BILL ANALYSIS Ó
SENATE COMMITTEE ON EDUCATION
Senator Carol Liu, Chair
2015 - 2016 Regular
Bill No: AB 2738
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|Author: |Olsen |
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|Version: |April 13, 2016 Hearing |
| |Date: June 8, 2016 |
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|Urgency: |No |Fiscal: |No |
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|Consultant:|Kathleen Chavira |
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Subject: School bonds: local school bonds: investment
SUMMARY
This bill prohibits a school or community college district from
withdrawing proceeds from the sale of bonds for investment
outside the county treasury.
BACKGROUND
Existing law authorizes school districts and community college
districts to issue general obligation (GO) bonds upon approval
by voters and establishes a process and guidelines for such
issuances under the Education Code. Existing law also
authorizes any city, county, city and county, school district,
community college district, or special district to issue GO
bonds, secured by the levy of ad valorem taxes, and establishes
a process for such issuances under the Government Code.
(Education Code § 15100, et seq. and Government Code § 53506, et
seq.)
Existing law requires a county to levy and collect taxes, pay
bonds, and hold bond proceeds and tax funds for bonds issued and
sold pursuant to the Education Code.
(EC § 15140(b))
Existing law requires the proceeds of the sale of bonds to be
deposited in the county treasury and to be credited to the
building fund of the school district or community college
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district. Existing law requires these proceeds be drawn out as
other school moneys are drawn out and prohibits the withdrawn
bond proceeds from being applied to any purposes other than
those for which the bonds were issued. (EC § 15146(g))
Existing law specifies the types of securities that are eligible
for the investment of surplus state funds and contains specific
provisions and requirements regarding how and where public money
may be invested. (Government Code § 16340, § 16429.1,
§ 53601, § 53601.6, § 53601.8, § 53635, § 53635.2, § 53635.8, §
53638, and § 53684)
ANALYSIS
This bill:
1) Prohibits a school or community college district from
withdrawing proceeds from the sale of bonds for purposes of
investment outside the county treasury.
2) Makes several technical and clarifying amendments.
STAFF COMMENTS
1) Source of the bill. According to the author, county
treasurers are tasked with managing county resources
because of their extensive knowledge and expertise in
issuing bonds and investing large sums of taxpayer dollars.
This bill, sponsored by the California Association of
County Treasurers and Tax Collectors, responds to a
conflict in San Mateo between the County and a local
community college district regarding the withdrawal of
funds for the purpose of investment outside the county
investment pool.
In November 2014, voters approved $338 million in
facilities bonds for the San Mateo Community College
District (SMCCD). In June 2015, the SMCCD Board declared
$109 million in bond proceeds surplus for the purpose of
authorizing withdrawal from, and investment outside of, the
county investment pool. Reportedly, the intent was to allow
the district to generate greater earnings than that
realized through the county treasurer.
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The author is concerned that allowing school districts to
invest bond dollars creates greater risk and potentially
compromises funds necessary for school maintenance and
upgrades, as well as voter support of future school bonds.
In addition, the author is concerned that funds intended
for classroom construction could be diverted to pay
investment fees to private parties at greater cost than
would be incurred by the use of a public agency.
2) Does current law need clarification? Current law (EC §
41015) authorizes districts that have any surplus moneys
not required for the immediate necessities of the district
to invest all or part of the funds in any investments
authorized under specified Government Code provisions.
However, statute also requires that proceeds from the sale
of bond funds be deposited in the county treasury and
prohibits the withdrawal of these funds for purposes other
than those for which the bonds were issued. This bill is
prompted by a disagreement in the interpretation and
application of current law.
The sponsors of the bill report that withdrawal of funds
for outside investment has only been proposed twice so far
(in two northern California counties), but are concerned
about the potential incentive for private financial
industry providers to encourage districts to expand this
practice. School and community college representatives
report that districts in other parts of the state have
withdrawn funds for this purpose with no conflicts with the
county treasury.
Staff notes that, while the range of risk associated with
an investment portfolio would depend upon the choices made
by the investing entity, all local agencies are bound by
the same state and federal requirements regarding the
investment of public funds.
3) Underlying policy questions? While the impetus of this
bill emanates from a district's desire to pursue a more
aggressive investment strategy than that of the county
treasurer, districts also cite examples of counties whose
investment strategy may be riskier than an elected school
or community college board would prefer. Both county
treasurers and districts are authorized to invest public
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funds, and depending upon the district/county, it is likely
that each would have varying levels of expertise available
to them for this purpose. The provisions of this bill are
specific to the investment of proceeds from the sale of
voter authorized bonds outside the county treasury. The
committee may wish to consider:
a) Should proceeds from the sale of bonds be
treated differently than other funds that a school
district might receive and invest? Is the sale of
bonds for purposes of investment by a school district
an appropriate use of bond funds?
b) How many school districts have the expertise
to invest bond proceeds independent of a county
treasurer? Are the existing bond accountability and
audit processes sufficient to ensure oversight of
district investment practices?
c) Are there examples of county treasuries that
have made poor investment decisions and jeopardized
district funds? How widespread are these examples?
d) Do country treasuries offer adequate
mechanisms for districts to oversee investment policy
and ensure that districts' investment needs are being
met?
SUPPORT
California Association of County Treasurers and Tax Collectors
Howard Jarvis Taxpayers Association
San Mateo County Board of Supervisors
OPPOSITION
California Association of School Business Officials
Coalition for Adequate School Housing
Community College Facility Coalition
San Mateo County Community College District
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