A Chilling Divestment

Threat to divest city funds from a Koch-owned LA Times likely unconstitutional

Koch brothers /
May 2, 2013

Threats by members of the Los Angeles City Council to use the city’s pension funds to penalize investors if they sell the Los Angeles Times to Charles and David Koch could be illegal and unconstitutional, experts say.

A proposal by councilman Bill Rosendahl would allow the city to yank investments by the city’s three pension funds in the Tribune Co., which owns the Times, if the company opts to sell the paper to someone who does not uphold "the highest terms of professional and objective journalism."

Rumors that libertarian industrialists Charles and David Koch might buy the paper spurred him to propose the motion, Rosendahl told the Times. He did not respond to a request for comment.

"Frankly what I hear about the Koch brothers, if it’s true, it’s the end of journalism,’’ Rosendahl told the paper.

The Koch Brothers are reportedly considering purchasing the Tribune Co., which owns the Times, though they are also said to be uninterested in the company’s other media properties, which include 23 local television stations, a national cable network, and other newspapers.

"We cannot support the sale of the Times to entities who Times readers would view as a political transaction first and foremost, turning L.A.’s metropolitan daily into an ideological mouthpiece whose commitment to empirical journalism would be unproven at best," Rosendahl wrote.

Legal experts say Rosendahl’s political motivations in directing the city’s pension funds could run afoul of the Kochs’ First Amendment rights.

A Koch spokesperson declined to comment on the issue.

"The government generally can’t discriminate against government contractors based on the content or viewpoint of the contractors’ speech," University of California Los Angeles law professor Eugene Volokh said in an email to the Washington Free Beacon.

"I think that principle would apply here," Volokh explained. "The city might choose its investment firms for various reasons, but it can’t choose them because the firms sell their assets to speakers whose speech the city dislikes."

Rosendahl’s motion, which was cosponsored by two other councilmembers, including mayoral candidate Eric Garcetti, may also violate laws governing pension administration, experts say.

"The law is very clear: Pension funds must be invested so as to maximize their value and provide a secure financial foundation for retired public servants," said Allen Dickerson, legal director at the Center for Competitive Politics.

"There is no indication that this motion was motivated by the economic interests of L.A.'s retirees," Dickerson explained. "Rather, it reflects a troubling trend toward the politicization of investment decisions.

The city’s "legal duty," he added, "is to invest funds with an eye solely to the economic welfare of current and future retirees and leave political points for another venue."

Rosendahl’s motion directs the Los Angeles’s city administrative officer to produce a report on how the city’s pension fund investment decisions can support "professional and objective journalism."

The California Constitution states all public pension officials must "minimize the risk of loss and … maximize the rate of return," and vests authority in public pension administrators to invest funds "for the exclusive purposes of providing benefits to participants in the pension or retirement system."

It allows legislative changes to pension fund investments but specifies that any change must "satisf[y] the standards of fiduciary care and loyalty required of a retirement board pursuant to this section." Legislative changes must be geared exclusively toward maximizing returns in other words.

The office of the city administrative officer did not respond to a request for comment.