SACRAMENTO, Calif. -- State Controller Kathleen Connell is accusing the CalPERS board of being "out of control" and overstepping its authority in regulating campaign contributions to fund trustees.
Ms. Connell has filed suit against the CalPERS board of administration and James E. Burton, chief executive officer. She is asking California Superior Court Judge Cecily Bond to overturn the regulations. A hearing was scheduled for Sept. 4 in Sacramento.
Her allegations are contained in documents connected with the lawsuit.
Ms. Connell is an ex-officio member of the board of the $143 billion California Public Employees' Retirement System. She contends the regulations, approved in February, are seriously hurting her re-election campaign.
The CalPERS regulations are supposed to prohibit firms that do, or wish to do, business with the pension fund from making campaign contributions to trustees.
Ms. Connell's suit also tests what power trustees under the Pension Protection Act, a California constitutional amendment approved by voters in 1992. It seeks to protect state retirement funds from legislative-engineered pension raids.
Because the dispute tests the legality of pension fund independence and self-governing authority, its resolution could have reverberations far beyond CalPERS.
The CalPERS board doesn't have the powers to regulate campaign contributions, Ms. Connell contends.
Ms. Connell's supporters, however, believe the regulations are designed solely to interfere with her ability to raise campaign funds.
Not even state Treasurer Matt Fong, the other ex-officio CalPERS board member, is affected, said Fred Register, Ms. Connell's campaign director. That's because Mr. Fong is running for a U.S. Senate seat, and federal campaign contribution laws supersede state ones in his case, Mr. Register said.
Other CalPERS' trustees are appointed or elected by employee groups and, therefore, receive little or no contributions.
Mr. Register believes the campaign contribution restriction is an act of retaliation. He pointed out that in 1995, Ms. Connell publicly chastised some CalPERS board members for accepting luxury dinners and expense-paid overseas travel junkets from money managers.
Ms. Connell is particularly hard hit by the contribution ban because, as a former investment banker, some of her former colleagues who would like to contribute to her campaign might have some future business with CalPERS, said Mr. Register.
Two CalPERS consultants also have gotten into the fight.
A response to Ms. Connell's lawsuit includes statements from Leslie Brun, chairman and chief executive officer of Hamilton Lane Advisors Inc., Philadelphia, and Allan Emkin, managing director of pension Consulting Alliance Inc., Studio City, Calif.
Mr. Brun said after he refused to contribute $10,0000 to Ms. Connell's campaign in late 1997, his relationship deteriorated with a "representative" of Ms. Connell's who frequently sits on the CalPERS board.
Ms. Connell's response: Mr. Brun had the date of the contribution request wrong; it occurred more than 11 months before Mr. Brun complained of a deteriorating relationship; and Mr. Brun's firm received a contract for $7.3 million from CalPERS after the contribution request.
Mr. Emkin said he was "uncomfortable" receiving a request for a campaign contribution directly from Ms. Connell. He said in his statement that he refused the request.
Ms. Connell's response: Even though Mr. Emkin was uncomfortable about the request, he still felt he could refuse.
The fight among CalPERS trustees is in the boardroom as well as in the courtroom.
Fred Buenrostro, state deputy controller and frequent substitute for Ms. Connell on the CalPERS board, had been asking managers and consultants seeking fund contracts what they had contributed to gubernatorial and legislative campaigns.
But Charles Valdes, chairman of CalPERS' investment committee, and William Crist, chairman of CalPERS, said Mr. Buenrostro's questions were irrelevant and the board ruled them out of order.
CalPERS' response to Ms. Connell's suit states CalPERS has plenary authority over both investment decisions and adminis
But Ms. Connell's court documents say two courts of appeal and the California attorney general already have rejected "such an expansive view" of the Pension Protection Act.
CalPERS officials, meanwhile, contend the campaign contribution regulations are needed because of investigations by the FBI, Securities and Exchange Commission and Justice Department over allegations and appearance of corruption by CalPERS trustees.
But Ms. Connell said in her court papers: "After more than a year of alleged investigations, there has not been so much as a hint of an allegation of wrongdoing on the part of a CalPERS board member. Second, the reports of investigations have been greatly exaggerated by respondents."
Brad Pacheco, a spokesman for CalPERS, said that since the issues are in litigation, CalPERS has no comment at this time.