Donor conflicts reviewed

CalSTRS trustees get vendor political cash.

Sacramento Bee, 6/9/06.

By Gilbert Chan — Bee Staff Writer

Moving to beef up ethics standards, trustees of the California State Teachers’ Retirement System will consider tightening rules governing campaign contributions, including a ban on donations from money managers doing business with the giant fund. Trustees also agreed Thursday to explore extending the prohibition to Gov. Arnold Schwarzenegger and his representatives to the 12-member board.

“We’re a leader in corporate governance. We like to feel we have the best practices,” said Carolyn Widener, chairwoman of the $142 billion pension fund.

In a far-reaching 2½-hour debate, trustees discussed proposals ranging from limits on gifts to enhanced public disclosure.

“This is all about avoiding the appearance of conflicts,” said Chris Waddell, the fund’s general counsel.

In recent months, some trustees have raised questions about campaign contributions. The issue surfaced during the Democratic gubernatorial race between two trustees — state Treasurer Phil Angelides and Controller Steve Westly.

Over the years, both have received large campaign contributions from pension fund contractors. Angelides, for example, has received about $4.5 million in donations from vendors since 1999. Westly and Angelides also are trustees of the California Public Employees’ Retirement System, the nation’s largest public fund with $209 billion in assets.

Waddell said the fund just learned the constitutional officers on the CalSTRS board — Angelides, Westly and Superintendent of Public Instruction Jack O’Connell — are exempt from a state campaign finance law that requires them to report large contributions from pension fund vendors.

And in some instances, they are not required to excuse themselves on decisions involving contributors.

The law does apply to three teachers elected to the board as well as a community college district board member. Trustees could look at applying the campaign finance law to the state constitutional officers.

In the past, state lawmakers and federal regulators have moved to crack down on “pay-to-play” campaign contributions from investment companies to officials serving on or elected to pension fund boards.

The Securities and Exchange Commission considered a plan seven years ago but never came up with regulations.

Concerned about potential conflicts in California, lawmakers in 1999 enacted campaign finance legislation requiring donors seeking to do business with pension funds to report donations of $250 or more to board members. The law required the contributor’s interest with the pension funds to be disclosed.

But contributors have found a loophole to skirt the law. Disclosure isn’t required if staff members, rather than the board, approve an investment.

In 1997, lawmakers scrutinized $500,000 in investment contributions from CalSTRS and CalPERS money managers to then state Controller Kathleen Connell and Treasurer Matt Fong.

The issue resurfaced in the past month during the Senate confirmation hearing of CalSTRS trustee David Crane, a vocal critic of board members receiving donations from pension fund vendors.

“A $150 billion fund that allocates capital should not have board members accepting gifts or contributions from (people) whom we do business with. I’ve never seen anything like this,” Crane said.

Investment managers could reap hundreds of thousands of dollars in fees by securing pension fund business, he said.

Crane was placed on the board by Schwarzenegger last July. But on Wednesday, the Senate Rules Committee rejected his full nomination.

The CalSTRS board plans to review campaign contributions at its meeting in September.