BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 1933
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          ASSEMBLY THIRD READING
          AB 1933 (Levine)
          As Amended  April 24, 2014
          Majority vote 

           LOCAL GOVERNMENT           9-0  BANKING & FINANCE          10-0 
           
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          |Ayes:|Achadjian, Levine, Alejo, |Ayes:|Dickinson, Allen,         |
          |     |Bradford, Gordon,         |     |Achadjian, Bonta,         |
          |     |Melendez, Mullin, Rendon, |     |Chau, Gatto, Linder,      |
          |     |Waldron                   |     |Perea, Rodriguez,         |
          |     |                          |     |Williams                  |
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          SUMMARY  :  Authorizes a local agency to invest in United States  
          (U.S.) dollar denominated senior unsecured unsubordinated  
          obligations issued or unconditionally guaranteed by the  
          International Bank for Reconstruction and Developments (The  
          World Bank), International Finance Corporation (IFC), or  
          Inter-American Development Bank (IADB), as specified.   
          Specifically,  this bill  :  

          1)Expands existing investment options available to local  
            agencies to invest funds not required for the immediate needs  
            of the local agency to include U.S. dollar denominated senior  
            unsecured unsubordinated obligations issued or unconditionally  
            guaranteed by The World Bank, IFC, or IADB, with a maximum  
            remaining maturity of five years or less and that are eligible  
            for purchase and sale within the U.S.  

          2)Requires these investments to be rated "AA" or better by a  
            Nationally Recognized Statistical Rating Organization.  

          3)Prohibits these investments from exceeding 30% of the agency's  
            moneys that may be invested pursuant to this section.  

          4)Makes other technical and conforming changes.  

           EXISTING LAW  :

          1)Defines, for purposes of this section, a local agency to mean  
            a city, district, or other local agency that does not pool  
            money in deposits or investments with other local agencies,  








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            other than local agencies that have the same governing body.  

          2)Allows the legislative body of a local agency to invest funds  
            not immediately needed by the agency in a variety of specified  
            financial instruments, including local agency bonds, U.S.  
            Treasury obligations, state obligations, California local  
            agency obligations, U.S. agency obligations, bankers'  
            acceptances, commercial paper, negotiable certificates of  
            deposit, certificate of deposit placement services, repurchase  
            agreements, reverse repurchase agreements and securities  
            lending agreements, medium-term notes, mutual funds and money  
            market mutual funds, collateralized bank deposits, and  
            mortgage pass-through securities.  

          3)Requires, where the statute specifies a percentage limitation  
            for a particular category of investment, that the percentage  
            is applicable only at the date of purchase.  

          4)Prohibits, where a limitation on the term or remaining  
            maturity is not specified, an investment in any security that  
            at the time of the investment has a term remaining to maturity  
            in excess of five years, unless the legislative body has  
            granted express authority, as specified.  

          5)Includes obligations issued, assumed, or guaranteed by The  
            World Bank, IADB, IFC, the Asian Development Bank, the African  
            Development Bank, or the Government Development Bank of Puerto  
            Rico as eligible securities for the investment of surplus  
            state moneys.  

          6)Authorizes any state or local public retirement system to  
            invest its assets in rated bonds, notes, or other obligations  
            issued, assumed, or unconditionally guaranteed by the African  
            Development Bank, the Asian Development Bank, the Caribbean  
            Development Bank, The World Bank, IFC, IADB, the European Bank  
            for Reconstruction and Development, and any other  
            international financial institution that has met the payments  
            of similar bonds, notes, or other obligations when due and in  
            which the U.S. is a member.

           FISCAL EFFECT  :  None

           COMMENTS  :   









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          1)Purpose of this bill.  This bill expands existing investment  
            options available to local agencies to invest funds not  
            required for the immediate needs of the local agency to  
            include U.S. dollar denominated senior unsecured  
            unsubordinated obligations issued or unconditionally  
            guaranteed by The World Bank, IFC, or IADB, with a maximum  
            remaining maturity of five years or less and that are eligible  
            for purchase and sale within the U.S.  This bill does not  
            limit investment to certain types of debt instruments offered  
            by The World Bank, IFC, or IADB which is consistent with  
            current law for state or local retirement systems and the  
            state for surplus funds, but does place specific criteria that  
            the investments must be rated "AA" or better and cannot exceed  
            30% of the agency's moneys not required for their immediate  
            use.  This bill is sponsored by the California Association of  
            County Treasurers and Tax Collectors.  

          2)Author's statement.  According to the author, "Existing law  
            limits the kinds of investments that local agencies can make  
            by delineating what is a permissible investment.  These  
            restrictions are rightfully in place to protect the public.   
            The Great Recession, however, dramatically reduced the  
            availability of liquid triple-A bond issuers that local  
            agencies could invest in, and has left local agencies with few  
            opportunities to meet their investment responsibilities.  This  
            bill simply extends the same authority to invest in  
            supranationals to local agencies that the state treasurer,  
            state retirement systems, and 1937 Act retirement systems have  
            had for decades."  

            According to the sponsor, "Supranationals are international  
            institutions that provide development financing, advisory  
            services and/or other financial services to their member  
            countries to achieve the overall goal of improving living  
            standards through sustainable economic growth.  The World Bank  
            is the largest part of the World Bank Group and finances  
            activities by issuing bonds in the capital markets.   
            Established in 1944, it works with member countries to promote  
            equitable and sustainable economic growth, by providing  
            financing and risk management solutions directly to sovereign  
            governments - globally.  IFC, part of the World Bank Group,  
            created in 1956, provides investments and advisory services to  
            build the private sector in developing countries.  IADB,  
            established in 1959, supports efforts by Latin America and the  








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            Caribbean countries to reduce poverty and inequality.

            "The supranational, or 'supra' sector is an option for  
            portfolio manager that offers high credit quality and a stable  
            return at spreads above U.S. Treasuries.  The Washington  
            Supras, headquartered in Washington, DC, are of interest to  
            U.S. investors with conservative investment strategies.  This  
            is because they maintain triple-A credit, the U.S. is their  
            largest shareholder, and because they issue similar products  
            to those issued by GSEs, like U.S. benchmark bonds, callables  
            and short-term discount notes."  

            In addition to California, the sponsor points to a number of  
            other states that provide supranationals as an investment  
            option in their state codes, including New York, New Jersey,  
            North Carolina, South Carolina, Colorado, and Texas.  There  
            are several ways for individual states to authorize their  
            local governments to invest in supranationals, however, the  
            sponsors identify that local governments in Alaska, Oregon,  
            New Mexico, Ohio, Virginia, Colorado, Georgia, Indiana, Maine,  
            Texas, and Vermont all have this authority.  

          3)Previous legislation.  Since 1913, state law has authorized  
            local officials to invest a portion of their temporarily idle  
            funds in a variety of financial instruments.  The Legislature  
            has since expanded this list of investment options available  
            to local agencies to invest funds not required for the  
            immediate needs of the local agency. Most recently SB 194  
            (Governance and Finance Committee), Chapter 382, Statutes of  
            2011, added the federally chartered branches of foreign banks  
            to the list of financial institutions whose certificates of  
            deposit are eligible for local agencies' investments, and AB  
            1745 (Revenue and Taxation Committee), Chapter 340, Statutes  
            of 2007, added registered treasury notes or bonds, including  
            bonds payable solely out of the revenues from a  
            revenue-producing property owned by a state, department,  
            board, agency or authority.  

          4)Arguments in support.  Supporters argue that the universe of  
            liquid AA and AAA rated bonds available to local agencies has  
            reduced dramatically so county investment officers need the  
            alternative investment options provided by this bill that  
            provide safety and diversification for managed investment  
            pools.  








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          5)Arguments in opposition.  None on file.  

           
          Analysis Prepared by  :    Misa Yokoi- Shelton / L. GOV. / (916)  
          319-3958 


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