BILL ANALYSIS Ó
SB 1412
Page 1
SENATE THIRD READING
SB
1412 (Block)
As Amended April 12, 2016
Majority vote
SENATE VOTE: 39-0
------------------------------------------------------------------
|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Higher |13-0 |Medina, Baker, Bloom, | |
|Education | |Chávez, Irwin, | |
| | |Jones-Sawyer, Levine, | |
| | |Linder, Low, Olsen, | |
| | |Santiago, Weber, | |
| | |Williams | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |20-0 |Gonzalez, Bigelow, | |
| | |Bloom, Bonilla, | |
| | |Bonta, Calderon, | |
| | |Chang, Daly, Eggman, | |
| | |Gallagher, Eduardo | |
| | |Garcia, Holden, | |
| | |Jones, Obernolte, | |
| | |Quirk, Santiago, | |
| | |Wagner, Weber, Wood, | |
SB 1412
Page 2
| | |McCarty | |
| | | | |
| | | | |
------------------------------------------------------------------
SUMMARY: Authorizes the California State University (CSU) to
invest in mutual funds subject to regulation by the United
States Securities and Exchange Commission (SEC) or in United
States registered real estate investment trusts, as specified,
and restricts earnings to capital outlay expenditures.
Specifically, this bill:
1)Authorizes the CSU to invest money received from specified
funds in mutual funds subject to SEC registration and
regulation, or in United States registered real estate
investment trusts.
2)Authorizes Department of Finance (DOF) to audit the CSU
Special Projects Fund as frequently as the Audits Division of
the DOF deems appropriate.
3)Requires the CSU Trustees to establish a committee to provide
advice and expertise on investments, as outlined below:
a) Requires that a majority of the committee members be
individuals with investment experience.
b) Prohibits committee members from being employees of the
CSU.
c) Requires that the Treasurer be allowed to serve, or
appoint a deputy treasurer to serve, as a member of the
SB 1412
Page 3
committee.
4)Caps the total amount to be invested in securities outside
those currently authorized at $200 million for Fiscal Year
(FY) 2016-17, $400 million for FY 2017-18, and $600 million
for FY 2018-2019. Beginning in FY 2019-20, caps the total
amount to be invested in mutual funds and real estate
investment trusts at 30% of all monies received and invested
by the campus or the Trustees, pursuant to specified law.
5)Establishes related reporting requirements, including requires
that the CSU Trustees receive a quarterly investment
performance report describing investment returns, comparisons
to benchmarks, holdings, market values, and fees; and,
requires the CSU Trustees to distribute an annual investment
performance report to the Legislature and DOF.
6)Establishes restrictions on the use of monies earned through
investments in the expanded securities and investments to only
deferred maintenance or capital outlay projects and prohibits
the use of these investment returns for ongoing operations.
7)Establishes prohibitions relative to the expanded investment
authority by prohibiting the CSU Trustees from requesting
funding from the DOF or the Legislature to compensate for
investment losses and prohibiting the CSU Trustees from citing
investment losses to justify approval of an increase in
student tuition or fees.
FISCAL EFFECT: According to the Assembly Appropriations
Committee:
1)Unknown revenue gains or losses related to expanded investment
SB 1412
Page 4
authority. The authority provided to the CSU to utilize
alternative investment tools could potentially lead to a
significant increase in returns. Current law restricts CSU to
investing in securities characterized as low-risk,
fixed-income securities with fairly low rates of return
(according to the CSU, less than 1% annually). To the extent
higher returns materialize, the CSU would be restricted to
using these funds to address one-time maintenance and capital
outlay projects, which theoretically would relieve pressure on
the CSU's operating budget, including the General Fund.
However, given CSU's huge backlog on deferred maintenance and
its capital needs (see below), the additional investment gains
would instead help to reduce these funding shortfalls.
2)CSU would incur annual administrative costs in the low
hundreds of thousands of dollars for at least one staff
position and to support the investment advisory committee.
COMMENTS: Purpose of this bill. According to the author, "the
capital needs of the CSU are substantial. Currently, it is
estimated that the CSU has $2.6 billion of deferred maintenance
on existing infrastructure and this amount will grow by
approximately $150 million per year. There is also the
additional need to renovate existing or construct new facilities
totaling approximately $6 billion to better serve teaching and
learning for the 21st century. To put this into perspective,
the annual CSU operating budget totals approximately $5.2
billion."
The author further notes, "Since 2014, CSU has allocated $35
million of ongoing, new state funding provided to the university
to support debt service on approximately $300 million to $525
million of capital projects. Additionally, the state provided
$25 million of one-time funding in the Budget Act of 2015 for
these purposes, specifically for pay-go projects. This is
certainly a step forward, but relatively small compared to the
SB 1412
Page 5
overall CSU capital needs of $8.8 billion as detailed in the CSU
Five-Year Capital Improvement Plan."
This bill proposes changes to the current statutory limits on
investments to create another tool to help address capital
outlay and infrastructure needs. Specifically, current law
limits CSU's investment earnings potential to fixed-income
securities, which has, according to CSU, resulted in annual
returns of less than 1%. This bill proposes to expand
investment options to mutual funds regulated by the SEC,
including equity mutual funds, and real estate investment
trusts. The CSU believes this could lead to greater returns
within appropriate levels of risk.
Prior related legislation. This bill is almost identical to AB
130 (Committee on Budget) of the current legislative session.
While AB 130 was successfully passed out of the Assembly, Senate
Budget Committee members requested that this measure be deferred
until the next legislative year and be considered through the
policy committee process.
Analysis Prepared by:
Laura Metune / HIGHER ED. / (916) 319-3960 FN:
0004014
SB 1412
Page 6