BILL ANALYSIS                                                                                                                                                                                                    Ó

          |SENATE RULES COMMITTEE            |                       AB 2738|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
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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,  

           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  

          DIGEST:  This bill prohibits a school or community college  
          district from withdrawing proceeds from the sale of bonds for  
          investment outside the county treasury.


          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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            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.



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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  

            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  

             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  

             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  
          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  


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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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