Limits on Donations to Pension Panel Eyed

The board that oversees California’s teacher pension fund is poised to ban financial firms that it does business with from making large political contributions to its members and the governor.

Implementation of such a ban, which could cost candidates for governor and other statewide offices millions of dollars in campaign cash, was set in motion Thursday with a unanimous vote of the board’s corporate governance committee. Over the next two months, staff attorneys will craft statutes, subject to board approval, that would put the new rule into effect.

The move, instigated by proxies for Gov. Arnold Schwarzenegger, would prohibit companies or their employees who are seeking business from the pension fund from donating more than $250 to Schwarzenegger, the state treasurer or the state controller, all of whom control seats on the board.

The development follows revelations in The Times that Treasurer Phil Angelides and Controller Steve Westly, rivals in the June primary election, steered the pension boards they sit on, including the teacher fund panel, to invest in firms that contributed to their campaigns. Both men have collected millions of dollars from companies seeking pension-system cash. But both quickly endorsed the new plan.

“The treasurer wholeheartedly supports the proposal,” Angelides spokesman Nick Papas said. Joy Higa, the controller’s representative on the board, said Westly also backs the measure.

The push comes as pension boards nationwide have been tainted by “pay to play” scandals. Investigations into the awarding of investment contracts to political patrons of pension board members have been launched in several states.

“There should not be a perception out there that one pays to play, in terms of making campaign contributions to officials in California and as a reward you have access to the nation’s second-largest pension fund,” Peter Reinke, a campaign finance reform advocate whom Schwarzenegger recently appointed to the board of the California State Teachers’ Retirement System, said at the board’s meeting. The spirited discussion on political giving stretched across 2 1/2 hours.

During President Clinton’s years in office, the Securities and Exchange Commission launched an effort to put such a ban in place. But it unraveled amid intense opposition from financial firms.

The same fate still could befall the teacher pension fund proposal; opponents have not yet had time to mobilize against the plan. Even some of the board members who voted to move forward said there could be unintended consequences.

Board member Dana Dillon, a teacher from Weed, warned that multinational investment firms could lose their contracts with the state because a low-level employee made a $500 contribution to a gubernatorial candidate. Other teachers on the board expressed concern that they would not be able to attend lunch events held by financial firms.

But supporters praised Thursday’s action.

“This move is of tremendous importance to pension funds nationwide,” said Edward Siedle, a former SEC investigator who runs a private firm that helps pension boards root out corruption. “Pension plans are under attack. The public fund community is trying to defend them. But they are realizing that trying to defend their most corrupt practices becomes a losing battle.”

Westly’s support for the measure comes after the controller’s aggressive pursuit of pension fund cash became a focal point of last spring’s primary campaign.

Westly intervened at the California Public Employee Retirement System on behalf of a politically connected venture capital firm that held multiple fundraisers for him -- and in which CalPERS’ outside advisors had opted not to invest. After Westly’s intervention, the staff at CalPERS put $5 million into the fund.

And the controller’s desk calendars, obtained through a request for public records, are filled with private meetings with donors linked to financial firms doing business with California pension systems.

The Angelides campaign aired a commercial that accused Westly of corruption.

But Angelides’ own campaign coffers have received a huge boost from companies with business before the pension funds, and his advocacy on their behalf was frowned on by ethicists.

Angelides’ representative at the teacher pension fund, Dennis Trujillo, tried Thursday to get the board to adopt policies that appeared aimed at embarrassing the governor. One would have changed the oath that board members make on taking their seats to include a pledge of independence underscoring the dangers of “political ‘packing’ of retirement boards.”

Trujillo said the pledge was needed because the governor removed four board members who opposed his plan last year to replace pensions with 401(k)-style retirement plans for new government employees.

“We have a governor who terminated four members because they didn’t walk lockstep with him,” Trujillo said. But the committee said the treasurer’s proposal was incomplete because it did not include the actual language that would be added to the oath. The measure will be reconsidered at a later date.

Angelides also sought to impose a policy that would force the governor and his staff to report on the nature of any communications he has with his representatives on the pension board.

Committee members objected to the proposal, which would not have applied to any other state officials who have representatives on the pension board. It lost in a 3-6 vote.

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evan.halper@latimes.com