPERS and
CalSTRS to perform due diligence with respect to potential
investments in companies that pose threats to the national
security.
3)Requires CalPERS and CalSTRS to investigate publicly available
information and report to the Legislature, by July 1 of each
year, on the extent to which they are invested in
international corporations doing business in countries on the
U.S. State Department's list of terrorist-sponsoring nations
or the Department of Treasury's list of Foreign Asset
Controls.
4)Requires CalPERS and CalSTRS, in preparing their reports, to
review publicly available reports and information, as
specified.
5)Sunsets on January 1, 2005.
SB 1928
Page 2
FISCAL EFFECT :
1)CalSTRS indicates that the due diligence required by this bill
would result in costs in the "hundreds of thousand of
dollars." Additionally, CalSTRS would experience foregone
investment earnings "potentially in the millions" while due
diligence is being performed by fund managers on potential
foreign investments.
1)CalPERS reports that the due diligence required by this bill
would result in "unknown but significant" costs to and
foregone investment earnings. Additionally, the due diligence
requirement could result in higher external management fees,
inasmuch as these responsibilities are not part of CalPERS's
existing fund management contracts.
1)CalSTRS and CalPERS would incur administrative costs in the
range of $120,000 annually to produce the studies required by
this bill.
COMMENTS :
1)Background . 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. The Constitution further states
that "The Legislature may by statute continue to prohibit
certain investments by a retirement board where it is in the
public interest to do so, and provided that the prohibition
satisfies the standards of fiduciary care and loyalty required
of a retirement board pursuant to this section." CalPERS and
CalSTRS represent two of the largest pension funds in the
world, with combined assets in excess of $200 billion invested
in multinational corporations throughout the world.
2)CalPERS Opposition . CalPERS opposes the bill unless it is
amended to only require CalPERS to annually report on its
investments. (CalSTRS has not yet taken a position on the
current version of the bill.) CalPERS is concerned, however,
that the legislative intent of the bill would lead to the
expectation that the report will provide the information
necessary for it to modify its investment policies and
strategies to alleviate the Legislature's stated concerns
SB 1928
Page 3
regarding national security. CalPERS notes that this issue
affects all institutional investors that should be addressed
by the federal government, which has the responsibility,
information, resources, and expertise to advise institutional
investors of companies that pose threats to national security.
3)Prior Legislation . A similar bill, AB 2745 (Kaloogian), was
held on the Assembly Appropriations Committee suspense file in
May, 2000.
Analysis Prepared by : Stephen Shea / APPR. / (916) 319-2081