BILL ANALYSIS Ó
AB 1408
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Date of Hearing: May 11, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 1408 (Committee on Banking and Finance) - As Amended: May
2, 2011
Policy Committee: Banking and
Finance Vote: 9-1
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill makes a technical change to the State General
Obligation Bond Law, to allow the minimum denomination of bonds
that can be sold to at $25 or multiples of that sum.
FISCAL EFFECT
This change will not create any additional administrative costs
for the State or the Treasurer's office. To the extent this
bill could result in an increased purchasing for California
notes, there could be savings from reduced interest costs that
are paid by the state.
COMMENTS
1)Purpose. According to the sponsor, the State Treasurer,
section 16731(a) of the General Obligation Bond Law (GOBL)
requires that General Obligation (GO) bonds be sold in minimum
denominations of one thousand dollars ($1,000) or multiples of
that sum. In the past, this requirement worked well for the
issuance of bonds since traditional fixed-rate bonds were
generally sold in $5,000 increments. However, due to the
evolving nature of the bond market and the magnitude of
authorized but unissued bonds remaining to be sold,
flexibility is needed in determining the minimum denominations
of bonds in order to achieve the best structure and rates
possible for future bond sales. For example, one product that
could potentially open up a largely untapped investor base
requires that bonds be sold in minimum denominations of
twenty-five dollars ($25) or multiples thereof.
AB 1408
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2)No direct sales. The Treasurer sells directly to retail or
institutional investors, there is no direct sale to consumers
akin to the federal Treasury Direct program. Currently,
California's minimum threshold is $1,000, but current market
practice is a minimum order of $5,000. It is virtually
impossible for an interested retail or institutional investor
to place an order that is less than $5,000 for any municipal
security (California, another state, or local government).
Federal law requires brokers to vet all investment decisions
and recommendations with the investor to ensure each
investment meets the overall objective as municipal securities
are not for everyone. The purpose then of the lower
denomination is to match orders more exactly, not to expand
beyond an investor base that is sophisticated and informed.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081