BILL ANALYSIS �
AB 750
Page 1
Date of Hearing: April 27, 2011
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel P�rez, Chair
AB 750 (Hueso) - As Amended: April 25, 2011
SUBJECT : Investment Trust Blue Ribbon Task Force
SUMMARY : Establishes the Investment Trust Blue Ribbon Task
Force for the purpose of considering the viability of
establishing the California Investment Trust (Trust).
Specifically, this bill :
1)Expresses legislative intent that among other things the Trust
could serve to more effectively meet the financial needs of
the state including:
a) Supporting economic development by increasing access to
capital for businesses in the state;
b) Providing financing for housing development, public
works infrastructure, educational infrastructure, student
loans, and community quality of life projects;
c) Providing for a more stable local financial sector;
d) Reducing the cost paid by state government for banking
services; and
e) Lending capital to banks, credit unions, and nonprofit
community development financial institutions to assist in
meeting their goals of increasing access to capital and
providing banking services.
2)Requires the Secretary of the Business, Transportation and
Housing Agency (BTH) to convene an Investment Trust Blue
Ribbon Task Force (Task Force) comprised of the following
members:
a) Five members appointed by the Governor;
b) Two members appointed by the Senate Rules Committee;
c) Two members appointed by the Speaker of the Assembly;
d) The Governor or his designee;
e) The State Controller or his designee;
f) The State Treasurer or his designee; and
g) The Secretary of BTH.
3)Requires that the first meeting of the Task Force be convened
on or before February 1, 2012. The chair is to be chosen by
the membership of the Task Force.
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4)Provides that the purpose of the Trust is to consider the
viability of establishing the Trust, which would serve as,
among other things, a state bank receiving deposits of state
funds, and to report to the Legislature on its findings and
recommendations.
5)Provides that the Task Force shall consider one or more models
for structuring the Trust. Among other issues to consider,
the Task Force is directed to:
a) Undertake a general assessment of the state's current
network of public and private financial resources for the
purpose of identifying potential areas of Trust focus;
b) Consider the types of financial products that could be
offered to address current unmet financial needs and/or
more efficiently deliver financial resources and products;
c) Examine various administrative and operational
structures for organizing a Trust; and
d) Consider options for integrating a state trust model
into the existing state financial resource network.
6)Requires all expenses of the Task Force be paid from existing
BTH resources. Travel expenses are limited to actual cost for
appointed members.
7)Authorizes the Task Force to consult with stakeholders and
establish an advisory committee. Advisory committee members
are not entitled to expense reimbursement for their
participation.
8)Requires the Task Force to submit a report by December 1, 2012
which does the following:
a) Makes a recommendation on the viability of the Trust;
b) Provides a list of findings based on the Task Force's
review of the issues identified in number 5 above; and
c) To the extent that the recommendation is supportive of
the establishment of the Trust, identifies next steps
toward creation of the Trust, including recommendations on
the following:
i) The administrative structure of the Trust;
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ii) The capital requirements for the Trust's initial
capitalization and ongoing expenses;
iii) How the initial capitalization and ongoing operating
expenses could be funded;
iv) The oversight of the operations of the Trust in
order to protect the interests of the state and the
rights of individuals and entities that use the products
and services of the Trust;
v) An outline of transition actions necessary for
establishing the Trust; and
vi) A draft of statutory and constitutional changes that
may be necessary to establish the Trust.
EXISTING LAW :
1)Requires the Treasurer to receive and keep in the vaults of
the Treasury or to deposit in banks or credit unions all
moneys belonging to the state.
2)Requires the Controller to account for all expenditures as
scheduled in the Budget Act including providing a monthly
comparison between actual and estimated revenues.
3)Establishes various financing programs relating to housing,
small business, infrastructure and schools. These programs
are administered through multiple agencies under differing
goals, processes and reporting requirements.
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose : According to the author, "California's economy has
struggled to recover since the financial crisis of 2007.
Finding ways to provide stability to our financial sector,
reinvigorate our communities, and put people back to work will
be a demanding process. Establishing the California
Investment Trust is an important step in this process of
rebuilding California's economy and addressing our current
financial and community development challenges.
The creation of the Task Force will look at ways in which
California can create an Investment Trust to address the
financial needs of the state in the long-run. This initiative
has the great potential of increasing options for economic
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development which can include: low-interest credit for
business retention and expansion, serving as a secondary
market for mortgages and as a significant investor in
municipal bonds, redevelopment finance and small business
finance."
2)State Revenue Framework: AB 750 proposes to convene a Task
Force to assess the viability of establishing a state bank
that receives deposits of state moneys for the purpose of,
among other things, spurring greater private economic activity
and to reduce the cost of managing the state's funds. As a
framework for considering this proposal, background
information on the state's current structure for managing and
investing the state funds is provided below and in the
following comment.
State government receives moneys from a variety of sources,
including taxes, fees, revenue from the sale of bonds, and
funds from the federal government. Responsible for managing
these revenues are three primary government entities: the
Treasurer, the Controller and the Director of the Department
of Finance.
The Treasurer serves as California's lead asset manager,
banker and financier. Among other duties, the Treasurer's
Office administers a number of bond finance authorities for
specific community development activities, including funding
for the development of housing, hospitals and alternative
transportation vehicles. The Treasurer is also responsible
for the custody of all money and securities belonging to, or
held in trust by, the state; investment of temporarily idle
state money, such as those in the Pooled Money Investment
Account (PMIA); the sale of bonds and notes; and serves as the
paying agent for all general obligation bonds and certain
revenue bonds. Moneys available to the state may be held
within the state treasury or in external accounts of financial
institutions.
Some programs, with the approval of the Department of Finance,
may also hold state moneys in external financial institutions.
Examples of state programs with external accounts include,
but are not limited to, the California Infrastructure and
Economic Development Bank, the Small Business Loan and
Guarantee Program, and the California Capital Access Program.
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As the Department of Finance is the primary entity responsible
for the preparation and oversight of the state budget, it is
responsible for setting standards and practices for state
agencies to follow in implementing their approved budgets.
While the budget is an expenditure plan, actual revenues are
needed to cover debts and other obligations. It is the role
of the State Controller to closely monitor the amount of
revenues available from all sources to meet California's
financial obligations. On a monthly basis, the Controller
issues a report with the state's actual cash balance. To the
extent that there are insufficient funds to pay state expenses
from the General Fund (GF), the Controller's Office may
contact the Treasurer to issue short-term debt (sometimes
called revenue anticipation notes �RANs]) and/or assist in the
internal borrowing of revenues against state Special Funds.
In the Controller's March 2011 "Statement of General Fund Cash
Receipts and Disbursements," GF revenues were reported to be
down by $370 million (-5.8%) from that projected in the
budget. The state's outstanding loan balance for the period
was $19 billion including $9 billion in internal borrowing
from Special Funds and other accounts and $10 billion of
external borrowing through RANs.
3)Examples of current activities with state revenues : Moneys
that are not needed immediately for state expenditures are
sometimes invested by the state. The PMIA is an example of
when the Treasurer invests moneys that are not immediately
required to pay state obligations. The PMIA has three primary
sources of funds: the GF; special funds held by state
agencies, which are managed through the Surplus Money
Investment Fund (SMIF); and moneys deposited by cities,
counties and other entities into the Local Agency Investment
Fund (LAIF).
The PMIA is administered by a three-member Pooled Money
Investment Board comprised of the Treasurer, the Controller
and the Director of the Department of Finance. Participation
in the PMIA provides local governments and the state with a
safe investment alternative to simply holding moneys in no or
low-interest bearing accounts and/or investing the moneys
themselves.
PMIA investment policy sets as its primary investment
objectives: safety, liquidity and yield. Existing law limits
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PMIA investments to U.S. government securities, securities of
federally-sponsored agencies, domestic corporate bonds,
interest-bearing time deposits in California banks, savings
and loan associations and credit unions, prime-rated
commercial paper, repurchase and reverse repurchase
agreements, security loans, banker's acceptances, negotiable
certificates of deposit and loans to various bond funds. In
total, investment transactions with the State Treasurer's
Office in the 2009-10 fiscal year included over 120 different
financial institutions, including large federally chartered
banks and small community development banks.
Although amounts varied greatly over the year, the PMIA's
average daily fund level was $67.7 billion in earnings and
$423.8 million in interest in fiscal year 2009-10.
Approximately $156 million of this amount was interest
credited to local governments who averaged $23.74 billion in
deposits. The chart below provides additional details about
the annual earnings of the PMIA.
------------------------------------------------------------
| Total Earnings of the PMIA for 2009-10 |
------------------------------------------------------------
|-+---------------------------------------+-----------------|
|1|General Fund | $41,527,666|
| | | |
|-+---------------------------------------+-----------------|
|2|Fish and Game Preservation Fund | $638,761|
| | | |
|-+---------------------------------------+-----------------|
|3|Surplus Money Investment Fund (SMIF) | $223,793,195|
| | | |
|-+---------------------------------------+-----------------|
|4|Local Agency Investment Fund (LAIF) | $156,372,921|
| | | |
|-+---------------------------------------+-----------------|
|5|Public Employee's Retirement Fund | $1,045,167|
| | | |
|-+---------------------------------------+-----------------|
|6|State Teacher's Retirement Fund | $425,172|
| | | |
|-+---------------------------------------+-----------------|
| |Total | $423,803,882|
-----------------------------------------------------------
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------------------------------------------------------------
|Source: Office of the State Treasurer, PMIA Annual Report |
|2009-10 |
------------------------------------------------------------
The earnings illustrated above consisted of $349 million from
security investments at an average 0.69% yield, $9.4 million
from time deposits at an average 0.20% yield, and $65 million
from GF loans at an average 0.68% yield. The overall return
on investment was 0.65%.
In general, the SMIF is comprised of "excess cash" from
Special Funds that generally do not have their own investment
authority. During the 2009-10 fiscal year, there were over
one thousand special funds and accounts participating in the
SMIF. Their combined deposits totaled $37,410,565,000 in
2009-10 fiscal year. The chart below lists the largest SMIF
participants for the report period.
-----------------------------------------------------------
|Large Contributors to Surplus Money Investment Fund (as of |
| June 30, 2010) |
-----------------------------------------------------------
|--+--------------------------------------+-----------------|
| 1|Department of Water Resources | $3,064,942,000 |
| |Electric Power Fund | |
|--+--------------------------------------+-----------------|
| 2|Highway Safety, Traffic Reduction | $2,556,397,000 |
| |Fund 2006 | |
|--+--------------------------------------+-----------------|
| 3|Mental Health Services Fund | $2,440,938,000 |
| | | |
|--+--------------------------------------+-----------------|
| 4|Public Buildings Construction Fund | $1,866,221,000 |
| | | |
|--+--------------------------------------+-----------------|
| 5|California Housing Finance Fund | $1,686,471,000 |
| | | |
|--+--------------------------------------+-----------------|
| 6|Unemployment Compensation Disability | $1,685,908,000 |
| |Fund | |
|--+--------------------------------------+-----------------|
| 7|Safe Drinking Water Fund (2006) | $1,474,117,000 |
| | | |
|--+--------------------------------------+-----------------|
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| 8|Disaster & Flood Bond Fund | $1,243,977,000 |
| | | |
|--+--------------------------------------+-----------------|
| 9|Housing/Emergency Shelter Fund | $1,162,851,000 |
| | | |
|--+--------------------------------------+-----------------|
|10|Public Employees' Retirement Fund | $1,135,298,000 |
| | | |
|--+--------------------------------------+-----------------|
|11|2006 State School Facilities Fund | $1,026,893,000|
| | | |
-----------------------------------------------------------
-----------------------------------------------------------
|Source: Office of the State Treasurer |
| |
-----------------------------------------------------------
While in good economic times excess GF related cash is
invested through the PMIA, the PMIA can also serve as a
vehicle for leveraging additional revenues to pay state GF
obligations. According to the Treasurer's Office,
approximately $6 billion of the state's portion of moneys in
the PMIA have been borrowed against to meet current GF
obligations, costing the state $65 million in interest in
fiscal year 2009-10.
As the example of the PMIA illustrates, the state holds moneys
in external accounts and that, even in difficult economic
times, has a base amount of cash which, with prudent and
proper management, is available for investment without
endangering the state's financial status. Under the PMIA
model, investment earnings are returned to the GF, special
funds and local governments. AB 750 proposes that the Task
Force consider whether a state bank model might provide even
greater benefit or value to the state and local governments
than current activities.
4)State bank models : In response to the financial crisis of
2007 and the resulting recession, a number of states have
begun to consider whether it makes financial and policy sense
to establish their own state banks. Modeled after the nearly
100-year old Bank of North Dakota (BND), legislators from
states such as Washington, Oregon, Hawaii, Maine and Maryland
have introduced bills to either establish state banks or study
the establishment of a state bank.
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Common themes among the reasons stated for the establishment
of the banks include the need to support economic development,
provide stability to the local financial sectors, and to
generate additional revenues for the state GF. Particularly
attractive about the state bank model is its potential to help
fill key access to capital gaps for entities such as small
business start-ups and microenterprises. The two central
challenges in establishing a state bank are the source of its
initial capitalization and the role of the state bank within
the context of other public and private financial
institutions.
Below is a chart which illustrates the range of models being
proposed in other state legislatures in 2011.
----------------------------------------------------------
| Comparison of State Bank Models in 2011 Legislation |
----------------------------------------------------------
|-----------+-----------+---------+-------------+-----------|
| | Hawaii | Maine | Oregon |Washington |
|-----------+-----------+---------+-------------+-----------|
|Bank Board |Director |5 |Governor |Governor, |
|or |of Finance |Governor |(chair), |Lt. |
|Executive |(chair), |appointee|Treasurer, |Governor |
|Committee |10 |s |Commissioner |and |
| |Governor | |of the |Treasurer |
| |appointees | |Bureau of | |
| | | |Labor and | |
| | | |Industries | |
|-----------+-----------+---------+-------------+-----------|
|Source of |All State |State |All Public |Any |
|Deposits |Moneys |Funds |Funds and |Source, |
| |plus | |Any Source |but all |
| |Private | | |State |
| |Deposits | | |Funds by |
| | | | |June 30, |
| | | | |2015 |
|-----------+-----------+---------+-------------+-----------|
|Loan Types |Based on |Loans to |Loans to |Loans in |
| |Adopted |Banks |Banks and |the Public |
| |Rules |and |Participation|Interest |
| | |participa| Loans |and |
| | |tion | |subject to |
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| | |loans | |commission |
| | | | |rules |
|-----------+-----------+---------+-------------+-----------|
|Profits |Not Stated |Determine|Determined |Determined |
|Returned | |d by the |by the Board |by the |
|to State | |Board |with advice |Commission |
| | | |from | |
| | | |Advisory | |
| | | |Board | |
|-----------+-----------+---------+-------------+-----------|
|Audit |State |Quarterly|Quarterly |Quarterly |
| |Commissione| |audit by |Report and |
| |r of |examinati|State |Annual |
| |Financial |on by |Department |Report to |
| |Institution|State |of Consumer |State |
| |s |Bureau |and Business |Commission |
| | |of |Services and | |
| | |Financial|Secretary of | |
| | | |State Audit | |
| | |Instituti|every 2 | |
| | |ons and |years | |
| | |audit | | |
| | |every 2 | | |
| | |years | | |
|-----------+-----------+---------+-------------+-----------|
|Backed by |Yes |Not |Yes |Yes |
|Full Faith | |Stated | | |
|and Credit | | | | |
|of the | | | | |
|State | | | | |
-----------------------------------------------------------
----------------------------------------------------------
|Compiled from information provided on website of the |
|Center for State Innovation 4/19/11 |
| |
----------------------------------------------------------
Sufficient initial capitalization is central to the successful
establishment of a state bank. In the case of the BND, it was
funded with the proceeds of a $2 million bond. The Center for
State Innovation (CSI) uses a $100 bond initial capitalization
model and calculates bond repayments as part of the ongoing
expenses of the bank. Based on CSI's capitalization model,
CSI estimates that states can still expand the volume of
economic and community development lending while meeting all
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debt obligations.
In addition to a bank's initial capitalization, state bank
legislation also addresses the financial backing of overall
bank activities, as well as individual financial products. Of
the states reflected in the chart above, each utilizes the
full faith and credit of the state. It should be noted
however, that several California programs offer financial
assistance through independently capitalized funds, which do
not use the full faith and credit of the state including the
Small Business Guarantee Program and the California Capital
Access Program.
AB 750 proposes that a Task force examine one or more state
bank models, report to the Legislature on its findings, and
make a recommendation as to the viability of the establishment
of the Trust.
5)Related legislation : The Governor has indicated that he is
interested in streamlining and making state government more
efficient including the potential for the reorganization of
one or more state agencies and programs. AB 750 proposes to
establish a Task Force, which would examine the viability of a
state bank which could serve a variety of state and local
financial needs.
The Assembly Committee on Jobs, Economic Development and the
Economy is also reviewing legislation related to the
California Infrastructure and Economic Development Bank.
Descriptions of the bills are listed below.
a) AB 696 (Hueso) California Infrastructure and Economic
Development Bank : This bill requires projects selected for
funding under the Infrastructure State Revolving Fund
Program to only be funded, if the project meets specified
land use and economic development criteria. Status:
Scheduled to be heard in the Assembly Committee on Jobs,
Economic Development and the Economy on May 3, 2011.
b) AB 700 (Blumenfield) California Infrastructure and
Economic Development Bank : This bill establishes an
independently administered California Infrastructure and
Economic Development Bank and removes the Secretary of the
Business, Transportation and Housing Agency as chairperson.
Status: Scheduled to be heard in the Assembly Committee
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on Jobs, Economic Development and the Economy on May 3,
2011.
c) AB 1094 (John A. P�rez) California Infrastructure and
Economic Development Bank : This bill expands the
membership of the board of directors of the Infrastructure
Bank from five to seven members. Status: Scheduled to be
heard in the Assembly Committee on Jobs, Economic
Development and the Economy on May 3, 2011.
d) AB 893 (V. Manuel P�rez) California Infrastructure and
Economic Development Bank : This bill modernizes the
operations of the Infrastructure Bank, such as the
inclusion of the economic development community on the
Board, mandating outreach to communities, and adding new
reporting requirements about the number of jobs created and
retained, and the industries served. Status: Scheduled to
be heard in the Assembly Committee on Jobs, Economic
Development and the Economy on May 3, 2011.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090