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California teachers pension to ban business with large donors

The Associated Press | Saturday, Nov 4 2006 2:15 PM

Last Updated: Saturday, Nov 4 2006 2:15 PM

California's $153 billion teacher retirement fund, the nation's second-largest public pension system, will stop doing business with firms that make large political donations to the governor or other state leaders.

The California State Teachers Retirement System approved the ban Friday in hopes of avoiding conflicts of interest.

The action comes amid concerns that pension board members have used their positions for political ends, steering money to campaign contributors.

Under the new rule, firms that do business with the fund and their employees can't give more than $1,000 in campaign cash each year to board members or the governor. The board's members include the state treasurer and controller, both of whom are elected to office, as well as several governor appointees.

Previously, most firms were only limited by state campaign finance rules. Those laws allow individuals and companies to give up to $22,300 to a candidate for governor and $5,600 to treasurer and controller candidates per election.

"Our goal is to make sure we don't make investment decisions based on the political contributions people give," said Anne Sheehan, who represents Gov. Arnold Schwarzenegger on the board and led the push for the ban.

Those caught violating the rule must pay at least a $10,000 fine to the teacher retirement fund. They also will be barred from receiving CalSTRS contracts for two years.

Arthur Levitt, a former chairman of the Securities and Exchange Commission, called the board's vote "an act of enormous courage which will have a ripple effect in pension systems throughout the country."

"It is simply wrong to have trustees of pension funds be the recipient of political contributions from firms who have an interest in their actions," he said. "It is an out-and-out conflict."

The pension's chief investment officer, Christopher Ailman, said most firms he surveyed indicated they would be "thrilled" with the rule, though some venture capitalists doing business with the fund were skeptical of it.

"They are very politically active," Ailman said. "Some of the comments we got back were very strong. One (general partner) said he would not consider CalSTRS (investments) any longer."

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