BILL ANALYSIS
SB 1344
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Date of Hearing: June 16, 2010
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
SB 1344 (Kehoe) - As Amended: April 5, 2010
SENATE VOTE : 34-0
SUBJECT : Local agency investments.
SUMMARY : Makes permanent provisions of law that allow local
agencies to invest up to
30% of their surplus funds in certificates of deposit (CDs) at
depository institutions. Specifically, this bill :
1)Deletes the January 1, 2012, sunset date that allows local
agencies to invest up to 30% of their surplus funds in CDs at
depository institutions.
2)Provides that only an agency which has authority under another
provision of law to invest funds may invest surplus funds in
CDs at a commercial bank, savings bank, savings and loan
association, or credit union that uses a private sector entity
that assists in the placement of CDs.
EXISTING LAW :
1)Allows a local agency to invest a portion of its surplus funds
in CDs at a commercial bank, savings bank, savings and loan
association, or credit union that uses a private sector entity
that assists in the placement of CDs, provided that the
purchases of CDs, in total, do not exceed 30% of the agency's
funds.
2)Provides that a local agency may not invest surplus funds with
a selected depository institution for placement as CDs on or
after January 1, 2012.
3)Provides that a local agency's surplus funds, invested before
January 1, 2012, may remain invested in CDs issued through a
private sector entity for the full term of each CD.
4)Provides that the following conditions apply for a local
agency to invest its surplus funds in CDs:
SB 1344
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a) The local agency shall choose a nationally or state
chartered commercial bank, savings bank, savings and loan
association, or credit union in California to invest the
funds, which shall be known as the "selected" depository
institution; and,
b) The selected depository institution may submit the funds
to a private sector entity that assists in the placement of
CDs with one or more commercial banks, savings banks,
savings and loan associations, or credit unions that are
located in the United States, for the local agency's
account.
c) The full amount of the principal and the interest that
may be accrued during the maximum term of each CD shall at
all times be insured by the Federal Deposit Insurance
Corporation or the National Credit Union Administration.
d) The selected depository institution shall serve as a
custodian for each CD that is issued with the placement
service for the local agency's account.
e) At the same time the local agency's funds are deposited
and the CDs are issued, the selected depository institution
shall receive an amount of deposits from other commercial
banks, savings banks, savings and loan associations, or
credit unions that, in total, are equal to, or greater
than, the full amount of the principal that the local
agency initially deposited through the selected depository
institution for investment.
FISCAL EFFECT : Unknown
COMMENTS :
1)SB 1344 deletes the January 1, 2012, sunset date on the
statutes authorizing local agencies to invest surplus funds in
CDs at a commercial bank, savings bank, savings and loan
association, or credit union that uses a private sector entity
to assist in the placement of CDs, thereby making the statutes
permanent. Additionally, the bill provides that only an
agency which has authority under another provision of law to
invest funds may invest surplus funds in CDs at a commercial
bank, savings bank, savings and loan association, or credit
union that uses a private sector entity that assists in the
SB 1344
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placement of CDs.
2)The authorization for local agencies to invest surplus funds
in CDs was put into place by
AB 2011 (Vargas), Chapter 459, Statutes of 2006. Existing law
requires local agency funds to either protected by federal
deposit insurance or secured by collateral. Prior to the bill,
if a local agency wanted to make a deposit of over $100,000,
the bank had to pledge collateral to secure the deposit. This
collateralization requirement was a barrier to most small
community banks accepting deposits of local agency funds,
which were generally in amounts much greater than $100,000.
AB 2011 allowed local agencies to use a "deposit placement
service" which takes a bank customer's large deposit and
breaks it into amounts of less than $100,000. These amounts
are then placed in CDs at other banks within its network,
ensuring FDIC protection on the customer's full deposit. The
other banks then simultaneously send an equal amount of funds
back to the original bank, enabling it to have the full amount
of the original deposit available for lending or other
purposes.
When AB 2011 became law, only one national network, the
Certificate of Deposit Account Registry Service (CDARS)
established Promontory Interfinancial Network, LLC, offered a
qualifying CD placement service. CDARS is still the only such
CD placement network that exists. Since 2006, 55 community
banks in California have invested over $2.2 billion of local
agency deposits from counties, cities, special districts, and
other agencies through the CDARS network.
The authorization for local agencies to use a deposit
placement service under the provisions of AB 2011 is set to
expire on January 1, 2012.
3)Support arguments : By eliminating the sunset clause on the
statutory authorization to use certificate of deposit
placement service, SB 1344 allows local officials to continue
investing funds in this useful financial instrument that
benefits public agencies and local communities. Additionally,
by continuing to give local agencies the option to deposit
funds in a local bank, this bill helps to spur more local
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investment and local lending.
Opposition arguments : The Committee may wish to consider the
policy of deleting sunset dates and thereby creating permanent
statutes. On one hand, needing to introduce legislation every
few years to extend a sunset date may not be an efficient use
of legislative resources, but on the other hand, statutes with
sunset dates allow for periodic oversight by legislators and
staff on the implementation and effectiveness of those
statutes.
4)This bill is double-referred to the Committee on Banking and
Finance.
REGISTERED SUPPORT / OPPOSITION :
Support
CA Independent Bankers [SPONSOR]
Borrego Springs Bank
CA Bankers Association
CA Credit Union League
CA Municipal Treasurers Association
CA Special Districts Association
City of Santa Rosa
Community Bank of the Bay
Mission Valley Bank
Opposition
None on file
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958