The California Constitution grants the retirement board of a public employee retirement system plenary authority and fiduciary responsibility for investment of moneys and administration of the retirement fund and system. The California Constitution qualifies this grant of powers by reserving to the Legislature the authority to prohibit investments if it is in the public interest and the prohibition satisfies standards of fiduciary care and loyalty required of a retirement board. Existing law prohibits the boards board of administration of the Public Employees Retirement System (PERS) and State Teachers Retirement System (STRS) from making investments in certain countries and in thermal coal companies, as specified, subject to the boards boards plenary authority and fiduciary responsibility for investment of moneys and administration of their respective systems. the system. Existing law requires the state to indemnify and hold harmless the present, former, and future board members, officers, and employees of these retirement systems PERS for investment decisions regarding specified business operations.

This bill would require the boards board of administration of PERS and STRS, PERS, by July 1, 2019, to adopt an investment policy regarding companies that are retailers or wholesalers of banned weapons, based on a limited timeframe of engagement seeking the voluntary removal of banned weapons from the stock of items sold by these companies. The bill would require the boards, board, if unsuccessful in persuading the governing board of a company to cease in the sale of banned weapons, to adopt a divestment action and divest from that company by no later than July 1, 2021. The bill would also require the boards, board, if a company reinitiates the sale of banned weapons after voluntarily choosing to cease sales, to initiate action to divest within 60 days of that decision. The bill would not require a the board to take any above-described action unless it determines that the action is consistent with its fiduciary responsibilities. The bill would specify that board members and other officers and employees would be indemnified and held harmless in connection with actions taken pursuant to the bills requirements.

Existing law authorizes the licensing authority of a city, county, or a city and county to grant licenses to sell firearms at retail within the city, county, or city and county. Existing law requires the Department of Justice to maintain a list of licensed firearms dealers. Existing law authorizes the department to inspect dealers to ensure compliance with specified provisions of firearms law and to assess an annual fee to cover the reasonable costs of maintaining the dealer list and conducting inspections. Existing law exempts a dealer located in a jurisdiction that has adopted an inspection program to ensure compliance with firearms law from that portion of the departments fee that relates to the cost of inspections.

This bill would require the department to conduct inspections of dealers at least every 2 3 years, with the exception of a dealer whose place of business is located in a jurisdiction that has adopted an inspection program. The bill would authorize the department to inspect a dealer whose place of business is located in a jurisdiction that has adopted an inspection program.

(1)The Outdoor Advertising Act regulates placement of advertising signs adjacent to and within specified distances of certain highways. The act prohibits advertising displays from being placed or maintained on property adjacent to a section of a freeway that has been landscaped, with certain exceptions. A violation of the act is a misdemeanor.

This bill would authorize the use of 2 existing advertising displays in the City of Upland adjacent to Interstate 210 if specified conditions are met. Because a violation of the bills provisions would be a crime, the bill would impose a state-mandated local program.

The bill would also make findings and declarations as to the need for a special statute relating to the City of Upland.

(2)The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

(1)The Outdoor Advertising Act regulates placement of advertising signs adjacent to and within specified distances of certain highways. The act prohibits advertising displays from being placed or maintained on property adjacent to a section of a freeway that has been landscaped, with certain exceptions. A violation of the act is a misdemeanor.

This bill would authorize the use of 2 existing advertising displays in the City of Upland adjacent to Interstate 210 if specified conditions are met. Because a violation of the bills provisions would be a crime, the bill would impose a state-mandated local program.

The bill would also make findings and declarations as to the need for a special statute relating to the City of Upland.

(2)The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Date of Hearing: June 20, 2018

ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT, AND SOCIAL SECURITY

Freddie Rodriguez, Chair

SBPCA Bill Id:SB 459

Author:(Portantino) – As Amended Ver:June 12, 2018

SENATE VOTE: 24-14

SUBJECT: Public employee retirement systems: prohibited investments: retailers and wholesalers of banned weapons

SUMMARY: Requires the California Public Employees’ Retirement System (CalPERS) to adopt an investment policy for retailers or wholesalers of banned weapons; engage those sellers; exercise proxy votes if engagement is unsuccessful; and, divest from those companies if engagement and the exercise of proxy votes are unsuccessful, among other provisions. Specifically, this bill:

1) Requires, on or before July 1, 2019, CalPERS to adopt an investment policy for companies that are retailers or wholesalers of banned weapons, of which the investment policy must be based on the following:

a) A limited time of engagement seeking the voluntary removal of banned weapons from the stock of items sold by these companies.

b) If engagement proves unsuccessful within the limited timeframe defined in the investment policy, the board is required to approve proxy voting against any company that fails to remove those weapons from its stock of items sold.

c) If the proxy voting proves unsuccessful in persuading the governing board of the company to cease in the sale of banned weapons, the board must divest from the company no later than January 1, 2021.

2) Provides that if a decision by a company to reinitiate the sale of banned weapons after choosing to cease the sale of those weapons, and of which CalPERS is invested, the board must divest from the company within 60 days of that decision.

3) Provides that the board is not required to take action, unless it determines in good faith that the action is consistent with its fiduciary responsibilities pursuant to Section 17 of Article XVI of the California Constitution.

4) Provides for indemnification, jointly and severally, from the State General Fund and holds harmless, specified individuals and research firms for certain legal actions, costs, liability, or losses that may be sustained, as specified.

5) Includes legislative findings and declarations relating to the loss of life as a result of specified mass shootings through the use of certain weapons; the investment of funds by CalPERS and CalSTRS in such weapons; the investment policies of CalPERS; the fiduciary duty of a pension fund; divestment actions already taken by CalPERS; an opinion regarding investment in the gun industry; information regarding actions of, or investments by, other investors regarding certain retailers, and that successful engagement by CalPERS with retailers and wholesalers must rely on real and imminent threat of impactful consequences.

6) Defines the following terms:

a) “Banned weapons” to mean any weapon banned by the state, as identified on the lists of these weapons by the Department of Justice.

b) “Board” to mean the Board of Administration of CalPERS.

c) “Company” to mean a sole proprietorship, organization, association, corporation, partnership, venture, or other entity, or its subsidiary or affiliate, that exists for profit-making purposes or to otherwise secure economic advantage.

d) “Investment” to mean the purchase, ownership, or control of publicly issued stock, corporate bonds, or other debt instruments issued by a company.

e) “Proxy voting” to mean a ballot cast by one person on behalf of a shareholder of corporation who would rather cast a proxy vote than attend a shareholder meeting. Shareholders receive a proxy ballot in the mail along with a proxy statement describing the issues to be voted on, such as electing directors of the board, approving a merger or acquisition, and approving a stock compensation plan.

f) “Public employee retirement funds” to mean CalPERS.

g) “System” to mean the Public Employees’ Retirement System.

EXISTING LAW:

1) Federal:

Pursuant to the Violent Crime Control and Law Enforcement Act (House Resolution 3355, Pub.L. 103-322), the federal assault weapons ban prohibited the manufacture for civilian use and possession of “assault weapons” and banned civilians from purchasing newly manufactured “large capacity ammunition feeding devices,” defined as a magazine capable of holding more than ten rounds of ammunition. However, the Act expired on September 13, 2004, due to a sunset clause, and semi-automatic, military style weapons are now legal, unless banned by state or local law.

2) State:

a) Provides, pursuant to Section 17 of Article XVI of the California Constitution, that:

i) The boards of California’s public retirement systems have “plenary authority and fiduciary responsibility for [the] investment of monies and administration of the system.”

ii) “The members of the retirement board of a public pension or retirement system shall discharge their duties with respect to the system solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administrating the system…[and] the board shall diversify the investments of the system so as to minimize the risk of loss and to maximize the rate of return unless under the circumstances it is clearly prudent to do so.”

iii) The Legislature retains its authority to, 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.”

b) Prohibits the possession or transfer of assault weapons, except for the sale, purchase, importation, or possession of assault weapons by specified individuals, including law enforcement officers (see Penal Code Section 36000).

c) Prohibits the manufacture, importation, keeping for sale, offering or exposing for sale, giving, or lending of any large-capacity magazine with specified exceptions (see Penal Code Section 32310).

FISCAL EFFECT: Unknown. This bill is flagged fiscal by Legislative Counsel.

COMMENTS: According to the author, “California leads the way for sensible gun control and now has the opportunity to fix the contradiction presented by the state banning certain weapons while its pension funds go on investing in the companies that sell them. These banned weapons have been used in one mass shooting after another – from Parkland to San Bernardino.

“With this legislation we are taking reasonable and prudent steps designed to protect our citizens, especially young people when they leave home for school. By creating a clear process for disposing of gun investments made by the state’s public employee pension portfolios, our pension funds will do their part in honoring the wishes of Californians who banned these weapons in the first place, and for good reason.”

1) CalPERS’ Fiduciary Responsibility and Prudent Investment Standard

As previously stated, the California Constitution vests “sole and exclusive” fiduciary responsibility over the assets of a public pension or retirement system with its board. In addition, the retirement board must discharge its duties with respect to the system “solely in the interests of, and for the exclusive purposes to, participants and their beneficiaries… [and] that this takes precedence over any other duty.”

When investing funds, the California Constitution requires that the boards discharge their duties with respect to the system “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aims.” This is known as the prudent investor standard.

When considering divestment as a public policy tool to effectuate change, though well-meaning, the systems are bound by legal duties and standards. The assets of a public pension or retirement system are trust funds held for the exclusive purposes of providing benefits to participants in the pension or retirement system, or their beneficiaries – which takes precedence over any other duty.

2) The Current Funded Status of the Systems

The current funded status of CalPERS is approximately 71 percent. Although a portion of this funded status can be attributed to lowering its discount rate (i.e., the assumed rate of return on investments), the impact of the funded status of the system also can be directly attributed to investment performance, including legislatively mandated divestment.

Though serving various well-meaning purposes, in aggregate, divestment legislation has a negative impact on the funded status of CalPERS, as discussed, infra. Given the current funded status of the system and the possibility of a significant market correction in the future related to investments, divestment legislation should considerably be viewed with caution.

3) Joint Informational Hearing on the Subject of Investment and Divestment

On January 10, 2018, this committee and the Senate Public Employment and Retirement Committee held a joint informational hearing titled, “How California’s Public Pension Funds Support California Values While Fulfilling Their Fiduciary Obligations.”

During the hearing, the committees heard from CalPERS, CalSTRS, numerous stakeholders of the systems, and independent investment managers on the subject of divestment, among other items related to the contributions and effects of the systems on the state, national and global economies, and their individual impacts in the investment market. In addition, the committee received testimony which highlighted the increased effectiveness that the systems have when collectively working with other similarly situated institutional investors on issues where common interests and goals are shared.

The committee consistently was informed and advised by each of the presenters and those providing public testimony, that divestment is not as effective as the seeming prevailing thought to effect change from offending activity. The committee also was informed that in addition to investment losses and lost earnings opportunities resulting from divestment, additional costs are borne by the systems relating to fees to “unwind” (i.e., liquidate) securities and that it takes time to find a buyer of those shares at the then-prevailing or desirable price; the lack of earnings on divested funds during the period of time in which those funds are not invested; and, additional fees paid to reinvest those funds. These additional costs can amount to millions of dollars per divestment action.

In addition, in the vast majority of instances, divestment simply provides an opportunity to another investor to purchase the assets previously held by the systems, and usually at a discounted price.

When considering the assets of CalPERS in comparison to other institutional investors, the systems can be most effective through a thoughtful and targeted strategy of engagement, not only individually, but increasingly effective when engagement activities are sustained in partnership with other like-minded institutional investors.

4) The Process of Divestment – Simplified

To divest, first CalPERS would need to determine which companies in it holdings manufacture and/or sell the targeted firearms. Second, the systems would have to contact and communicate with these companies regarding exiting the targeted firearms industry. Third, to the extent those companies instead elect to continue participating in the firearms industry, the systems would incur administrative costs to liquidate securities. Finally, there would be an unknown financial impact on CalPERS’ respective portfolios.

This measure provides a successive approach towards achieving change in behavior towards divestment through, as previously stated, engagement, then the exercise of proxy voting, and ultimately divestment if the prior actions do not result in change. However, other institutional investors, including investors with significantly larger holdings or assets in comparison, exist that would seize on the opportunity to leverage these actions by CalPERS towards achieving divestment by the system only to purchase those assets as a result of CalPERS ultimately divesting. In practical effect and given opportunistic norms in the investment market, absent changes in federal law with respect to the targeted weapons, it is possible that this measure might not achieve its intended effect.

Thus, CalPERS would incur opportunity costs if alternative investments do not produce greater investment returns than the divested securities would have generated. To the extent that limiting investment opportunities or reducing diversification results in lower investment returns than otherwise would have occurred, there could be downstream effects as a result of the loss.

5) Downstream Effects of Divestment

Legislation that requires divestment could be expected to contribute to an increased burden on employees and employers through increased contribution rates (i.e., the rate at which an employer contributes money on employees’ behalf).

Every investment dollar that is lost as a result of legislatively-mandated divestment must be made up by an increase in employer and employee contributions, unless the returns on other investments can offset the lost opportunity. When participating employers have to contribute more to CalPERS or CalSTRS for their employees, their budgets are negatively affected which could lead to reductions in services, positions and employees. Flexibility related to investment options coupled with successful investing helps to ease cost pressure that will be borne by the systems, and ultimately, participating employers, members of the systems, and taxpayers.

Because of the potential profit associated with investments, divestment by CalPERS or CalSTRS from a particular business or industry inevitably results in what is a common practice in the investment market – another investor that will fill the “gap” and that potentially could reap the benefits of a return on an investment that CalPERS or CalSTRS otherwise would have gained.  Consequently, this becomes a loss for the systems without another source of identified monies to backfill that loss.

For example, an analysis completed by Wilshire Associates in 2015 found that previous divestment efforts have collectively reduced the present value of the CalPERS portfolio by a range of $3.8 billion to $8.3 billion, with continuing losses into the future.

Divestment targets that were included in this study were South African securities, tobacco-related securities, California Iran and Sudan Act lists, and firearm-related companies. The largest driver of this negative portfolio impact was the divestment from tobacco, which Wilshire Associates found to have reduced the CalPERS portfolio by an estimated $2 billion to $3 billion.

6) CalPERS’ Activities Related to the Subject of this Measure

a) Regarding Divestment

In February 2013, CalPERS took action to divest from gun manufacturers of illegal weapons under California law. CalPERS’ holdings in these manufacturers was approximately $5 million.

b) Regarding Engagement

As of March 2018, CalPERS has engaged several companies (i.e., retailers) regarding their sale of assault weapons. To date, among these retailers, the efficacy of this engagement has achieved a combination of positive reactions by the retailers that have resulted in a change in current business practice or policy. These changes or commitments consist of discontinuing the sale of such weapons; assurance that there is no current inventory across the retail chain; change in company policy regarding the sale of firearms and ammunition to individuals under a certain age; and, calling on policy makers to issues regulations to ban assault-style firearms (including closing private sales and gun show loopholes), high capacity magazines, and bump-stocks.

7) Pending Legislation that Would Require External Review of Divestment Legislation

Historically, legislation that seeks or requires divestment have been intended to effect change from offending activity inimical to California’s values in extraordinary circumstances. However, when compared to years prior as discussed infra, since 2011, the number and frequency of legislative proposals introduced that affect CalPERS’ and CalSTRS’ investments have increased, which have contributed to the current funded status of the system, as discussed supra.

Currently pending before this committee, Senate Bill 783 (Pan) requests the University of California to establish a Pension Divestment Review Program to provide expert, independent, and dispassionate review of legislative proposals affecting the investment earnings of public employee pension funds towards balancing the constitutional authority granted to the Legislature and public employee pension funds, and to determine the efficacy and financial effects of a legislative proposals that require divestment by CalPERS and CalSTRS.

8) Comments by Supporters

According to the San Francisco Bay Area Chapter of Physicians for Social Responsibility, “[this bill is the right thing to do], but hope in the future divestment goes more broadly to target the manufacture of any and all guns – not just those banned in this state. People’s retirement funds should not rest on lost lives and damaged bodies and minds resulting from gun violence.”

9) Comments by Opponents

According to the California State Association of Counties, “[m]any counties… have a vested interest in the long-term sustainability of CalPERS and the Public Employees Retirement Fund (PERF)” and that, “… the PERF could suffer and local governments and their employees, who are already bearing the burden of lowered discount rate, would also have to bear the financial consequences of divestment.”

10) Related/Prior Legislation

2018: Senate Joint Resolution 24 (Jackson), which calls upon CalPERS to engage with companies with which it is invested that produce or sell firearms to determine a reasonable method for those companies to withdraw from the production and sale of firearms or to produce a plan to divest from those companies. This bill was amended in the Senate Public Employment and Retirement Committee to remove provisions related to divestment, and is currently pending in the Assembly Committee Public Employees, Retirement, and Social Security.

2017: Assembly Bill 1597 (Nazarian) would prohibit CalPERS and CalSTRS from investing in any investment vehicle issued by, owned, controlled, or managed by the government of Turkey. This bill is currently pending in the Senate Public Employment and Retirement Committee.

Senate Bill 30 (Lara) previously would have prohibited the state from awarding or renewing a contract with a person who is providing or has provided goods or services to the federal government for the construction of a federally funded wall, fence or other barrier along California's southern border. This bill was substantially amended to remove all provisions related to this subject, and is currently pending in the Assembly Rules Committee.

2016: Assembly Bill 1410 (Nazarian) would have prohibited CalPERS and CalSTRS from investing public employee retirement funds in specified investments issued by, owned, controlled, or managed by the government of Turkey. This bill was held in the Assembly Appropriations Committee.

Assembly Bill 1551 (Allen) would have required public retirement funds, on or after January 1, 2017, to make no additional investments or renew existing investments in business firms or financial institutions that engage in business practices in furtherance of the boycott of Israel, among other provisions. This bill was held in the Assembly.

Assembly Bill 2283 (Calderon) would have required CalPERS and CalSTRS to evaluate their investments in securitized home rental properties and ensure certain requirements were met, as specified, prior to investing or reinvesting in securitized home rental properties, among other provisions. This bill was held in the Assembly Public Employees, Retirement, and Social Security Committee.

Assembly Bill 2650 (Nazarian) would have prohibited CalPERS and CalSTRS from investing public employee retirement funds in specified investments issued by, owned, controlled, or managed by the government of Turkey. This bill was held in the Assembly Appropriations Committee.

2015: Chapter 605 (SB 185, De Leon), prohibits CalPERS and CalSTRS from investing public employee retirement funds in thermal coal companies, as specified, and among other provisions.

2013: Chapter 83, Statutes of 2013 (SJR 1, Wolk) urged the President and the Congress of the United States to pursue a comprehensive federal approach to reduce and prevent gun violence, and urged the President to take steps to ensure all states and applicable federal agencies reported all necessary records to the National Instant Criminal Background Check System.

Assembly Bill 761 (Dickinson) would have prohibited CalPERS and CalSTRS from investing in companies that manufacture firearms or ammunition for a recipient other than the U.S. military, subject to a process specified in the bill and consistent with previous divestment legislation, but subject to the board's fiduciary duties. This bill was held in the Assembly Appropriations Committee.

Senate Resolution 18 (Leno) encouraged CalPERS and CalSTRS, whenever feasible and consistent with their fiduciary responsibilities, to cease making direct investments in Russia and to encourage companies in which employee retirement funds are invested and that are doing business in Russia not to take actions that promote or otherwise enable human rights violations in Russia. This resolution was adopted.

2011: Chapter 411 (AB 1151, Feuer) amended the California Public Divest from Iran Act to, among other things, clarify that the boards of CalPERS and CalSTRS must divest pension funds, unless to do so would breach a fiduciary duty, among other provisions.

Senate Bill 903 (Anderson) would have amended the California Public Divest from Iran Act to clarify the criteria and process that the boards of CalPERS and CalSTRS must use to invest in Iran. This bill was held in the Senate Appropriations Committee

2010: Assembly Bill 2337 (Ammiano) would have prohibited CalPERS and CalSTRS from participating in predatory real estate investment practices related to rent-regulated housing that results in excessive rent increases, the displacement of tenants, or conversion of rent-regulated housing to market rate units. This bill was held in Senate Public Employment and Retirement Committee

2007: Chapter 671 (AB 221, Anderson) prohibits CalPERS and CalSTRS from investing in companies that have specified energy or defense-related operations in Iran.

2006: Chapter 442 (AB 2941, Koretz) prohibits CalPERS and CalSTRS from investing public employee retirement funds in a company with business operations in the Sudan, as specified.

2005: Chapter 9 (SB 424, Poochigian), established April 24 of each year as the “California Day of Remembrance of the Armenian Genocide” and the period beginning on the Sunday before that day through the following Sunday as the days of remembrance of the Armenian Genocide.

Chapter 22 (SJR 2, Speier) designated April 24, 2005, as the “California Day of Remembrance for the Armenian Genocide of 1915-1923” and also memorialized the United States Congress to act likewise to commemorate the Armenian Genocide.

2000: Assembly Bill 107 (Knox) would have prohibited new or additional investments in tobacco companies by CalPERS and CalSTRS on and after January 1, 2001, and would have required divestment from existing investments by July 1, 2002. This bill was held in the Assembly with concurrence pending.

1992: Chapter 1351 (AB 2251, Margolin) prohibits state trust fund and state money investments in business firms or financial institutions that engage in discriminatory business practices after January 1, 1994 relating to the Arab League’s economic boycott of Israel.

1986 Chapter 1254 (AB 134, Waters) prohibits the use of state trust funds or state monies to make additional or new investments, or renew existing investments in firms doing business with or in South Africa as of January 1, 1987.

REGISTERED SUPPORT / OPPOSITION:

Support

The Honorable John Chiang, Treasurer, State of California (Sponsor)

Drain the NRA

League of Women Voters of Los Angeles

Physicians for Social Responsibility, San Francisco Bay Area Chapter

Women Against Gun Violence

4 Individuals

Opposition

Gun Owners of California

California State Association of Counties

Analysis Prepared by: Michael Bolden / P.E.,R., & S.S. / (916) 319-3957

 THIRD READING  

Bill No: SB 459

Author:

:

Vote:

SENATE PUBLIC SAFETY COMMITTEE: 5-2, 1/9/18

AYES: Skinner, Bradford, Jackson, Mitchell, Wiener

NOES: Anderson, Stone

SENATE APPROPRIATIONS COMMITTEE: 5-2, 1/18/18

AYES: Lara, Beall, Bradford, Hill, Wiener

NOES: Bates, Nielsen

SUBJECT:

SOURCE: Author

DIGEST:

This bill requires the Department of Justice (DOJ) to conduct inspections of licensed firearms dealers at least every three years to ensure compliance with specified provisions of firearms laws.

ANALYSIS:

Existing law:

1. Provides that DOJ may inspect dealers to ensure compliance with specified firearms provisions. (Pen. Code § 26720, subd. (a).)
2. Provides that the DOJ may assess an annual fee, not to exceed one hundred fifteen dollars ($115), to cover the reasonable cost of maintaining the centralized list of licensees, including the cost of inspections. (Pen. Code § 26720, subd. (b).)
3. Requires that DOJ maintain a centralized list of all persons licensed to deal firearms. (Pen. Code § 26715.)
4. Provides that licensed firearms dealers are persons who have met the following requirements: (Pen. Code § 26700.)
   1. A valid federal firearms license.
   2. A regulatory or business license, or licenses, required by local government.
   3. A valid seller’s permit issued by the State Board of Equalization.
   4. A certificate of eligibility issued by the DOJ.
   5. A valid license to sell firearms at retail.
   6. Is among those recorded in the DOJ’s centralized list of firearms dealers.
5. Provides that dealers whose place of business is in a jurisdiction that has adopted an inspection program to ensure compliance with firearms law shall be exempt from that portion of the department’s fee that relates to the cost of inspections. The applicant is responsible for providing evidence to the department that the jurisdiction in which the business is located has the inspection program. (Pen. Code § 26720, subd. (b).)

This bill:

1. Requires DOJ to conduct inspections of licensed firearms dealers at least every three years, with the exception of a dealer whose place of business is located in a jurisdiction that has adopted an inspection program.
2. Authorizes DOJ to inspect a dealer whose place of business is located in a jurisdiction that has adopted an inspection program.

Background

The author states:

Under current law there is no time frame on when the DOJ needs to do inspections on firearms dealer businesses. This bill would require the DOJ to conduct inspections of dealers at least every three years with the exception of a dealer whose place of business is located in a jurisdiction that had adopted an inspection program. This will ensure compliance with firearms laws.

DOJ Dealer Inspections

This bill will mandate that DOJ conduct inspections of licensed firearms dealers at least once every three years in most circumstances. The purpose of these inspections is to ensure that persons engaged in dealing firearms are in compliance with state laws and regulations.

• Licensing Requirements

Inspections determine whether dealers have the proper licensing requirements (a federal license, certificate of eligibility, seller’s permit, local business license, and are active on the centralized list of dealers).

• Security Requirements

Inspections determine if specified security requirements under Pen. Code § 12071 are met in cities with populations greater than 50,000 or in the unincorporated area of a county with a population greater than 200,000.

• Record Keeping Requirements

Firearms dealers must make specified records available for inspection. Namely, Dealer Record of Sale documents, specified acquisition and disposition records, licenses, and compliance records related to waiting period exemptions, proof of residency, and firearms safety device compliance. Additionally, dealers must provide documents associated with handgun safety certificated.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Senate Appropriations Committee:

• Unknown but likely significant costs (special fund*) to DOJ for increased personnel and equipment to conduct routine inspections of all licensed firearms dealers as prescribed by this measure.

*Firearms Safety and Enforcement Special Fund

SUPPORT: (Verified 1/19/18)

California Chapters of the Brady Campaign

OPPOSITION: (Verified 1/24/18)

National Shooting Sports Foundation, Inc.

Prepared by:

1/24/18 15:51:09

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

SB 459 (Portantino) - Firearms: dealer inspections

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on January 18, 2018

Bill Summary:

SB 459 would require the Department of Justice (DOJ) to conduct inspections of licensed firearms dealers, as specified.

Fiscal Impact:

Unknown but likely significant costs (special fund*) to DOJ for increased personnel and equipment to conduct routine inspections of all licensed firearms dealers as prescribed by this measure.

*Firearms Safety and Enforcement Special Fund

Committee Amendments:

Increase inspection timeline from at least every two years to at least every three years.

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

SB 459 (Portantino) – Firearms: dealer inspections.

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

SB 459 would require the Department of Justice (DOJ) to conduct inspections of licensed firearms dealers, as specified.

Fiscal Impact:

Unknown but likely significant costs (special fund*) to DOJ for increased personnel and equipment to conduct routine inspections of all licensed firearms dealers as prescribed by this measure.

*Firearms Safety and Enforcement Special Fund

Background:

Licensing authorities of cities and counties are allowed to grant licenses to sell firearms within their jurisdictions. Additionally, DOJ is required to maintain a list of licensed firearms dealers and may inspect dealers to ensure compliance with specified provisions of firearms law and may assess an annual fee of up to $115 to cover the costs of maintaining the dealer list and conducting inspections. A dealer located in a jurisdiction that has adopted an inspection program to ensure compliance with firearms law is exempt from that portion of DOJ’s fee that relates to the cost of inspections.

Proposed Law:

This bill would require DOJ to inspect firearms dealers at least every two years to ensure compliance with specified firearms laws. It would not require the department to inspect a dealer whose business is located within a local jurisdiction that has adopted its own inspection program to ensure compliance with the specified firearms laws.

Staff Comments:

According to the December 2017 report of the federal Bureau of Alcohol, Tobacco, Firearms and Explosives on active firearms licenses, there are 2,252 licensed firearms dealers (including pawnbrokers) in California. That number increases to 2,866 if manufacturers and importers, who are allowed to deal in firearms, are included. At this time, staff is unaware of how many actual inspections DOJ currently conducts of dealers, as inspections are up to the discretion of the department under existing law. If the department is not currently conducting any inspections or very few inspections and would be required to inspect all dealers every two years, that would lead to an average of 119 new inspections every month. That number could be lower, as DOJ would not be required to inspect dealers whose businesses are in local jurisdictions that have their own inspection program. It is unknown to staff how many jurisdictions have such programs currently in place.

-- END --

SENATE COMMITTEE ON PUBLIC SAFETY

Senator Nancy Skinner, Chair

2017 - 2018 Regular

Bill No: SB 459 Hearing Date: January 9, 2018

Subject: Firearms: dealer inspections

HISTORY

Source: Author

Prior Legislation: None

Support: Unknown

Opposition: National Shooting Sports Foundation

PURPOSE

Requires the Department of Justice (DOJ) to conduct inspections of licensed firearms dealers at least every two years to ensure compliance with specified provisions of firearms laws.

Existing law provides that DOJ may inspect dealers to ensure compliance with specified firearms provisions. (Pen. Code § 26720, subd. (a).)

Existing law provides that the DOJ may assess an annual fee, not to exceed one hundred fifteen dollars ($115), to cover the reasonable cost of maintaining the centralized list of licensees, including the cost of inspections. (Pen. Code § 26720, subd. (b).)

Existing law requires that DOJ maintain a centralized list of all persons licensed to deal firearms. (Pen. Code § 26715.)

Existing law provides that licensed firearms dealers are persons who have met the following requirements: (Pen. Code § 26700.)

• A valid federal firearms license.
• A regulatory or business license, or licenses, required by local government.
• A valid seller’s permit issued by the State Board of Equalization.
• A certificate of eligibility issued by the DOJ.
• A valid license to sell firearms at retail.
• Is among those recorded in the DOJ’s centralized list of firearms dealers.

This bill requires DOJ to conduct inspections of licensed firearms dealers at least every two years, with the exception of a dealer whose place of business is located in a jurisdiction that has adopted an inspection program.

Existing law provides that dealers whose place of business is in a jurisdiction that has adopted an inspection program to ensure compliance with firearms law shall be exempt from that portion of the department’s fee that relates to the cost of inspections. The applicant is responsible for providing evidence to the department that the jurisdiction in which the business is located has the inspection program. (Pen. Code § 26720, subd. (b).)

This bill would authorize DOJ to inspect a dealer whose place of business is located in a jurisdiction that has adopted an inspection program.

COMMENTS

1. Need for This Bill

The author states:

Under current law there is no time frame on when the DOJ needs to do inspections on firearms dealer businesses. This bill would require the DOJ to conduct inspections of dealers at least every two years with the exception of a dealer whose place of business is located in a jurisdiction that had adopted an inspection program. This will ensure compliance with firearms laws.

2. DOJ Dealer Inspections

This bill will mandate that DOJ conduct inspections of licensed firearms dealers at least once every two years in most circumstances. The purpose of these inspections is to ensure that persons engaged in dealing firearms are in compliance with state laws and regulations.

• Licensing Requirements

Inspections determine whether dealers have the proper licensing requirements (a federal license, certificate of eligibility, seller’s permit, local business license, and are active on the centralized list of dealers).

• Security Requirements

Inspections determine if specified security requirements under Pen. Code § 12071 are met in cities with populations greater than 50,000 or in the unincorporated area of a county with a population greater than 200,000.

• Record Keeping Requirements

Firearms dealers must make specified records available for inspection. Namely, Dealer Record of Sale documents, specified acquisition and disposition records, licenses, and compliance records related to waiting period exemptions, proof of residency, and firearms safety device compliance. Additionally, dealers must provide documents associated with handgun safety certificated.

3. Argument in Opposition

According to the National Shooting Sports Foundation:

The firearms industry is one of the most heavily regulated industries in the country, regulated at both the federal and state level. Current California law already allows the DOJ to perform inspections of firearms dealers. Such requirements would put a strain on DOJ’s resources. The current fee imposed by DOJ is $95, but by mandating DOJ perform inspections every two years, this fee would likely increase to the maximum amount of $115.

SB 459 would do nothing to increase public safety, but it would be a burden for not only California’s Department of Justice, but also for law-abiding California firearms retailers.

-- END –

SENATE COMMITTEE ON TRANSPORTATION AND HOUSING

Senator Jim Beall, Chair

2017 - 2018 Regular

Bill No: Hearing Date: 4/25/2017

SUBJECT: .

DIGEST: This bill exempts an existing advertising display in the City of Upland from the prohibition on locating advertising displays adjacent to landscaped freeways contained in the Outdoor Advertising Act (OAA).

ANALYSIS:

Existing law:

1. Establishes the OAA, which regulates the placement of advertising displays adjacent to and within specified distances of highways that are part of the national system of interstate, defense highways, and federal-aid highways.
2. Prohibits any advertising display from being placed or maintained on property adjacent to a section of a freeway that has been landscaped if the advertising display is designed to be viewed primarily by persons traveling on the main-traveled way of the landscaped freeway.
3. Provides for limited exemptions to the prohibition on advertising along system and landscaped freeways, including exemptions for signs advertising the property’s sale or lease, signs designating the premises or its owner, and signs advertising goods or services manufactured or produced on the property itself.
4. Provides that the OAA generally does not apply to on premise advertising displays, which include those advertising the sale of the property upon which it is placed or that advertise the business conducted, services rendered, or goods produced or sold on the property. Local governments regulate on premise displays, except for certain safety requirements.
5. Allows a single advertising structure exemption for each of several cities, including an exemption for advertising on street furniture in San Francisco, several billboards situated on the grounds of the Oakland-Alameda County Coliseum complex, and structures within the Mid-City Recovery Redevelopment Project Area within Los Angeles.
6. Requires the Department of Transportation (Caltrans) to assess penalties for a violation of the OAA, as specified. If an advertising display is placed or maintained in a location that does not conform to the relevant statutes or local ordinances, and is not removed within thirty days of written notice from the department or the city or the county with land use jurisdiction over the property upon which the advertising display is located, a penalty of $10,000 plus $100 for each day the advertising display is placed or maintained after the department sends written notice shall be assessed and the gross revenues received by the violator shall be disgorged. Caltrans may also request recovery of its legal costs.
7. Provides, by contractual agreement, for Caltrans to administer the federal Outdoor Advertising Control (OAC) program, which has restrictions similar to California’s OAA program, including maximum sign size, sign spacing, location, illumination, and content. If the state fails to properly administer the federal program, the state shall lose 10% of its federal highway funding.

This bill:

1. Exempts an existing advertising display in the City of Upland adjacent to Interstate 210 and located at the Colonies Crossroads commercial business center from the prohibition on locating advertising displays adjacent to landscaped freeways contained in the OAA.
2. Prohibits the advertising display from advertising products, goods, or services related to tobacco, firearms, or sexually explicit material.
3. Requires that before the display is used for commercial advertising, either Caltrans or the Federal Highway Administration (FHA) must determine that the display will not cause a reduction in federal funds or is otherwise inconsistent with any federal law, regulation, or agreement between the state and a federal agency or department.

COMMENTS:

1. Purpose. According to the author, the purpose of this bill is to allow the use of two existing advertising displays, which are adjacent to Interstate 210 located at the Colonies Crossroads commercial business center on both sides of the interstate, to host off-site advertising to promote business located within the City of Upland.
2. Where. In Upland Interstate 210 is relatively heavily travelled, with four lanes in each direction and about 12,000 vehicles during peak hours.
3. Creating a conflict. This bill creates a conflict between the desire of the City of Upland to raise awareness of local businesses and the responsibility of the state to ensure driver safety through the administration of state law and the federal OAC program. From the perspective of the city, billboard revenue will be maximized with more signs that attract the attention of drivers. From the perspective of the state, catchier signs distract drivers; will lead to more accidents and injury, particularly along a heavily traveled freeway with numerous merges, on- and off-ramps. Under this bill, Caltrans authority to enforce the safety of the signs is unaffected.
4. Caltrans enforcement. State law contains numerous billboard restrictions intended to prevent compromising driver safety and cluttering the freeway. These include restrictions on the sign size, location, and proximity to similar signs, lighting and content. Many of these provisions are similar to those contained in federal law, originally established in 1965 through the Lady Bird Johnson Highway Beautification Act. In 1968 Caltrans entered into a contractual agreement with the Federal Highway Administration (FHA) to implement and enforce the federal OAC program. The penalty for failure to enforce federal law is severe: 10 percent of federal highway funds with the potential to apply the penalty retroactively. To assure against any loss of federal funds, the Committee last year required AB 1373 (Santiago) to contain specific language requiring preapproval of the advertising displays by Caltrans or the Federal Highway Administration. This bill contains similar language.
5. Promote local, not global. The stated purpose of the bill is to promote economic activity for tourism and local businesses of the City of Upland. The author and committee may wish to consider including that limitation into the bill so that these billboards do not advertise products and services unrelated to the local community.
6. Opposition. Opponents are concerned that the bill carves out individual exemptions from state law, which will inevitably lead to many more requests in the future. Last year the Legislature passed two such exemptions.
7. Similar Measures. The committee will consider three bills to establish exemptions from the OAA. This bill creates an exemption for an existing set of displays, as does SB 744 (Hueso). SB 405 (Mendoza) creates an exemption for new advertising displays.
8. Waiving committee policy. This committee has a policy not to hear bills which create specific exemptions from the OAA. The committee will need to waive its policy to hear this bill.

Related Legislation:

AB 1373 (Santiago, Chapter 853 of 2016) — creates an exception to the OAA in downtown Los Angeles provided the advertising displays are approved by either Caltrans or the FHA.

SB 1199 (Hall: Chapter 869 of 2016) – creates an exception to the OAA for two billboards in the City of Inglewood, provided that such billboards do not result in a reduction of federal funding.

SB 405 (Mendoza, 2017) — creates an exception to the OAA for new advertising displays in specified areas in the City of Artesia. This bill is pending in the Senate Transportation and Housing Committee.

SB 744 (Hueso, 2017) — creates an exception to the OAA for three existing advertising displays in Imperial County. This bill is pending in the Senate Transportation and Housing Committee.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

POSITIONS: (Communicated to the committee before noon on Wednesday,

April 19, 2017.)

SUPPORT:

City of Upland

OPPOSITION:

California State Outdoor Advertising Association