AB 1933, as amended, Levine. Local government: investments.
Existing law authorizes the legislative body of a local agency having money in a sinking fund or money in its treasury not required for immediate needs to invest any portion of the money that it deems wise or expedient in specified securities and financial instruments.
This bill would authorize the legislative body of a local agency to also invest in United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by certain banks, as specified, and would require these investments to be rated “AA” or better and to not exceed 30% of the agency’s moneys that may be invested.
Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.
The people of the State of California do enact as follows:
Section 53601 of the Government Code is
2amended to read:
This section shall apply to a local agency that is a city,
4a district, or other local agency that does not pool money in
P2 1deposits or investments with other local agencies, other than local
2agencies that have the same governing body. However, Section
353635 shall apply to all local agencies that pool money in deposits
4or investments with other local agencies that have separate
5governing bodies. The legislative body of a local agency having
6moneys in a sinking fund or moneys in its treasury not required
7for the immediate needs of the local agency may invest any portion
8of the moneys that it deems wise or expedient in those investments
9set forth below. A local agency purchasing or obtaining any
10securities prescribed in this section, in a negotiable, bearer,
11registered, or nonregistered format, shall require delivery of the
12securities to the local agency, including those purchased for the
13agency by financial advisers, consultants, or managers using the
14agency’s funds, by book entry, physical delivery, or by third-party
15custodial agreement. The transfer of securities to the counterparty
16bank’s customer book entry account may be used for book entry
18For purposes of this section, “counterparty” means the other
19party to the transaction. A counterparty bank’s trust department
20or separate safekeeping department may be used for the physical
21delivery of the security if the security is held in the name of the
22local agency. Where this section specifies a percentage limitation
23for a particular category of investment, that percentage is applicable
24only at the date of purchase. Where this section does not specify
25a limitation on the term or remaining maturity at the time of the
26investment, no investment shall be made in any security, other
27than a security underlying a repurchase or reverse repurchase
28agreement or securities lending agreement authorized by this
29section, that at the time of the investment has a term remaining to
30maturity in excess of five years, unless the legislative body has
31granted express authority to make that investment either
32specifically or as a part of an investment program approved by the
33legislative body no less than three months prior to the investment:
34(a) Bonds issued by the local agency, including bonds payable
35solely out of the revenues from a revenue-producing property
36owned, controlled, or operated by the local agency or by a
37department, board, agency, or authority of the local agency.
38(b) United States Treasury notes, bonds, bills, or certificates of
39indebtedness, or those for which the faith and credit of the United
40States are pledged for the payment of principal and interest.
P3 1(c) Registered state warrants or treasury notes or bonds of this
2state, including bonds payable solely out of the revenues from a
3revenue-producing property owned, controlled, or operated by the
4state or by a department, board, agency, or authority of the state.
5(d) Registered treasury notes or bonds of any of the other 49
6states in addition to California, including bonds payable solely out
7of the revenues from a revenue-producing property owned,
8controlled, or operated by a state or by a department, board, agency,
9or authority of any of the other 49 states, in addition to California.
10(e) Bonds, notes, warrants, or other evidences of indebtedness
11of a local agency within this state, including bonds payable solely
12out of the revenues from a revenue-producing property owned,
13controlled, or operated by the local agency, or by a department,
14board, agency, or authority of the local agency.
15(f) Federal agency or United States government-sponsored
16enterprise obligations, participations, or other instruments,
17including those issued by or fully guaranteed as to principal and
18interest by federal agencies or United States government-sponsored
20(g) Bankers’ acceptances otherwise known as bills of exchange
21or time drafts that are drawn on and accepted by a commercial
22bank. Purchases of bankers’ acceptances shall not exceed 180
23days’ maturity or 40 percent of the agency’s moneys that may be
24invested pursuant to this section. However, no more than 30 percent
25of the agency’s moneys may be invested in the bankers’
26acceptances of any one commercial bank pursuant to this section.
27This subdivision does not preclude a municipal utility district
28from investing moneys in its treasury in a manner authorized by
29the Municipal Utility District Act (Division 6 (commencing with
30Section 11501) of the Public Utilities Code).
31(h) Commercial paper of “prime” quality of the highest ranking
32or of the highest letter and number rating as provided for by a
33nationally recognized statistical rating organization (NRSRO).
34The entity that issues the commercial paper shall meet all of the
35following conditions in either paragraph (1) or (2):
36(1) The entity meets the following criteria:
37(A) Is organized and operating in the United States as a general
39(B) Has total assets in excess of five hundred million dollars
P4 1(C) Has debt other than commercial paper, if any, that is rated
2“A” or higher by an NRSRO.
3(2) The entity meets the following criteria:
4(A) Is organized within the United States as a special purpose
5corporation, trust, or limited liability company.
6(B) Has programwide credit enhancements including, but not
7limited to, overcollateralization, letters of credit, or a surety bond.
8(C) Has commercial paper that is rated “A-1” or higher, or the
9equivalent, by an NRSRO.
10Eligible commercial paper shall have a maximum maturity of
11270 days or less. Local agencies, other than counties or a city and
12county, may invest no more than 25 percent of their moneys in
13eligible commercial paper. Local agencies, other than counties or
14a city and county, may purchase no more than 10 percent of the
15outstanding commercial paper of any single issuer. Counties or a
16city and county may invest in commercial paper pursuant to the
17concentration limits in subdivision (a) of Section 53635.
certificates of deposit issued by a nationally or
19state-chartered bank, a savings association or a federal association
20(as defined by Section 5102 of the Financial Code), a state or
21federal credit union, or by a federally licensed or state-licensed
22branch of a foreign bank. Purchases of negotiable certificates of
23deposit shall not exceed 30 percent of the agency’s moneys that
24may be invested pursuant to this section. For purposes of this
25section, negotiable certificates of deposit do not come within
26Article 2 (commencing with Section 53630), except that the amount
27so invested shall be subject to the limitations of Section 53638.
28The legislative body of a local agency and the treasurer or other
29official of the local agency having legal custody of the moneys
30are prohibited from investing local agency funds, or funds in the
31custody of the local agency, in negotiable certificates of deposit
32issued by a state or federal credit union if a member of the
33legislative body of the local agency, or a person with investment
34decisionmaking authority in the administrative office manager’s
35office, budget office, auditor-controller’s office, or treasurer’s
36office of the local agency also serves on the board of directors, or
37any committee appointed by the board of directors, or the credit
38committee or the supervisory committee of the state or federal
39credit union issuing the negotiable certificates of deposit.
P5 1(j) (1) Investments in repurchase agreements or reverse
2repurchase agreements or securities lending agreements of
3securities authorized by this section, as long as the agreements are
4subject to this subdivision, including the delivery requirements
5specified in this section.
6(2) Investments in repurchase agreements may be made, on an
7investment authorized in this section, when the term of the
8agreement does not exceed one year. The market value of securities
9that underlie a repurchase agreement shall be valued at 102 percent
10or greater of the funds borrowed against those securities and the
11value shall be adjusted no less than quarterly. Since the market
12value of the underlying securities is subject to daily market
13fluctuations, the investments in repurchase agreements shall be in
14compliance if the value of the underlying securities is brought back
15up to 102 percent no later than the next business day.
16(3) Reverse repurchase agreements or securities lending
17agreements may be utilized only when all of the following
18conditions are met:
19(A) The security to be sold using a reverse repurchase agreement
20or securities lending agreement has been owned and fully paid for
21by the local agency for a minimum of 30 days prior to sale.
22(B) The total of all reverse repurchase agreements and securities
23lending agreements on investments owned by the local agency
24does not exceed 20 percent of the base value of the portfolio.
25(C) The agreement does not exceed a term of 92 days, unless
26the agreement includes a written codicil guaranteeing a minimum
27earning or spread for the entire period between the sale of a security
28using a reverse repurchase agreement or securities lending
29agreement and the final maturity date of the same security.
30(D) Funds obtained or funds
within the pool of an equivalent
31amount to that obtained from selling a security to a counterparty
32using a reverse repurchase agreement or securities lending
33 agreement shall not be used to purchase another security with a
34maturity longer than 92 days from the initial settlement date of the
35reverse repurchase agreement or securities lending agreement,
36unless the reverse repurchase agreement or securities lending
37agreement includes a written codicil guaranteeing a minimum
38earning or spread for the entire period between the sale of a security
39using a reverse repurchase agreement or securities lending
40agreement and the final maturity date of the same security.
P6 1(4) (A) Investments in reverse repurchase agreements, securities
2lending agreements, or similar investments in which the local
3agency sells securities prior to purchase with a simultaneous
4agreement to repurchase the security may be made only upon prior
5approval of the governing body of the local agency and shall be
6made only with primary dealers of the Federal Reserve Bank of
7New York or with a nationally or state-chartered bank that has or
8has had a significant banking relationship with a local agency.
9(B) For purposes of this chapter, “significant banking
10relationship” means any of the following activities of a bank:
11(i) Involvement in the creation, sale, purchase, or retirement of
12a local agency’s bonds, warrants, notes, or other evidence of
14(ii) Financing of a local agency’s activities.
15(iii) Acceptance of a local agency’s securities or funds as
17(5) (A) “Repurchase agreement” means a purchase of securities
18by the local agency pursuant to an agreement by which the
19counterparty seller will repurchase the securities on or before a
20specified date and for a specified amount and the counterparty will
21deliver the underlying securities to the local agency by book entry,
22physical delivery, or by third-party custodial agreement. The
23transfer of underlying securities to the counterparty bank’s
24customer book-entry account may be used for book-entry delivery.
25(B) “Securities,” for purposes of repurchase under this
26subdivision, means securities of the same issuer, description, issue
27date, and maturity.
28(C) “Reverse repurchase agreement” means a sale of securities
29by the local agency pursuant to an agreement by which the local
30agency will repurchase the securities on or before a specified date
31and includes other comparable agreements.
32(D) “Securities lending agreement” means an agreement under
33which a local agency agrees to transfer securities to a borrower
34who, in turn, agrees to provide collateral to the local agency.
35During the term of the agreement, both the securities and the
36collateral are held by a third party. At the conclusion of the
37agreement, the securities are transferred back to the local agency
38in return for the collateral.
39(E) For purposes of this section, the base value of the local
40agency’s pool portfolio shall be that dollar amount obtained by
P7 1totaling all cash balances placed in the pool by all pool participants,
2excluding any amounts obtained through selling securities by way
3of reverse repurchase agreements, securities lending agreements,
4or other similar borrowing methods.
5(F) For purposes of this section, the spread is the difference
6between the cost of funds obtained using the reverse repurchase
7agreement and the earnings obtained on the reinvestment of the
9(k) Medium-term notes, defined as all corporate and depository
10institution debt securities with a maximum remaining maturity of
11five years or less, issued by corporations organized and operating
12within the United States or by depository institutions licensed by
13the United States or any state and operating within the United
14States. Notes eligible for investment under this subdivision shall
15be rated “A” or better by an NRSRO. Purchases of medium-term
16notes shall not include other instruments authorized by this section
17and shall not exceed 30 percent of the agency’s moneys that may
18be invested pursuant to this section.
19(l) (1) Shares of beneficial interest issued by diversified
20management companies that invest in the securities and obligations
21as authorized by subdivisions (a) to (k), inclusive, and subdivisions
begin delete (o),end delete inclusive, and that comply with the investment
23restrictions of this article and Article 2 (commencing with Section
2453630). However, notwithstanding these restrictions, a counterparty
25to a reverse repurchase agreement or securities lending agreement
26is not required to be a primary dealer of the Federal Reserve Bank
27of New York if the company’s board of directors finds that the
28counterparty presents a minimal risk of default, and the value of
29the securities underlying a repurchase agreement or securities
30lending agreement may be 100 percent of the sales price if the
31securities are marked to market daily.
32(2) Shares of beneficial interest issued by diversified
33management companies that are money market funds registered
34with the Securities and Exchange Commission under the
35Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1 et seq.).
36(3) If investment is in shares issued pursuant to paragraph (1),
37the company shall have met either of the following criteria:
38(A) Attained the highest ranking or the highest letter and
39numerical rating provided by not less than two NRSROs.
P8 1(B) Retained an investment adviser registered or exempt from
2registration with the Securities and Exchange Commission with
3not less than five years’ experience investing in the securities and
4obligations authorized by subdivisions (a) to (k), inclusive, and
5subdivisions (m) to
begin delete (o),end delete inclusive, and with assets under
6management in excess of five hundred million dollars
8(4) If investment is in shares issued pursuant to paragraph (2),
9the company shall have met either of the following criteria:
10(A) Attained the highest ranking or the highest letter and
11numerical rating provided by not less than two NRSROs.
12(B) Retained an investment adviser registered or exempt from
13registration with the Securities and Exchange Commission with
14not less than five years’ experience managing money market
15mutual funds with assets under management in excess of five
16hundred million dollars ($500,000,000).
17(5) The purchase price of shares of beneficial interest purchased
18pursuant to this subdivision shall not include commission that the
19companies may charge and shall not exceed 20 percent of the
20agency’s moneys that may be invested pursuant to this section.
21However, no more than 10 percent of the agency’s funds may be
22invested in shares of beneficial interest of any one mutual fund
23pursuant to paragraph (1).
24(m) Moneys held by a trustee or fiscal agent and pledged to the
25payment or security of bonds or other indebtedness, or obligations
26under a lease, installment sale, or other agreement of a local
27agency, or certificates of participation in those bonds, indebtedness,
28or lease installment sale, or other agreements, may be invested in
29accordance with the statutory provisions governing the issuance
30of those bonds, indebtedness, or lease installment sale, or other
31agreement, or to the extent not inconsistent therewith or if there
32are no specific statutory provisions, in accordance with the
33ordinance, resolution, indenture, or agreement of the local agency
34providing for the issuance.
35(n) Notes, bonds, or other obligations that are at all times secured
36by a valid first priority security interest in securities of the types
37listed by Section 53651 as eligible securities for the purpose of
38 securing local agency deposits having a market value at least equal
39to that required by Section 53652 for the purpose of securing local
40agency deposits. The securities serving as collateral shall be placed
P9 1by delivery or book entry into the custody of a trust company or
2the trust department of a bank that is not affiliated with the issuer
3of the secured obligation, and the security interest shall be perfected
4in accordance with the requirements of the Uniform Commercial
5Code or federal regulations applicable to the types of securities in
6which the security interest is granted.
7(o) A mortgage passthrough security, collateralized mortgage
8obligation, mortgage-backed or other pay-through bond, equipment
9lease-backed certificate, consumer receivable passthrough
10certificate, or consumer receivable-backed bond of a maximum of
11five years’ maturity. Securities eligible for investment under this
12subdivision shall be issued by an issuer having an “A” or higher
13rating for the issuer’s debt as provided by an NRSRO and rated in
14a rating category of “AA” or its equivalent or better by an NRSRO.
15Purchase of securities authorized by this subdivision shall not
16exceed 20 percent of the agency’s surplus moneys that may be
17invested pursuant to this section.
18(p) Shares of beneficial interest issued by a joint powers
19authority organized pursuant to Section 6509.7 that invests in the
20securities and obligations authorized in subdivisions (a) to
begin delete (o),end delete
21 inclusive. Each share shall represent an equal proportional interest
22 in the underlying pool of securities owned by the joint powers
23authority. To be eligible under this section, the joint powers
24authority issuing the shares shall have retained an investment
25adviser that meets all of the following criteria:
26(1) The adviser is registered or exempt from registration with
27the Securities and Exchange Commission.
28(2) The adviser has not less than five years of experience
29investing in the securities and obligations authorized in
30subdivisions (a) to
begin delete (o),end delete inclusive.
31(3) The adviser has assets under management in excess of
32hundred million dollars ($500,000,000).
33(q) United States dollar denominated senior unsecured
34unsubordinated obligations issued or unconditionally guaranteed
35by the International Bank for Reconstruction and Development,
36International Finance Corporation, or Inter-American Development
37Bank, with a maximum remaining maturity of five years or less,
38and eligible for purchase and sale within the United States.
39Investments under this subdivision shall be rated “AA” or better
P10 1by an NRSRO and shall not exceed 30 percent of the agency’s
2moneys that may be invested pursuant to this section.