BILL ANALYSIS �
AB 750
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Date of Hearing: May 2, 2011
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
AB 750 (Hueso) - As Amended: April 25, 2011
SUBJECT : Finance: investment trust blue ribbon task force.
SUMMARY : Creates the investment trust blue ribbon task force
with the purpose of establishing a California Investment Trust
which would be a state bank receiving deposits of state funds.
Specifically, this bill :
1)Provides that the Secretary of Business, Transportation and
Housing (BTH) will convene the task force.
2)Specifies that the task force will include the following
members:
a) The Secretary of BTH;
b) Two individuals representing and having a background
in one or more areas of finance, including, but not
limited to, individuals working in for-profit and
nonprofit financial and academic institutions, and
economic development practitioners to be appointed by the
Senate Committee on Rules;
c) Two individuals representing and having a background
in one or more areas of finance, including, but not
limited to, individuals working in for-profit and
nonprofit financial and academic institutions, and
economic development practitioners to be appointed by
Speaker of the Assembly;
d) Five members representing and having a background in
one or more areas of finance, including, but not limited
to, individuals working in for-profit and nonprofit
financial and academic institutions, and economic
development practitioners to be appointed by the
Governor; and,
e) The Controller, Treasurer, and Governor or their
designees.
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3)Requires the task force to choose its chair from among its
membership.
4)Requires the Secretary of BTH and the legislative members to
convene the first meeting on or before February 1, 2012.
5)Establishes a quorum at the meeting to constitute majority
plus one of the members serving on and appointed to the task
force at the time the meeting is convened. Thereafter, a
quorum shall constitute a majority of the members plus one who
are eligible to service on the task force.
6)Provides that a quorum is not necessary for conducting
meetings except for meetings where the draft report and final
report are to be voted on.
7)Establishes that the purpose of the task force shall be to
consider the viability of establishing the California Invest
Trust, which would be a state bank receiving deposits of state
funds to report to the Legislature.
8)Requires the task force 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 state
trust focus. Among other resource issues, the task force
shall consider, at a minimum, how a state trust could be
designed to do the following:
i. Strengthen the economic and community
development needs of California.
ii. Provide greater financial stability to
individuals and businesses.
iii. Reduce the cost paid by state government
for banking services.
iv. Generate earnings beyond those necessary
for continued operation of the trust, which could be
used to supplement the General Fund.
b) Consider the types of financial products that could
be offered to address currently unmet financial needs and
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more efficiently deliver existing financial resources and
products. The task force shall take a broad view in
assessing individual-, business-, and community-level
financial needs including, but not limited to, products
that improve access to capital for businesses, farmers,
homeowners, students, the unbanked, and local
governments.
c) Examine various administrative and operational
structures for organizing a trust including, but not
limited to, boards of directors, sources of deposits,
oversight and audit of financial activities, and
guarantees of financial products.
d) Consider options for integrating a state trust
model into the existing state financial resource network
including, but not limited to, ideas such as lending
capital to banks, credit unions, and nonprofit community
development financial institutions.
9)Establishes that the task force will be staffed from existing
resources provided by the BTH Agency.
10)Provides that the appointed task force members shall be
reimbursed solely for the actual travel costs for attending
meetings. Costs associated with state government officials
attending meetings shall be paid by the respective government
entities.
11)Requires the task force to provide a report to the
Legislature by December 1, 2012.
12)Requires the report to include all of the following:
a) A recommendation on the viability of establishing
the California Investment Trust; and,
b) A list of issues and considerations.
13)Provides that the task force if supportive of a California
Investment Trust to provide:
a) The administrative structure of the trust;
b) The capital requirements for the trust's initial
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capitalization and for ongoing operations;
c) How the initial capitalization can be achieved and
how operating costs could be paid;
d) The oversight of the trust to protect the interests
of the state and the rights of individuals and entities
that may access the products or services, or both, of the
trust;
e) An outline of transition actions necessary for
establishing the trust; and
f) A draft of statutory and constitutional changes that
may be necessary to establish the trust.
14)Specifies that the task force will become inoperative on
January 1, 2017.
15)Makings the following declarations:
a) California communities have suffered greatly since
the financial crisis of 2007. During the last several
years, monthly unemployment levels have remained above 10
percent leaving millions of Californians out of work.
Bankruptcies among small businesses and individuals are
up, capital markets are tight, and local communities have
limited resources to address their economic and community
development challenges.
b) While Californians have been especially hard hit in
this recession, residents of other states have also
suffered. In responding to the sluggish capital markets,
several states, including Maine, Oregon, Rhode Island,
and Washington, are examining the appropriateness of
creating a state bank.
c) The creation of the California Investment Trust
could serve to more effectively meet the financial needs
of the state including, but not limited to, the
following:
i. Supporting the economic development of
California by increasing access to capital for
businesses in the state.
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ii. Providing financing for housing
development, public works infrastructure,
educational infrastructure, student loans, and
community quality of life projects.
iii. Providing stability to the local
financial sector.
iv. Reducing the cost paid by state
government for banking services.
v. 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.
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.
4)Provides that any report required or requested by law to be
submitted by a state or local agency to the Members of either
house of the Legislature generally, shall instead be submitted
as a printed copy to both the Legislative Counsel and the
Secretary of the Senate, and as an electronic copy to the
Chief Clerk of the Assembly. Each report shall include a
summary of its contents, not to exceed one page in length. If
the report is submitted by a state agency, that agency shall
also provide an electronic copy of the summary directly to
each member of the appropriate house or houses of the
Legislature. Notice of receipt of the report shall also be
recorded in the journal of the appropriate house or houses of
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the Legislature by the secretary or clerk of that house.
(Government Code, Section 9795)
5)Defines "report" as any study or audit. (Government Code,
Section 9795)
FISCAL EFFECT : Unknown.
COMMENTS :
According to the Author, this bill is needed to explore the
viability of a California State Bank. In response to the
sluggish economy several states including Maine, Oregon,
Washington and Rhode Island are examining the appropriateness of
creating a state bank. The author feels California should also
consider this option to help the state address its challenges.
AB 750 would put the task force in the hands of the BTH Agency.
The BTH Agency includes 14 departments and several economic
development programs and commissions consisting of more than
45,000 employees and a budget of $18 billion. The Agency's
portfolio is one of the largest and most diverse in the State of
California. Its operations address a myriad of issues that
directly impact the state's economic vitality and quality of
life including transportation, public safety, affordable
housing, international trade, financial services, tourism, and
managed health care.
Currently, California has the The California Infrastructure and
Economic Development Bank (I-Bank) is located within the BTH
Agency and is governed by a five-member Board of Directors. The
I-Bank was created in 1994 to promote economic revitalization,
enable future development, and encourage a healthy climate for
jobs in California. The I-Bank operates pursuant to the
Bergeson-Peace Infrastructure and Economic Development Bank Act
(as of March 2010) contained in the California Government Code
Sections 63000 et seq.
The I-Bank has broad authority to issue tax-exempt and taxable
revenue bonds, provide financing to public agencies, provide
credit enhancements, acquire or lease facilities, and leverage
State and Federal funds. The I-Bank's current programs include
the Infrastructure State Revolving Fund (ISRF) Program,
501(c)(3) Revenue Bond Program, Industrial Development Revenue
Bond Program, Exempt Facility Revenue Bond Program and
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Governmental Bond Program.
Background: Due to the economic crisis we are still recovering
from, the issue of states creating their own state banks has
picked up steam. The best and only example of a state bank is
the Bank of North Dakota (BND). In 1919, the state legislature
established BND with $2 million of capital.
BND was charged with the mission of "promoting agriculture,
commerce and industry" in North Dakota. It was never intended
for BND to compete with or replace existing banks. Instead, Bank
of North Dakota was created to partner with other financial
institutions and assist them in meeting the needs of the
citizens of North Dakota. Today, the Bank operates with more
than $270 million in capital. The State of North Dakota began
using bank profits in 1945 when money was first transferred into
the General Fund. Since that time, capital transfers have
become the norm to augment state revenues. To this point, BND
is perceived to be a success.
According to the U.S. Census Bureau, the population size of
North Dakota as of July 1, 2009, is 646,844. To compare,
California has a population size as of July 1, 2009, of 36,
961,664. This is a drastic difference that should be discussed
when trying to implement a task force for a state bank.
Other States:
Currently, 11 states have decided to look into creating state
banks. These states include Illinois, Virginia, Hawaii, Oregon,
Washington State, Massachusetts, Maryland, Arizona, Vermont,
California and Maine.
Oregon: In 2011, Oregon introduced SB 889 and HB 3452. This
measure requires the Oregon Finance and Credit Board to
formulate and implement investment and management policies and
practices for state funds controlled and administered by state
agencies. This measure is in the beginning of the legislative
process.
Washington: The State of Washington introduced in 2011, HB 1320
and SB 5238. This measure would enact an investment trust blue
ribbon task force. The measure was heard in a policy committee
and did not move forward. Their legislature just reintroduced
the measure in special session on April 26, 2011. In 2010,
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Washing tried to create a state bank with HB 3162. This measure
did not pass out of the policy committee.
Maine: Introduced in 2011, LD 1452 which would Create the Maine
Street Economic Development Bank. Provides that the bank may
not make, purchase, guarantee, modify or hold loans until the
bank has adequate capital of at least $20,000,000. This measure
is in the beginning stages of their legislative process.
Hawaii: Hawaii attempted with HR 853 to create a task force to
establish a Bank of the State of Hawaii. Rather than moving
forward with a bill the legislature is moving a resolution HR
139 which would create a task force.
Illinois: Introduced HB 5476 to create a state bank. Currently
pending in their Rules Committee.
Virginia: Introduced HJ 62 to establish a study on whether to
create a state bank. Measure is no longer moving forward.
Massachusetts: Introduced SB 2331 which proposes a study on
whether to implement a state owned bank. This measure passed
and waiting to select candidates for the commission.
Maryland: Introduced SB 789 to establish the Maryland State Bank
Commission to review and evaluate the creation of a Maryland
State Bank; providing for the membership and staffing of the
Commission; prohibiting members of the Commission from receiving
specified compensation, but authorizing the reimbursement of
specified expenses; requiring a final report by a specified
date; etc. This measure is no longer moving forward.
Arizona: Introduced HB 2221, to create a bank of Arizona. This
legislation is no longer moving forward.
Vermont: Introduced H361, This bill proposes to require the
secretary of commerce and community development to contract with
a nonprofit corporation to develop and introduce into the state
economy a companion currency to be called Vermont dollars. This
is in the beginning of the legislative process.
Committee Action:
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It should be noted that the Assembly Banking and Finance
Committee would like to conduct an oversight hearing on the
issue of whether or not it is feasible for California to create
a state bank. A hearing involving this topic has not taken
place and necessary to provide legislatures with as much
information as possible.
Suggested Amendments:
1)On page 3, line 22, add "or their designee"
2)On page 4, line 13, delete "legislative"
3)On page 4, line, 16, delete "at the first meeting"
4)On page, 4, line 18, delete, "Thereafter, a quorum shall"
5)On page 4, delete lines 19-20
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081