BILL ANALYSIS Ó
AB 2638
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Date of Hearing: May 5, 2016
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Matthew Dababneh, Chair
AB 2638
(Gatto) - As Amended April 25, 2016
SUBJECT: Local Investment Advisory Board: members
SUMMARY: Extends the term of each appointed member of the Local
Investment Advisory Board (LIAB) from two to three years.
EXISTING LAW:
1)Establishes the LIAB consisting of five members with the State
Treasurer (Treasurer) serving as the chair. The Treasurer
appoints two members with investment and finance experience
and two members who are treasurers, finance or fiscal officers
or business managers, employed by local government.
(Government Code, Section 16429.1)
2)Provides for the creation, maintenance and operation of the
Local Agency Investment Fund (LAIF). (Government Code,
Section 16429.1).
3)Provides that eligible securities for the investment of state
surplus moneys include any of the following:
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a) Bonds, interest-bearing notes or obligations of the
United States, or those for which the faith and credit of
the United States are pledged for the payment of principal
and interest;
b) Bonds or interest-bearing notes on obligations that are
guaranteed as to principal and interest by a federal agency
of the United States;
c) Bonds and notes of this state, or those for which the
faith and credit of this state are pledged for the payment
of principal and interest;
d) Bonds or warrants, including, but not limited to,
revenue warrants, of any county, city, metropolitan water
district, California water district, California water
storage district, irrigation district in the state,
municipal utility district, or school district of this
state;
e) Bonds, consolidated bonds, collateral trust debentures,
consolidated debentures, or other obligations issued by
federal land banks or federal intermediate credit banks
established under the Federal Farm Loan Act, as amended, in
debentures and consolidated debentures issued by the
Central Bank for Cooperatives and banks for cooperatives
established under the Farm Credit Act of 1933, as amended,
in bonds or debentures of the Federal Home Loan Bank Board
established under the Federal Home Loan Bank Act, in stock,
bonds, debentures and other obligations of the Federal
National Mortgage Association established under the
National Housing Act as amended, and in the bonds of any
federal home loan bank established under that act,
obligations of the Federal Home Loan Mortgage Corporation,
in bonds, notes, and other obligations issued by the
Tennessee Valley Authority under the Tennessee Valley
Authority Act as amended, bonds, notes, and other
obligations guaranteed by the Commodity Credit Corporation
for the export of California agricultural products under
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the Commodity Credit Corporation Charter Act as amended;
f) Commercial paper of "prime" quality as defined by a
nationally recognized organization that rates these
securities;
g) Bills of exchange or time drafts drawn on and accepted
by a commercial bank, otherwise known as bankers
acceptances, which are eligible for purchase by the Federal
Reserve System;
h) Negotiable certificates of deposits issued by a
federally or state-chartered bank or savings and loan
association, a state-licensed branch of a foreign bank, or
a federally or state-chartered credit union;
i) The portion of bank loans and obligations guaranteed by
the United States Small Business Administration or the
United States Farmers Home Administration. Bank loans and
obligations guaranteed by the Export-Import Bank of the
United States;
j) Student loan notes insured under the Guaranteed Student
Loan Program established pursuant to the Higher Education
Act of 1965, as amended (20 U.S.C. Sec. 1001 and following)
and eligible for resale to the Student Loan Marketing
Association established pursuant to Section 133 of the
Education Amendments of 1972, as amended (20 U.S.C. Sec.
1087-2); and,
aa) Obligations issued, assumed, or guaranteed by the
International Bank for Reconstruction and Development, the
Inter-American Development Bank, the Asian Development
Bank, the African Development Bank, the International
Finance Corporation, or the Government Development Bank of
Puerto Rico; or, Bonds, debentures, and notes issued by
corporations organized and operating within the United
States. Securities eligible for investment under this
subdivision shall be within the top three ratings of a
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nationally recognized rating service. (Government Code,
Section 16430. All further references are to the
Government Code).
FISCAL EFFECT: Unknown
COMMENTS:
The LAIF, is a voluntary program created by statute that began
in 1977 as an investment alternative for California's local
governments and special districts. This program offers local
agencies the opportunity to participate in a major portfolio,
which invests hundreds of millions of dollars, using the
investment expertise of the Treasurer's Office investment staff
at no additional cost to the taxpayer.
The LAIF is part of the Pooled Money Investment Account (PMIA).
The PMIA began in 1955 and oversight is provided by the Pooled
Money Investment Board (PMIB) and an in-house Investment
Committee. The PMIB members are the Treasurer, Director of
Finance, and State Controller.
The LIAB provides oversight of the LAIF. The Board consists of
five members as designated by statute. Additionally, the PMIA
has policies, goals and objectives for the portfolio to make
certain that the goals of safety, liquidity and yield are not
jeopardized and that prudent management prevails. These policies
are formulated by the Treasurer's investment division staff and
reviewed by both the PMIB and the LIAB on an annual basis.
The LAIF has grown from 293 participants and $468 million in
1977 to 2,469 participants and $21.1 billion at the end of March
2016.
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Existing law already requires the members of the LIAB to have
relevant experience in finance or investing. It is unclear
whether extending the terms of LIAB members will have any impact
on returns or portfolio performance of the LAIF. A more
significant impact on the LAIF has been historic low rates in
the market due to the Great Recession.
Need for the bill .
According to the author:
Allowing members of the Local Investment Advisory Board to
serve longer terms gives the treasurer an additional tool to
explore other ways to yield higher returns. Serving longer
terms gives these appointees the opportunity to gain more
experience working with the Local Agency Investment Fund. The
LAIF is a very important fund for local governments and
offering appointees more time on the board may render large
dividends in the long run.
REGISTERED SUPPORT / OPPOSITION:
Support
None on file.
Opposition
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None on file.
Analysis Prepared by:Mark Farouk / B. & F. / (916) 319-3081