BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2738|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
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THIRD READING
Bill No: AB 2738
Author: Olsen (R), et al.
Amended: 4/13/16 in Assembly
Vote: 21
SENATE EDUCATION COMMITTEE: 9-0, 6/8/16
AYES: Liu, Block, Hancock, Huff, Leyva, Mendoza, Monning, Pan,
Vidak
ASSEMBLY FLOOR: 74-2, 4/21/16 - See last page for vote
SUBJECT: School bonds: local school bonds: investment
SOURCE: California Association of County Treasurers and Tax
Collectors
DIGEST: This bill prohibits a school or community college
district from withdrawing proceeds from the sale of bonds for
investment outside the county treasury.
ANALYSIS:
Existing law:
1)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
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Page 2
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.)
2)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))
3)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 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moneys are drawn out and prohibits the withdrawn bond proceeds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))
4)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)
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.
Comments
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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.
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.
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The sponsor of this bill reports 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.
Senate Education Committee 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 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 Legislature 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
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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?
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified6/8/16)
California Association of County Treasurers and Tax Collectors
(source)
California State Treasurer John Chiang
Howard Jarvis Taxpayers Association
San Mateo County Board of Supervisors
OPPOSITION: (Verified6/8/16)
California Association of School Business Officials
Coalition for Adequate School Housing
Community College Facility Coalition
San Mateo County Community College District
ASSEMBLY FLOOR: 74-2, 4/21/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,
Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley,
Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth
AB 2738
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Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto,
Gipson, Gomez, Gonzalez, Gray, Grove, Harper, Roger Hernández,
Holden, Jones, Jones-Sawyer, Kim, Lackey, Linder, Lopez, Low,
Maienschein, Mathis, Mayes, McCarty, Medina, Melendez,
Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk,
Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond,
Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon
NOES: Irwin, Levine
NO VOTE RECORDED: Gordon, Hadley, Mullin, Ridley-Thomas
Prepared by:Kathleen Chavira / ED. / (916) 651-4105
6/16/16 13:32:02
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