BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 750|
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THIRD READING
Bill No: AB 750
Author: Hueso (D), et al.
Amended: 8/15/11 in Senate
Vote: 21
SENATE BANKING & FINANCIAL INST. COMMITTEE : 5-2, 7/6/11
AYES: Vargas, Evans, Kehoe, Liu, Padilla
NOES: Blakeslee, Walters
ASSEMBLY FLOOR : 50-24, 6/1/11 - See last page for vote
SUBJECT : Finance: Investment Trust Blue Ribbon Task
Force
SOURCE : Author
DIGEST : This bill establishes the Investment Trust Blue
Ribbon Task Force, as specified, to study the creation of a
state bank.
ANALYSIS :
Existing law:
1. Authorizes the establishment and operation of
state-chartered banks, state-chartered credit unions,
state-chartered industrial loan companies, and
state-chartered savings associations, all of which are
overseen by the Department of Financial Institutions,
and allows for the operation of federally-chartered
CONTINUED
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depository institutions and foreign (out-of-state)
depository institutions in California, as specified.
2. Provides for the California Infrastructure and Economic
Development Bank (I-Bank), within the Business,
Transportation and Housing Agency (BT&H) (Government
Code Section 63000 et seq.). I-Bank is headed by a
five-member Board of Directors that includes the
Secretary of BT&H, State Treasurer, Secretary of the
State and Consumer Services Agency, and Director of the
Department of Finance, or their designees, and a
Governor's appointee. I-Bank was created in 1994 to
promote economic revitalization, enable future
development, and encourage a healthy climate for jobs in
California. 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. 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 Governmental Bond Program (see
http://www.ibank.ca.gov/about_us.htm for more details).
This bill:
1. Establishes the Investment Trust Blue Ribbon Task Force
(Task Force), for the purpose of considering the
viability of establishing the California Investment
Trust, which would be a state bank receiving deposits of
state funds.
2. Requires the Task Force to be convened by the Secretary
of BT&H, and provide it with a 13-person membership,
including all of the following:
The Secretary of BT&H or his/her designee.
Five individuals representing and having a
background in one or more areas of finance,
including, but not limited to working in for-profit
and nonprofit financial and academic institutions,
local government finances or economic development;
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these five would include one appointed by the Senate
Rules Committee, one appointed by the Speaker of the
State Assembly, and three appointed by the Governor.
The State Controller, State Treasurer, and
Governor, or their designees.
3. Require the Task Force to convene its initial meeting on
or before February 1, 2012.
4. Requires the Task Force to do all of the following:
A. Undertake a general assessment of the state's
current network of public and private financial
resources and assess the impact on government
services, including public and private banking
services, for the purpose of identifying potential
areas of state trust focus. At a minimum, the task
force would have to consider how a state trust could
be designed to strengthen the economic and community
development needs of California, provide greater
financial stability to businesses through its
investments in other financial institutions, reduce
the cost paid by state government for banking
services, and generate earnings beyond those
necessary for continued operation of the trust, which
could be used to supplement the General Fund.
B. Support a strong private sector financial
community that will provide capital for businesses in
California.
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.
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5. Requires the Task Force, upon an agreement by at least
two-thirds of the membership, to select a nonprofit
corporation or other private organization with specific
expertise in public finance and public institutions
models to staff the Task Force. Authorizes the Task
Force to establish an advisory committee to help it in
creating its final report. The final report,
representing the views of a majority of the Task Force
members, must be submitted to the Legislature by
December 1, 2012, and must include all of the following,
at a minimum:
A. A recommendation on the viability of establishing
the California Investment Trust and its impact on
state government services, including public and
private banking services.
B. A list of the issues identified during its work
and its findings, if any, related to those issues.
C. To the extent the task force is supportive of
establishing the California Investment Trust,
information on all of the following, at a minimum:
the administrative structure of the trust, the
capital requirements for the trust's initial
capitalization and for ongoing operations, how the
initial capitalization can be achieved and how
operating costs could be paid, how the trust can
protect the interests of the state and the rights of
individuals and entities that access products or
services of the trust, transition actions necessary
to establish the trust, and statutory and
constitutional changes that may be necessary to
establish the trust.
Background
This bill is sponsored by the author, to study the
viability of creating a California state bank other than
the I-Bank. To date, 13 other states have introduced
legislation to create a state bank or to study the creation
of a state bank. With this bill, California became the
14th such state.
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Much of the push to create state banks traces to the Public
Banking Institute (PBI), based in Sonoma. According to its
Internet Web site:
"PBI is a non-partisan think-tank, research and advisory
organization dedicated to exploring and disseminating
information on the potential utility of publicly-owned
banks, and to facilitate their implementation. PBI was
formed in 2011 as an educational non-profit organization
by a group of citizens including past and present
community and civic leaders, businesspeople, educators,
political economists, writers, and banking and other
professionals. The group shares a concern over the
destabilizing actions of a private banking industry that,
through its corporate business model, has precipitated
the economic imbalances now witnessed across the US
economy.
"PBI's mission is to analyze U.S. and global financial
events in order to explore and facilitate implementation
of public banking options. In the process, we are
looking to quantify the true costs of financing
government and public services, including the costs of
potential systemic risk, business cyclicality, and
monetary instability imposed by particular methods of
banking and government financing.
"Our goal is to leverage the historic role of
publicly-owned banks nationally and internationally in
fostering access to cheap and readily available credit,
particularly as used for increasing productive capacity."
In March 2011, representatives of PBI made a presentation
in the State Capitol, touting the benefits of a state bank.
During their presentation, they described the success of
the only state bank in the country (the Bank of North
Dakota, which was formed in 1919 with $2 million in
capital, and which now operates with more than $270 million
in state capital, and runs a profit used to augment North
Dakota's General Fund). They also made several claims that
warrant further investigation, such as the claim that a
state bank can "create money" by leveraging its deposits
and that a state bank has access to nearly unlimited
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borrowing through the Federal Reserve Bank's overnight
lending window.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13
2013-14 Fund
Task Force study unknown, potentially
several Private
hundred thousand
SUPPORT : (Verified 9/8/11)
California Association of County Treasurers and Tax
Collectors
California Conference Board of the Amalgamated Transit
Union
California Conference of Machinists
California Labor Federation
California Nurses Association
California Professional Firefighters
California School Employees Association
California Teamsters Public Affairs Council
Communications Workers of America, AFL-CIO, District 9
Engineers and Scientists of California
Fairfax Town Council
International Longshore and Warehouse Union
Professional and Technical Engineers, Local 21
SEIU California
UNITE HERE!
United Food and Commercial Workers - Western States
Conference
United Steelworkers
Utility Workers Union of America, Local 132
OPPOSITION : (Verified 9/8/11)
California Bankers Association
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ARGUMENTS IN SUPPORT : The California Association of
County Treasurers and Tax Collectors (CACTTC) believes that
the concept of a state bank merits serious consideration
and study. A state bank could offer a new option for
county treasuries, and could also be a major partner to
local treasurers. CACTTC believes that a county treasurer
could bring an important local agency perspective to the
task force and requests that the author consider including
a county treasurer on the Task Force.
The California Professional Firefighters, California Labor
Federation, California School Employees Association, SEIU
California, and other labor groups believe that this bill
will serve as an important tool for the state in its
efforts to examine how best to fund needed services in
these tight budget times. For example, the California
State Employees Association writes that "We applaud your
effort to explore the feasibility of a state bank that can
help individuals and our small businesses to get credit or
to start a new venture that private banks may be against
due to the current economic downturn. A state bank could
strengthen economic and community development, provide
financial stability to individuals and businesses, reduce
the cost paid by state government for banking services, and
provide for excess earning to be used to supplement General
Fund purposes."
ARGUMENTS IN OPPOSITION : The California Bankers
Association (CBA) believes that the bill is unnecessary and
harmful, and that it fails to direct the task force to
study all of the operational challenges and risks
associated with operating a bank.
Among CBA's arguments: (1) This bill directs the Task
Force to study the viability of a state bureaucracy to
offer retail banking products. This could lead to the
state issuing checking and savings accounts, mortgage and
auto loans, credit cards, and other lines of credit, which
could, in turn, require the General Fund to cover
inevitable credit losses. (2) This bill ignores safety and
soundness policies, regulatory compliance, and
examinations. It does not address which Federal Reserve
regulations and operational standards a state bank would
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have to comply with, does not address who would be
responsible for regulating and examining a state bank, and
does not address what the potential conflicts of interest
would be if a state entity were responsible for examining a
state bank. (3) This bill mistakenly focuses on the costs
paid by state government for banking services, yet ignores
the General Fund cost savings associated with contracting
out for banking services. The state has partnered with
banks to provide services where the state lacks expertise,
and where contracting out for banking services can save the
state money. Banks provide cash management services,
clearinghouse functions, and short-term lending, issue
state credit cards, and help the state sell state-issued
bonds. Banks also save the state money by providing
services such as child support delinquency collections,
financial institution data match services to aid in the
location of delinquent taxpayers, electronic benefit
transfer cards, and unemployment and disability insurance
debit cards. Not only would the state risk the loss of
financial industry expertise if it created a state bank,
but could also incur significant General Fund costs. (4)
Finally, this bill could lead to the creation of a state
banking entity that would crowd out commercial banking
services. A state bank has the ability to use the enormous
resources of the state to nearly monopolize the market and
create an unfair advantage over commercial banks. The
unlevel playing field created by a state bank will result
in less competition and a reduction in consumer choice.
ASSEMBLY FLOOR : 50-24, 6/1/11
AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block,
Blumenfield, Bonilla, Bradford, Brownley, Butler, Charles
Calderon, Campos, Carter, Cedillo, Chesbro, Davis,
Dickinson, Eng, Feuer, Fong, Fuentes, Furutani, Galgiani,
Gatto, Gordon, Hall, Hayashi, Roger Hern�ndez, Hill,
Huber, Hueso, Huffman, Lara, Bonnie Lowenthal, Ma,
Mendoza, Mitchell, Monning, Pan, Perea, Portantino,
Skinner, Solorio, Swanson, Torres, Wieckowski, Williams,
Yamada, John A. P�rez
NOES: Bill Berryhill, Conway, Cook, Donnelly, Fletcher,
Beth Gaines, Grove, Hagman, Halderman, Harkey, Jones,
Knight, Logue, Mansoor, Miller, Morrell, Nestande,
Nielsen, Norby, Olsen, Silva, Smyth, Valadao, Wagner
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NO VOTE RECORDED: Achadjian, Buchanan, Garrick, Gorell,
Jeffries, V. Manuel P�rez
JJA:mw 9/8/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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