BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Isadore Hall, III
Chair
2015 - 2016 Regular
Bill No: AB 2348 Hearing Date: 6/28/2016
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|Author: |Levine |
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|Version: |5/27/2016 Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Felipe Lopez |
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SUBJECT: Department of Finance: infrastructure investment
DIGEST: This bill authorizes the Department of Finance (DOF),
to identify infrastructure projects in California where DOF can
guarantee a rate of return on investments for an investment made
in that infrastructure project by the California Public
Employees' Retirement System (CalPERS), as specified.
ANALYSIS:
Existing law:
1)Creates DOF and provides that the department has general
powers of supervision over all matters concerning the
financial and business policies of the state.
2)Creates CalPERS, through the Public Employees' Retirement Law
(PERL), which provides a defined benefit to its members based
on age at retirement, service credit, and final compensation.
3)Specifies that the Board of Administration of CalPERS manages
and controls CalPERS, including the exclusive control of the
investment of the retirement fund, and requires the board and
its officers and employees to discharge their duties with
respect to this system solely in the interest of the
participants and beneficiaries.
This bill:
AB 2348 (Levine) Page 2 of ?
1)Authorizes DOF do identify infrastructure projects in
California where DOF can guarantee a rate of return on
investments for an investment made in that infrastructure
project by CalPERS.
2)Establishes the Reinvesting California Special Fund (Fund) in
the State Treasury to be used to pay the rate of return
guaranteed by DOF.
3)Specifies that the guarantee rate of return is subject to the
availability of money in the Fund.
4)Prohibits General Fund moneys from being deposited in the
Fund.
5)States that it is the intent of the Legislature to identify
special fund moneys, including trust fund moneys that can be
used for these purposes.
Background
Purpose of the bill. According to the author, "private pension
funds have already established policies to make substantial
investments in infrastructure. These investments allow these
funds to meet their financial responsibilities while investing
in jobs for their members. AB 2348 will improve public pension
investment in California-based infrastructure projects by
allowing DOF to identify infrastructure projects where DOF can
guarantee a rate of return for CalPERS. This bill creates no
requirements on CalPERS or DOF. Instead, this bill creates a
potential tool that can be used to increase investment in
California-based infrastructure projects."
CalPERS. The California Public Employees' Retirement System
manages pension and health benefits for roughly 1.8 million
California public employees, retirees, and their families. It
is the largest and in many ways most successful public pension
system in the United States. CalPERS has the second largest
investment portfolio, among public pension funds, in the entire
world.
CalPERS is governed by a 13 member Board of Administration.
Seven members are either appointed or serve because they are
elected to offices such as State Treasurer and Controller. Six
AB 2348 (Levine) Page 3 of ?
Board members are elected by CalPERS members themselves.
CalPERS manages a $300 billion pension fund that has a diverse
portfolio of investments. Only one-third of one-tenth of one
percent of CalPERS holdings are in California infrastructure.
CalPERS states in their Winter, 2016 Perspective report that
CalPERS invested $107.7 million in seven California based
infrastructure projects, which supports 1,300 California jobs.
The author states that, "if CalPERS were to increase its
investment in California based infrastructure projects to just
one-tenth of one percent, this would produce an additional 2,600
California jobs.
I-Bank. The California Infrastructure and Economic Development
Bank (I-Bank) was created in 1994 to finance public
infrastructure and economic development that promote a healthy
climate for jobs, contribute to a strong economy and improve the
quality of life in California communities.
The I-Bank has extremely broad statutory powers to issue revenue
bonds, make loans and provide credit enhancements for a wide
variety of infrastructure and economic development projects and
other government purposes. Since its creation in 1994, the
I-Bank has loaned over $400 million to local agencies,
developing a high-level of expertise in the financing of public
infrastructure. The I-Bank also serves as the state's only
general purpose financing authority with broad statutory powers
to issue revenue bonds. Over $30 billion in revenue bonds have
been issued by the I-Bank since 2000.
Currently, the I-Bank activities are governed by a five-member
board of directors comprised of the California Business,
Transportation and Housing Agency Secretary (chair), State
Treasurer, Director of the Department of Finance, Secretary of
the State and Consumer Services Agency and a Governor's
appointee.
Policy Consideration. The author may wish to consider amending
the bill to specify that the I-Bank, instead of DOF, is the
appropriate agency to be providing information and guarantees on
returns on investment for infrastructure projects due to the
I-Bank's involvement in providing infrastructure loans to public
agencies. At the very least the DOF should be required to
consult with I-Bank when evaluating and identifying such
AB 2348 (Levine) Page 4 of ?
projects.
Prior/Related Legislation
SB 955 (Pavley, Chapter 760, Statutes of 2012) authorized
CalPERS and the California State Teachers' Retirement System to
prioritize investment in in-state infrastructure projects over
alternative out-of-state project if the investments are
consistent with its fiduciary responsibility.
FISCAL EFFECT: Appropriation: Yes Fiscal
Com.: Yes Local: No
SUPPORT:
California Association of Port Authorities
California Trade Coalition
Coalition of Adequate School Housing
Pacific Merchant Shipping Association
State Building and Construction Trades Council of California
OPPOSITION:
None receive
ARGUMENTS IN SUPPORT: According to the State Building and
Construction Trades Council of California, "AB 2348 would allow
DOF to identify infrastructure projects which the state could
provide a guaranteed rate of return to public pension
investment. Providing this tool will encourage greater
voluntary investment in California infrastructure from CalPERS.
Additional investments in these projects mean more California
jobs and economic growth as well."