BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 1933| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- CONSENT Bill No: AB 1933 Author: Levine (D) Amended: 4/24/14 in Assembly Vote: 21 SENATE GOVERNANCE & FINANCE COMMITTEE : 7-0, 6/11/14 AYES: Wolk, Knight, Beall, DeSaulnier, Hernandez, Liu, Walters ASSEMBLY FLOOR : 75-0, 5/1/14 - See last page for vote SUBJECT : Local government: investments SOURCE : California Association of County Treasurers and Tax Collectors DIGEST : This bill expands the list of financial instrument in which local agencies may invest surplus funds to include United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), or Inter-American Development Bank (IADB). ANALYSIS : Since 1913, existing law has authorized local officials to invest a portion of their temporarily idle funds in a variety of financial instruments. Existing law originally limited these local investments to government bonds, but over time legislators expanded the list to include numerous additional financial instruments. CONTINUED AB 1933 Page 2 Multilateral lending institutions - also known as "supranationals" - provide development financing, advisory services and other financial services to their member countries to promote improved living standards through sustainable economic growth. Three of these supranationals are headquartered in the United States and issue highly-rated bonds that are denominated in U.S. currency. This bill expands the list of financial instrument in which local agencies may invest surplus funds to include United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the IBRD, IFC, or IADB. This bill specifies that those investments must: Have a maximum remaining maturity of five years or less, Be eligible for purchase and sale within the United States, Be rated "AA" or better by a nationally recognized statistical rating organization, and Not exceed 30% of the agency's surplus funds that may be invested pursuant to existing law. Comments In response to a recent decrease in the supply of debt issued by government sponsored enterprises, like mortgage-related securities issued by Fannie Mae and Freddie Mac, local investment officers are seeking other highly-rated, medium-term financial instruments in which to invest public funds. Existing law already allows state surplus funds and state and local pension funds to be invested in supranational organizations' bonds. The State Treasurer's Pooled Money Investment Account, which includes funds from some local agencies, invests a portion of its portfolio in debt instruments issued by supranationals. Allowing local agencies' surplus funds to be invested directly in debt issued by three supranational finance organizations will give local finance officers access to a wider pool of secure investment options that provide better returns than U.S. Treasury securities and will help to diversify local investment portfolios. AB 1933 Page 3 Prior Legislation SB 194 (Senate 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. AB 1745 (Assembly 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. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No SUPPORT : (Verified 6/13/14) California Association of County Treasurers and Tax Collectors (source) ARGUMENTS IN SUPPORT : According to the author's office, "The Great Recession has changed the investment landscape. The diversity of triple-A bond rated investments has shrunk dramatically. As a result local agency investment officers are in great need of additional investment options that provide for safe returns and help diversify the investment portfolio. "AB 1933 would extend the same authority afforded to state and local public retirement systems to local agencies by clarifying that investment in supranationals is a permissible investment." ASSEMBLY FLOOR : 75-0, 5/1/14 AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom, Bocanegra, Bonilla, Bonta, Bradford, Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley, Dababneh, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox, Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray, Grove, Hagman, Harkey, Roger Hernández, Holden, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Ridley-Thomas, Rodriguez, Skinner, Stone, AB 1933 Page 4 Ting, Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, John A. Pérez NO VOTE RECORDED: Brown, Hall, Mansoor, Salas, Vacancy AB:e 6/13/14 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****