Connell Sues Over Ban on Political Donations to State Pension Officials

Complaining that her colleagues on a public pension board are trying to curtail her ability to raise campaign funds, state Controller Kathleen Connell has asked the courts to strike down reforms that prohibit many businesses from contributing to members of that board.

The lawsuit, filed in state court on Connell’s behalf, contends that a new ethics policy governing political contributions unfairly discriminates against Connell and state Treasurer Matt Fong because they are the only members of the California Public Employees’ Retirement System (CalPERS) board holding an elected state office.

Connell, a Democrat, is seeking reelection. Fong, a Republican, has won his party’s nomination for a U.S. Senate seat.

The rule, passed in February, prohibits contractors and investment firms that do business or wish to do business with CalPERS from making political contributions to any of its board members.

Fred Register, Connell’s campaign manager, said the rule has had a chilling effect on the controller’s reelection fund-raising because so many corporations could potentially do business with the mammoth pension system.

In the lawsuit, the campaign listed nine individuals who had contributed $56,000 to Connell in the past but were declining to donate to her campaign this year because of the new ethics policy.

Register said he believes that board members’ dissatisfaction with Connell and anger over her outspoken criticism of past board practices, particularly the acceptance of free travel, may have been the real motive for the passage of the new ethics policy.

“Frankly, we think it’s a case of ‘no good deed goes unpunished,’ ” he said. “It’s payback to the controller for being too aggressive on reform.”

Board President William D. Crist, who had not yet been served with a copy of the lawsuit, disputed the accusation.

“Any suggestion by Ms. Connell’s campaign that the policies were adopted as payback for her alleged aggressiveness on the board are unfounded and untruthful,” he said. “The board stands by its policies, which firmly and justifiably keep politics out of the board’s decision-making process.”

He said the impact on the political process had been something the board had considered carefully over the eight-month period that it was debating the ethics issue.

“Ultimately, the board determined that protection of the system’s . . . members from the taint of pay-to-play was absolutely necessary to comply with our fiduciary duties,” he said.

The policy was issued when the board was getting intense scrutiny for its relationships with various companies that held CalPERS contracts. News accounts reported that Connell and Fong had collected at least half a million dollars from firms doing business with CalPERS and its sister organization, the State Teachers’ Retirement System.

At the same time, the Securities and Exchange Commission was studying the influence of political donations on investment decisions by pension funds.

The 13-member CalPERS board oversees $140 billion in assets and administers health and retirement benefits for 1 million government workers and their families.

Connell, who is required by law to be a member of the board, has had a rocky relationship with her colleagues almost from the beginning. She declined to accept any free travel from companies that did business with the board and openly criticized other board members who took tours that were financed by businesses that had an interests in board decisions.

However, she became the target of criticism for accepting political contributions from individuals who did business with the board. Both Fong and Connell abstained when the vote was taken on the new ethics policy.

In the lawsuit, Connell’s campaign contended that the board policy was an “unconstitutional and unnecessary step to solve . . . the perceived conflict of interest problems” and unfairly discriminated against her because the same prohibitions on contributions did not apply to her Republican opponent.

Register acknowledged that the filing of the lawsuit could be politically risky for the controller.

“This was a difficult decision,” he said. “[The policy] was clearly illegal, unfair and unreasonable but no one likes to be on record opposing even a sham reform like this.”