Bill to Divest State Tobacco Stocks Dies

Legislation to force California’s massive government employee pension funds to divest $1.1 billion in tobacco stocks died Wednesday, as lobbyists for the pension funds and the tobacco industry insisted the stocks remain a solid investment.

The bill by Assemblyman Wally Knox (D-Los Angeles) was defeated a day after the American Medical Assn. urged investors to stop investing in companies that market tobacco because of the disease it causes. Last week, managers of Maryland’s state pension fund announced that they had sold their tobacco holdings because they viewed them as a risky investment.

“There is a parade,” Knox said. “Either we will lead the parade or we will be trampled by it.”

Knox said tobacco stock prices could tumble if the federal government imposes more restrictions on the industry and if states win their suits seeking to recoup health care costs related to tobacco.

“No other industry faces that,” he said. “That is why it is prudent and in the public interest for California to get out of tobacco.”

Assemblyman Howard Kaloogian (R-Carlsbad), the committee chairman, said the decision to buy or sell stocks should be left to professionals who manage the $98-billion Public Employee Retirement System Fund and the $55-billion State Teachers Retirement Fund. He also suggested that Knox was trying to legislate morality with the bill.

Kaloogian and three other Republicans voted against the measure (AB 3445) in the seven-member Assembly Committee on Public Employees, Retirement and Social Security. One Democrat voted for it. One Democrat and one Reform Party member failed to vote.

“Pension funds are not play toys to be manipulated for political or social purposes,” said Phil Dowd, lobbyist for the Tobacco Institute. Lobbyists for the pension funds also testified against the bill.

Meanwhile, on Tuesday, the Assembly Health Committee approved by a 15-1 vote a bill that seeks to boost California’s anti-tobacco education, advertising and research programs.

Assembly Democratic Leader Richard Katz of Sylmar, the bill’s author, attributed the lopsided vote to “enormous public pressure on Republicans” from anti-smoking groups and press reports focusing on the tobacco industry’s large contributions to Republican lawmakers.

“The Republicans were looking for a way to deflect criticism,” Katz said.

He said that although the bill cleared the Health Committee, it probably will stall at its next Assembly committee and become part of the negotiations between the Legislature and Gov. Pete Wilson this summer over the budget.

In his bill, Katz proposes to spend $88 million on anti-tobacco education, advertising and research. The money will come from the 25-cent-per-pack tax on cigarettes approved in 1988 when voters passed Proposition 99. Wilson has recommended in his proposed budget that $43 million be spent on such programs, with the rest of the money from the tax spent on health care programs for the poor or held in reserve.

The tobacco industry, by contrast, spends about $6 billion a year on advertising and promotion in the United States, said Connie Pechmann, a UC Irvine professor of marketing who has studied California’s anti-tobacco program.

For the past three years, Wilson and the Legislature have diverted money from the anti-tobacco education and research accounts and used it for health care programs for the poor.

But in a significant shift, the California Medical Assn., which previously supported the cigarette tax diversions, sided with the American Lung Assn. and other anti-tobacco groups and urged the Health Committee to fully fund the anti-tobacco education and research programs.

Lobbyists for the California Medical Assn. said that with state tax revenue rising there is enough money from sources other than the cigarette tax to fund the health care programs for the poor.