BILL NUMBER: AB 869	INTRODUCED
	BILL TEXT


INTRODUCED BY   Assembly Member Keeley

                        FEBRUARY 25, 1999

   An act to add Article 19 (commencing with Section 1115) to Chapter
1 of Part 2 of Division 1 of the Insurance Code, relating to
insurance.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 869, as introduced, Keeley.  Community Reinvestment Act.
   Existing law governing insurance prescribes certain authorized
investments that can be made by insurers.
   This bill would enact the Community Reinvestment Act to establish
a continuing and affirmative obligation for insurers to make
economically targeted investments in low-income or very low-income
communities that benefit low-income or very low-income individuals
and have a positive impact on those communities.  It would require
the Insurance Commissioner to collect and compile information and
data relating to the performance of insurers in this regard, to take
certain remedial action if an insurer fails to adequately comply with
these provisions, and to adopt rules implementing these provisions.

   Vote:  majority.  Appropriation:  no.  Fiscal committee:  yes.
State-mandated local program:  no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  The Legislature finds and declares the following:
   (a) Insurers are a vital and integral part of the California
economy. Insurers are one of the largest institutional sources of
capital invested or available for investment in California businesses
and affordable housing developments.
   (b) Insurers' investable assets are derived, in part, from
premiums paid by California policyholders and the manner in which
those assets are invested affects the prosperity of California's
communities.
   (c) Pursuant to the federal Community Reinvestment Act, federally
regulated financial institutions have a continuing and affirmative
obligation to meet the credit needs of the communities they are
chartered to serve, including urban and rural low-income areas.  The
federal act has had a positive impact on low-income communities in
California by creating jobs, increasing business and real estate
lending, developing affordable housing units, and increasing access
to financial products and services in underserved markets.  Unlike
financial institutions, insurers have no similar obligation to ensure
that their investments promote the overall growth and development of
low-income communities.
   (d) There are safe and sound economically targeted investments
available to insurers in low-income communities that offer
competitive rates of return and that would not create an undue risk
to shareholders.  These investments represent unmet or overlooked
business opportunities in California.
   (e) Investment in low-income communities in California has been
insufficient, resulting in a low level of economic vitality,
substandard housing, and a decline in the quality of life in many
rural and urban areas.
   (f) Investment by insurance companies is an important source of
capital for California.  There is in the Department of Insurance the
California Organized Investment Network (COIN) that facilitates
investments by insurers in California's low-income communities.  The
purpose of COIN is to increase the level of insurance industry
capital committed to safe and sound community investments that
benefit California's low-income urban and rural communities. Despite
COIN's best efforts there has been an insufficient level of
economically targeted investment in California.
   (g) The creation of IMPACT Capital, a for-profit insurance
industry investment intermediary that proposes to make community
investments in California, is a positive development that has the
potential for increasing insurer economically targeted investments.
IMPACT Capital's investments to date, however, relative to the amount
of premiums collected annually in California, are insufficient.
Further, IMPACT Capital only represents a small portion of the entire
industry licensed to do business in California and there is no
assurance that IMPACT Capital will increase its membership or
investment portfolio.
   (h) It is, therefore, the intent of the Legislature to establish
the continuing and affirmative obligation for insurers doing business
in California to make safe and sound community development
investments in low-income communities that benefit low-income
individuals and have a positive impact on those communities.  The
investments should include investments intended to create or retain
jobs or to create new or expanded business opportunities.
   It is further the intent of the Legislature to require the
Insurance Commissioner to collect data on insurers' community
development investments in low-income communities.
  SEC. 2.  Article 19 (commencing with Section 1115) is added to
Chapter 1 of Part 2 of Division 1 of the Insurance Code, to read:

      Article 19.  Community Reinvestment Act

   1115.  This article may be cited as the Community Reinvestment
Act.
   1115.1.  As used in this article, the following definitions apply
unless the context requires otherwise:
   (a) "Affordable housing" means housing that meets the cost
limitations contained in Sections 50052.5 and 50053 of the Health and
Safety Code.
   (b) "Community development credit union" means a credit union that
has as a basic purpose the stimulation of economic development
activities and community revitalization efforts aimed at benefiting
the community it serves, a majority of which shall be low-income or
very low-income residents.
   (c) "Community development loan" means a line of credit,
commitment, or letter of credit for affordable housing and economic
development not being met by the private market.
   (d) "Community development financial institution" means a person
other than an individual that does all of the following:
   (1) Has a primary mission of promoting community development.
   (2) Serves an investment area or targeted population.
   (3) Provides development services in conjunction with equity
investments or loans, directly or through a subsidiary or affiliate.

   (4) Maintains, through representation on its governing board or
otherwise, accountability to residents of its investment area or
targeted populations.
   (5) Is not an agency or instrumentality of the United States, or
of any state or political subdivision of a state.
   (e) "Economically targeted investments" means investments by
insurers in low-income or very low-income communities that benefit
low-income or very low-income individuals and have a positive impact
on those communities. Economically targeted investments may be made
directly by insurers, through intermediaries, or through
partnerships, consortia, or other entities organized by insurers or
other financial institutions.  Those investments include, but are not
limited to, the following:
   (1) Affordable community housing, complying with at least one of
the following:
   (A) Affordable rental housing, which is a program or project
producing, providing, or preserving rental housing at a housing
expense affordable to households at or below 60 percent of the area
median income, located anywhere in the state.  Affordability controls
shall be secured for a minimum term of 30 years by regulatory
agreement, ground lease, loan agreement, or any other enforceable
regulatory control.
   (B) Affordable ownership housing, which is a program or project
providing affordable home ownership under either of the following
circumstances:
   (i) At a housing expense affordable to households at or below 100
percent of the area median income, adjusted for family size, for
housing units located anywhere in the state.
   (ii) At a housing expense affordable to households at or below 120
percent of the area median income, adjusted for household size, for
housing units located in low-income census tracts.
   Ownership units shall carry enforceable resale controls that
restrict sales of the units to households not exceeding the targeted
income levels specified in this paragraph for a minimum of five years
if public funds are involved in financing the unit or if land use
regulations prescribing income restrictions apply to the units.
   (C) Mixed income and mixed use development, which is a program or
project for mixed income housing or mixed use development that
includes a residential component in addition to other uses, provided
that the program or project produces substantial neighborhood
revitalization benefits and is located either in a low-income census
tract or in a rural community. Substantial neighborhood
revitalization benefits may be demonstrated by the provision of
needed social services within the neighborhood, the provision of
retail and office space of benefit to neighborhood residents, or any
other documented benefit.
   (2) Community economic development programs or projects that
provide demonstrated economic development benefits to low-income and
rural communities, and to residents, businesses, and nonprofit
community service organizations located in those communities, and
that comply with both of the following:
   (A) Geographic targeting of economic development investments
through either of the following:
   (i) Commercial real estate investments for developments located in
low-income census tracts or in rural communities.
   (ii) Business investments in a business other than commercial real
estate development and with a business address located in a
low-income census tract or rural community.  The business address may
include headquarters operations of the business, or a branch, plant,
office, franchise, or other operations of the business, as long as
the program or project can demonstrate a link between the business
address and its location within a low-income census tract or a rural
community.
   (B) Delivery of community economic development programs or
projects that shall be accomplished through one of the following
mechanisms:
   (i) Community development lenders and investors, including
community development financial institutions, community loan funds,
financial intermediaries, minority-owned financial institutions,
regulated financial institutions with assets of less than one billion
dollars ($1,000,000,000), community credit unions, loan or
investment funds operated by nonprofit organizations or government
agencies, community development equity funds, and business industrial
development corporations.
   (ii) Conventional lenders and investors.
   (iii) Local or state government agencies active in economic
development financing.
   (iv) A person or entity proposing a program or project specific to
a particular enterprise or development.
   (f) "Low-income" means, in the case of a person, an individual
income, or in the case of a geographic area, a median family income,
that is at least 50 percent, but no more than 80 percent, of the
adjusted area median income, with adjustments for family size and
revised annually.
   (g) "Microenterprise" means a commercial enterprise with 10 or
fewer employees, one or more of whom owns the enterprise.
   (h) "Rural community" means an area that on January 1 of any
calendar year satisfies any of the following criteria:
   (1) The area is eligible for financing from the United States
Farmers Home Administration under its Section 515 program, or any
successor program.
   (2) The area is located in a nonmetropolitan area as defined in
Section 50090 of the Health and Safety Code.
   (3) The area is an incorporated city having a population of 40,000
or less as identified in the most recent Report E published by the
Demographic Research Unit of the Department of Finance or is located
in the unincorporated area which adjoins that city, provided that the
city and its adjoining unincorporated area are not designated as an
urbanized area by the United States Census Bureau and are not part of
that urbanized area.  Any inconsistencies between areas eligible
under subdivisions (a) and (b), and this subdivision, shall be
resolved in favor of considering the area a rural area.
   (i) "Small business" means a commercial enterprise with gross
annual revenues of one million dollars ($1,000,000) or less, or in
the case of a geographic area, a median family income, that is less
than 50 percent of the adjusted area median income, with adjustments
for family size and revised annually.
   1115.2.  Insurers admitted in the state have a continuing and
affirmative obligation to make economically targeted investments in
low-income or very low-income communities as defined in subdivision
(e) Section 1115.1.
   1115.3.  For the purposes of this article economically targeted
investments as defined in subdivision (e) of Section 1115.1 are
exempt from risk-based capital requirements, cash-flow testing
requirements and mandatory reserve requirements, including, but not
limited to, asset valuation reserves and interest maintenance
reserves.
   1115.4.  The commissioner shall collect and compile information
and data relating to the performance of insurers in making community
development investments in the state.  Each admitted insurer shall
include as part of its annual statement an economically targeted
investment report including the following information:  the amount of
investment, the type of investment tool used, the benefit to the
low-income or very low-income community and individuals, and the
location by address and census tract of the investment. All data
provided to the commissioner is available to the public.
   1115.5.  Whenever the commissioner has reason to believe that an
admitted insurer has failed to adequately make economically targeted
investments in accordance with this article, he or she shall issue an
order to show cause containing a statement of the charges, and a
notice of hearing to be held at a time and place fixed therein which
shall not be less than 30 days after service thereof, for the purpose
of determining whether the commissioner should issue an order to
cease and desist from further noncompliance with this article.  The
hearing shall be conducted in accordance with the Administrative
Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of
Division 3 of Title 2 of the Government Code) or by an
administrative law judge appointed by the commissioner.
   1115.6.  Any interested person may file a petition with the
commissioner seeking the issuance of an order to show cause directed
at an admitted insurer, for the reasons set forth in Section 1115.5.

   1115.7.  Upon a finding of noncompliance, the commissioner may use
the powers described in Article 1 (commencing with Section 12919) of
Chapter 2 of Division 3 to bring the insurer in compliance with this
article.
   1115.8.  Prior to January 1, 2001, the commissioner may issue
bulletins adopting guidelines for the purpose of implementing this
article.  The commissioner shall adopt rules by January 1, 2001, to
implement this article. The bulletins and rules may specify or define
additional economically targeted investments.