Issues

David Judson, Director
Office of Administrative Law
555 Capitol Mall, Suite 1260
Sacramento, CA 95814

December 16, 2000

Subject: Request for Determination

Dear Mr. Judson:

This is a request for determination under California Code of Regulations, Title 1, Section 122 concerning policies adopted primarily in June 1994 and amended in August 2000 by the California Public Employees’ Retirement System (CalPERS) outlining procedures to be followed in authorizing additional reimbursement "when the Board deems the reimbursement necessary to enable a Board member to fulfill his or her fiduciary responsibilities."

Enclosed please find copies of the following:

1. My October 4, 2000 petition to adopt these policies as regulations.

2. November 3, 2000 letter from James E. Burton denying my petition under the provisions of Government Code section 11340.6.

The CalPERS policies for which I seek a determination are as follows.

3. "Reimbursement to State and Public Agency Employers of Board Members" (BD-94-100), adopted June 15, 1994, and amended December 15, 1999 and August 23, 2000.

4. "Board Compensation" No. 00-04-BD, signed September 20, 2000.

5. "Board Compensation Policy" dated October 1, 2000.

6. "Procedure For Approval of Additional Reimburseme To State, School and Public Agency Employers of Board Memb" (misspellings included in downloaded document http://www.calpers.org/whatshap/calendar/board/bpac/default.htm in November, 2000)

While I am sympathetic to the need to increase reimbursement to CalPERS Board members beyond that provided in Government Code sections 20091 and 20092, I believe any such increases should be based on statute or regulations adopted under the Administrative Procedure Act (APA). Both the legislative process and the APA offer important protections for public participation and oversight not available to other Board adopted policies.

In addition, I believe the Board’s frequent claim that their Constitutional authority exempts them from state laws may well lead the Board down a slippery slope which should be stopped before the consequences become costly. For example, a Sacramento Bee editorial, ''Low road at PERS'' (November 2, 1999), threatened reexamination of Proposition 162, which the Board has claimed exempts them from various laws such as the Administrative Procedure Act. The more frequently CalPERS abuses its authority, the more likely such a reexamination will occur, perhaps with unintended consequences.

CalPERS contends their policies regarding reimbursement to Board members and public agency employers are exempt from the definition of regulations because they deal solely with the internal management of a state agency, since the policies only apply to a few Board members and do not require their employer to release them from his or her normal duties.

Let’s examine the policies in light of the argument that they are limited to "internal management."

"Reimbursement to State and Public Agency Employers of Board Members" (BD-94-100), adopted June 15, 1994, and amended December 15, 1999 and August 23, 2000.

Resolved (A) empowers the CalPERS Board to determine the need to provide reimbursement "to the employers of elected Board members that employ persons to replace the member."

Both the employer and the persons employed to replace the member are impacted by the policy.

Whereas section 20092 of the Government Code limits such reimbursement of employers to 25 percent of the board member’s annual compensation, the policies in question have no such limit. The increased costs might be expected to have some impact outside of "internal management," since such expenditures would reduce the resources available for other activities, such as responding to inquiries from plan beneficiaries.

Resolved (B) includes "the employer’s overhead costs," as "demonstrated through documentation."

Again, there is an impact on the employer and their staff to make such a determination. In addition, including overhead costs goes beyond the reimbursable costs required by statute and such costs would again reduce the resources available for other activities, such as responding to inquiries from plan beneficiaries.

"Board Compensation Policy" dated October 1, 2000

Item IIIB provides that compensation to applicable Board members will be $400 per noticed meeting of the Board or any of its committees, regardless of whether or not they serve on those committees.

CalPERS has established six committees and two subcommittees, in addition to the Board. It is unclear just how the above policy is applied but, if interpreted broadly, Board members who slip in to attend a few minutes of a committee may receive up to $3,600 per month for attending meetings of the Board, committees and subcommittees, if each meets once. Section 20091 of the Government Code limits such reimbursement to $100 for every day or portion thereof of actual attendance at meetings of the board or any meeting of any committee of the board.

If the November meeting schedule is typical (Attachment 7), Board members might collect up to $3,600 for attending meetings under the Board adopted policies in question, whereas under the provisions of the Government Code they would only collect up to $500 for five days of attending meetings. The $3,100 difference might be expected to have some impact outside of "internal management," since it would again reduce the resources available for other activities, such as responding to inquiries from plan beneficiaries.

"Procedure For Approval of Additional Reimburseme To State, School and Public Agency Employers of Board Memb" dated 8/23/00.

Procedure 1(c) requires, wherever possible, that a "supporting letter from the requesting Board member’s employer" be included.

This impacts other than "internal management."

Procedure 3 requires staff to advise the employer of any additional approved release time.

Again, this impacts other than "internal management."

I have included Mr. Valdes’ letter to the Board dated October 17, 2000 as example of such a request. (Attachment 8) The first sentence requests reimbursement to his employer, CalTrans, which is a state agency outside the "internal management" of CalPERS. Note that in the first sentence he requests reimbursement for 85% of his time. CalPERS argues the Board adopted policies do not impose any obligation on the employer, since they are not required to release the Board member for any specific time. However, it is clear the policies do impact CalTrans by providing them with the money to pay another attorney to perform the vast majority of Mr. Valdes’ duties. I believe it also sets up an expectation that he will be released from 85% of his duties.

In the second and third sentences of Mr. Valdes’ letter he indicates that his "employer will provide the necessary documentation and communication verifying the time required" and that "the Legal Division of CalTrans joins in my request for reimbursement." Again, this is evidence that the policies impact Mr. Valdes’ employer who is tasked with documenting and communicating with CalPERS and, according to Mr. Valdes, "joins" in the request.

Every state agency is subject to the APA, unless expressly exempted by statute. (Engelmann v. State Board of Education (1991) 2 Cal. App. 4th 47; State Water Resources Control Board v. OAL (1993) 12 Cal. App. 4th 697, 703-706) Mr. Burton dismisses the applicability of Poschman v. Dumke (1973) 31 Cal.App.3d 932 and other cases, with the implication that these policies do not involve an important public interest with serious consequences beyond the handful of Board members. However, I believe it is reasonable to assume that whenever the Board attempts to overturn duly enacted statutes, an important public interest, such as that found in Poschman v. Dumke, can be assumed.

CalPERS has argued they are exempt from the APA, given their Constitutional authority. However, this argument has been discredited in Sacramento County Superior Court. (Kathleen Connell for Controller et al. v. CalPERS Board of Administration, case no. 98CS01749) and again in 1999 OAL Determination No. 18. The purpose of Proposition 162 was to prevent raids, limit political interference and firmly establish the System’s primary obligation to its members. It was never meant to allow the Board to avoid public scrutiny or to place itself above the law.

Rules that have the impact of regulations have been treated by the courts as regulations, regardless of whether or not the issuing agency labeled them as such. (State Water Resources Control Board v. OAL (1993) 12 Cal. App. 4th 697, 702. However, nonexempt regulations, such as the CalPERS policies cited above, that have not been adopted pursuant to the APA are invalid and have no legal effect. (Armistead v. State Personnel Board (1978) 22 Cal. 3d 198)

I am also enclosing agenda item 3 from a December 12, 2000 meeting of the Ad Hoc Internal Board Governance Review Committee as Attachment 9. This outlines just a few of the issues that would probably have been dealt with long ago if CalPERS had gone through the rulemaking process for board compensation regulations. Is there a minimum time commitment expected of board members? Should those in leadership position be expected to put in more time? Do "new" members need more preparation time? Should continuing education expectations be established? The policies that answer these questions will be of great interest to potential board candidates and their employers, as well as to all members.

I look forward to a determination by the Office of Administrative Law concerning whether the enclosed policies are "regulations" as defined in Government Code Section 11342(g) and are invalid and unenforceable because they have not been adopted as regulations pursuant to the Administrative Procedure Act. If you need further information or clarification concerning this request for determination, please call me at 916-327-8642 (day) or 916-691-9722 (evening).

I hereby declare under penalty of perjury my belief that the information contained in this request, as well as in the enclosures, is true and correct. I also declare under penalty of perjury that a copy of this request for determination was mailed to CalPERS at 400 P Street, Sacramento, on December 16, 2000 prior to the mailing to OAL..