S2663 1R

An Act concerning investments of State-administered pension and annuity funds ¹[in real estate and infrastructure projects]¹ and supplementing P.L.1950, c.270 (C.52:18A-79 et seq.).

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

¹[1. a. As used in this section:

“Covered infrastructure asset” means a capital facility or structure, including systems and equipment related to the facility or structure, in which the Division of Investment has an equity interest greater than 50 percent.

“Covered real estate asset” means real property, including an interest in real property, and any share of stock or beneficial interest, partnership interest, depository receipt, or any other interest in a real estate entity in which the Division of Investment has an equity interest greater than 50 percent.

b. On the effective date of P.L. , c. (pending before the Legislature as this bill), the Director of the Division of Investment, in consultation with the State Investment Council, shall promulgate rules and regulations pursuant to the “Administrative Procedure Act,” P.L.1968, c.410 (C.52:14B-1 et seq.), which shall govern the manner in which the division invests or reinvests pension or annuity funds in a covered real estate asset or covered infrastructure asset. The rules and regulations shall set forth requirements for the engagement of contractors and subcontractors performing any construction, delivery to a job site of major construction materials, maintenance, repair, or restoration involving a covered real estate asset or covered infrastructure asset.

c. The rules and regulations promulgated by the director shall include, at minimum, the following elements:

(1) A requirement that contractors and subcontractors provide workers fair wages and fair benefits, as evidenced by payroll and employee records. "Fair wages” and "fair benefits" shall be based on relevant market factors that include the nature and location of the project, comparable job or trade classifications, and the scope and complexity of services provided.

(2) The exclusion from bidding of contractors and subcontractors that have been debarred in the past 36 months by a governmental authority for failure to pay prevailing wages or benefits on any prior job for which it is required by law.

(3) A position of neutrality, by the division and its contractors, in the event there is a legitimate attempt by a labor organization to organize workers employed in the construction, maintenance, operation, or services involving a project, property, or asset in which the division has an ownership interest.

(4) A requirement to reject any investment that has the potential of eliminating public sector jobs, would pose a reputational risk to the State-administered retirement systems, or bring public or regulatory scrutiny to the retirement systems.

d. Following the effective date of P.L. , c. (pending before the Legislature as this bill) and notwithstanding the provisions of section 11 of P.L.1950, c.270 (C.52:18A-89) or any other law, rule, or regulation to the contrary, the division shall not invest any asset of a pension or annuity fund under the jurisdiction of the division in a covered real estate asset or covered infrastructure asset unless the investment complies with the provisions of this section and any rule or regulation adopted pursuant to this section. Each contractually enforceable instrument for additional or new investments, or renewal of existing investment in a covered real estate asset or covered infrastructure asset after the effective date of P.L. , c. (pending before the Legislature as this bill) shall comply with the provisions of this section and any rule or regulation adopted pursuant to this section.]¹

¹1. a. For domestic equity investments in the private real estate, private equity, and private infrastructure asset classes, including partnerships, joint ventures, co-investment vehicles, commingled investments, and direct investments entered into after the effective date of P.L. , c. (C. ) (pending before the Legislature as this bill) in which the Division of Investment has an equity interest greater than 50 percent, either directly or through one or more external managers, the Director of the Division of Investment or the external manager shall require that all developers and operators of enterprises thus financed must as a condition of the Division’s funding of the investment agree to, and abide by, the following requirements:

(1) with respect to any construction-related activities financed by the investment, to use good faith efforts to ensure that responsible contractors are included in the bidding by, and selection of, all contractors and subcontractors at any tier performing any construction, delivery to the job site of major construction materials, maintenance, repair, or restoration, including, without limitation, alterations, additions, improvements, painting, installations of fixtures, mechanical, electrical, plumbing, or with respect to any other construction or installation-related work, and structures, equipment and systems fabricated for a specific job site. A contractor shall be excluded from bidding on projects if such contractor or any of its senior officials has been debarred in the 36 months preceding the bidding deadline by a governmental authority for failure to pay prevailing wages or benefits on any prior job for which it is required by law. A responsible contractor is one which: submits to the property or external manager a responsible contractor self-certification on a form acceptable to the Director; communicates and furnishes this section to subcontractors; provides the Director and the external manager with responsible contractor documentation; selects subcontractors in a manner consistent with this section; and pays workers fair wages and fair benefits including employer-supported family health care coverage, pension benefits and apprenticeship training programs, based on relevant market factors that include the nature and location of the project, comparable job or trade classifications, and the scope and complexity of the work.

(2) with respect to any long-term operations financed by the investment, that any operator of such operations shall make a good faith effort to secure an agreement with a bona fide labor organization requesting to enter in to such an agreement solely with respect to such operations in which the labor organization agrees not to strike, picket, boycott, or take economic action against the operations for the duration of the investment. A bona fide labor organization is one which is a member of either the AFL-CIO or Change to Win, and has at least 100 collective bargaining agreements or 50,000 members in the same industry as the long-term operations.

b. For domestic equity investments in the private real estate, private equity and private infrastructure asset classes, including partnerships, joint ventures, co-investment vehicles, commingled investments, and direct investments entered into after the effective date of P.L. , c. (C. ) (pending before the Legislature as this bill) in which the Division of Investment has an equity interest equal to or less than 50 percent, the Director of the Division of Investment shall encourage external managers to follow the practices in paragraphs (1) and (2) of subsection a. of this section and shall give preference in the selection of external managers and placement of additional investments to those which provide the best level of return at an acceptable level of risk and follow such practices.¹

¹2. The Director of the Division of Investment and the State Investment Council shall not approve any investment that has the potential to eliminate public sector jobs, would pose a reputational risk to the State-administered retirement systems, or could bring public or regulatory scrutiny to the retirement systems. Before presenting any investment to the State Investment Council for possible investment, the Division of Investment shall identify any features of the proposed investment that could potentially lead to significant loss of public sector jobs, pose reputational risks, or subject the retirement systems to regulatory scrutiny.¹

¹3. The Director of the Division of Investment, subject to the direction of the State Investment Council, shall exercise due diligence in the selection of external managers. The Director shall consider at least the following factors about the external manager and companies in its current and historical portfolios: any violations, fines, citations, or findings by a state or federal regulatory agency, including but not limited to, environmental fines and violations, unfair labor practices, or OSHA fines and violations; the record of securing labor peace agreements with labor organizations; disputes with labor organizations in the previous five years and the outcomes of such disputes; any complaints about the external manager, its portfolio companies or construction contractors received from concerned citizens or organizations; and whether the external manager proposes an investment strategy that is premised on, or has the potential to create, significant public sector job loss. Prospective external managers and their portfolio companies shall be of good character and shall have demonstrated observance of local, state, and national laws (including, by way of illustration, those related to insurance, taxes, labor, anti-discrimination, environmental, and occupational health and safety). External managers and their portfolio companies shall be evaluated for their record of compliance with the policies, including any responsible contractor policies of public pension plans for which they serve or have served as external managers and shall be required to disclose any instances of non-compliance with such policies and to certify that they and their portfolio companies are not out of compliance with any such policies at the time of any proposed investment by the Division of Investment. External managers shall have demonstrated a past practice of, and capacity for, managing risks, including, without limitation, investment risks, interest rate risks, compliance risks, the risk of labor disputes, and the risk of malfeasance or ineptitude on the part of contractors, subcontractors, or operators. Whenever possible, external managers shall be chosen by competitive bidding and evaluated on their likelihood of producing competitive, risk-adjusted rates of return.¹

¹4. The report of the State Investment Council issued pursuant to section 13 of P.L.1950, c.270 (C.52:18A-91) on the performance of external managers shall include identification of all investments held as of the date of the report that are in violation of sections 1 and 3 of P.L. , c. (C. ) (pending before the Legislature as this bill). The State Investment Council and the Director of the Division of Investment may take appropriate action to sell, redeem, divest, or withdraw any investment held in violation of sections 1 and 3 of P.L. , c. (C. ) (pending before the Legislature as this bill) when efforts to cure the violation are unsuccessful. This section shall not be construed to authorize the premature or otherwise imprudent sale, redemption, divestment, or withdrawal of an investment.¹

¹[2.] 5.¹ This act shall take effect ¹[on January 1 next] 180 days¹ following the date of enactment except the director may take any anticipatory administrative action in advance as shall be necessary for the implementation of this act.