BILL ANALYSIS Ó
AB 1933
Page 1
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 :
AB 1933
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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.
AB 1933
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5)Arguments in opposition. None on file.
Analysis Prepared by : Misa Yokoi- Shelton / L. GOV. / (916)
319-3958
FN: 0003220