BILL ANALYSIS Ó
AB 2348
Page 1
Date of Hearing: May 11, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2348 (Levine) - As Amended April 28, 2016
-----------------------------------------------------------------
|Policy |Public Employees, |Vote:|7 - 0 |
|Committee: |Retirement/Soc Sec | | |
| | | | |
| | | | |
-----------------------------------------------------------------
Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill creates an infrastructure investment program through a
partnership with the Department of Finance (DOF) and the
California Public Employees' Retirement System (CalPERS).
Specifically, this bill:
1)Authorizes DOF evaluate and identify infrastructure projects
in California for which DOF can guarantee a rate of return of
investment for an investment made by CalPERS.
2)Creates the Reinvesting in California Special Fund (Special
AB 2348
Page 2
Fund), which will be used to pay the guaranteed rate of return
if funds are available.
3)Specifies that no General Fund moneys may be deposited in to
the Fund and that it is the intent of the legislature to
identify and deposit special fund money into the Fund through
the Budget Act.
FISCAL EFFECT:
1)Significant ongoing costs to DOF in the range of $1.0 million
annually to run the proposed program, as specified. DOF does
not currently have the in-house expertise required to identify
infrastructure projects that would be generate sizable returns
for CalPERS, and the hiring and retention of investment staff
would be a major cost driver.
2)Cost pressures on unidentified special funds. The bill
specifies that, through the annual Budget Act, special fund
dollars would be deposited into the Fund to pay the guaranteed
rate of return if infrastructure investments themselves do not
produce them.
3)Potential growth to the CalPERS portfolio if CalPERS chooses
to invest in the projects identified by DOF and these
investments generate a higher rate of return than alternative
investments.
COMMENTS:
1)Purpose. According to the author, AB 2348 will encourage
greater investment in California's infrastructure and generate
AB 2348
Page 3
job growth. The author states that if CalPERS were to increase
its current investment in California-based infrastructure to
just 1/10th of 1 percent, this would produce an additional
2,600 jobs.
2)Background. CalPERS' Perspective: Winter 2016 publication
summarizes current investments that the public retirement
system makes in California infrastructure projects. The
publication cites the case of Antelope Valley Water Storage,
LLC, located in Kern County. According to CalPERS, once
constructed, it will be the largest groundwater storage banks
in California. In total, CalPERS has invested $107.7 million
in California infrastructure projects, representing 6.0% of
all the system's infrastructure investments.
3)Carrot, not a stick. This bill takes an admirable approach in
how it tries to shape CalPERS' investment strategy. Unlike
previous legislation that has required CalPERS to divest from
certain enterprises, such as tobacco or South African
securities, AB 2384 is trying to create a mechanism to make
investments in California infrastructure more attractive for
CalPERS. These investments are entirely optional for CalPERS
and would allow the retirement system to make choices that are
in the best interest of both California and the long-term
health of the public retirement system.
4)Staff comments. As drafted, there remain a number of
unanswered questions about the proposed program:
a) Is the guaranteed rate of return actually guaranteed?
The current draft of AB 2384 says that DOF must identify
projects with a guaranteed rate of return, but it does not
AB 2348
Page 4
specify that DOF owes CalPERS the difference between the
return these projects generate and what is available
through the Special Fund. In fact, Special Fund dollars
will go to paying the guaranteed rate of return only if
funds are available.
b) Will CalPERS use the program? Given the deep investment
expertise at CalPERS, it is unclear if DOF staff could do a
better job of identifying potential projects for
investments. On top of this, the financial "carrot" that is
offered - a guaranteed rate of return - isn't actually
guaranteed.
Analysis Prepared by:Luke Reidenbach / APPR. / (916)
319-2081