BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 1933 HEARING: 6/11/14
AUTHOR: Levine FISCAL: No
VERSION: 4/24/14 TAX LEVY: No
CONSULTANT: Weinberger
LOCAL AGENCY INVESTMENTS
Allows local agencies to invest surplus funds in specified
obligations issued by the World Bank, the International
Finance Corporation, or the Inter-American Development
Bank.
Background and Existing Law
Since 1913, state law has authorized local officials to
invest a portion of their temporarily idle funds in a
variety of financial instruments. State law originally
limited these local investments to government bonds, but
over time legislators
expanded the list to include numerous additional financial
instruments.
Multilateral lending institutions - also known as
"supranationals" - provide development financing, advisory
services and other financial services to their member
countries to promote improved living standards through
sustainable economic growth. Three of these supranationals
are headquartered in the United States and issue
highly-rated bonds that are denominated in U.S. currency:
Founded in 1959, the Inter-American Development
Bank (IADB) has 48 country members: 26 borrowing
member countries in Latin America and the Caribbean
and 22 nonborrowing members, including the U.S.,
Canada, and 20 nonregional countries. The bank lends
mostly to central governments in Latin America and the
Caribbean to promote economic development and to
expand opportunities for the poor.
With 188 member countries, the International Bank
for Reconstruction and Development (IBRD) is the
largest component of the World Bank Group. Operating
since 1946, the IBRD seeks to reduce poverty by
promoting sustainable economic development via loans,
AB 1933 -- 4/24/14 -- Page 2
guarantees, and related assistance for projects and
programs in its developing member countries.
Established in 1956 to complement the activities of
the IBRD, the International Finance Corporation (IFC)
is the second-largest component of the World Bank
Group, with 184 member countries. The IFC provides
loans, makes investments, and provides other financial
services to encourage the growth and development of
the private sector in developing member countries.
State law allows the State Treasurer to invest surplus
funds in bonds issued by specified supranational
organizations, including the IADB, IBRD, and the IFC (SB
1776, Greene, 1978 and SB 1015, Calderon, 1991). State law
also allows state or local public retirement systems to
invest in bonds issued by supranational organizations,
including the IADB, IBRD, and the IFC (SB 1459, Watson,
1994).
Local finance officials want the Legislature to grant them
the same authority to invest surplus funds in
supranationals' bonds that state law already grants for
state surplus funds and state and local pension funds.
Proposed Law
Assembly Bill 1963 expands the list of financial instrument
in which local agencies may invest surplus funds to include
United States dollar denominated senior unsecured
unsubordinated obligations issued or unconditionally
guaranteed by the International Bank for Reconstruction and
Development, International Finance Corporation, or
Inter-American Development Bank. AB 1963 specifies that
those investments must:
Have a maximum remaining maturity of five years or
less,
Be eligible for purchase and sale within the United
States,
Be rated "AA" or better by a nationally recognized
statistical rating organization (NRSRO),
Not exceed 30% of the agency's surplus funds that
may be invested pursuant to state law.
State Revenue Impact
AB 1933 -- 4/24/14 -- Page 3
No estimate.
Comment
Purpose of the bill . In response to a recent decrease in
the supply of debt issued by government sponsored
enterprises, like mortgage-related securities issued by
Fannie Mae and Freddie Mac, local investment officers are
seeking other highly-rated, medium-term financial
instruments in which to invest public funds. State law
already allows state surplus funds and state and local
pension funds to be invested in supranational
organizations' bonds. The State Treasurer's Pooled Money
Investment Account, which includes funds from some local
agencies, invests a portion of its portfolio in debt
instruments issued by supranationals. Allowing local
agencies' surplus funds to be invested directly in debt
issued by three supranational finance organizations will
give local finance officers access to a wider pool of
secure investment options that provide better returns than
U.S. Treasury securities and will help to diversify local
investment portfolios.
Assembly Actions
Assembly Local Government Committee: 9-0
Assembly Banking & Financial Institutions Committee:10-0
Assembly Floor: 75-0
Support and Opposition (6/5/14)
Support : California Association of County Treasurers and
Tax Collectors.
Opposition : Unknown.