BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session AB 2348 (Levine) - Department of Finance: infrastructure investment ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: May 27, 2016 |Policy Vote: G.O. 10 - 3 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: August 1, 2016 |Consultant: Debra Cooper | | | | ----------------------------------------------------------------- This bill meets the criteria for referral to the Suspense File. Bill Summary: AB 2348 would authorize the Department of Finance (DOF) to identify infrastructure projects in California in which DOF will guarantee a rate of return on investments for an investment made in that infrastructure project by the California Public Employees' Retirement System (CalPERS). Fiscal Impact: Significant ongoing costs of $1.5 million to $3 million per year to run the proposed program. DOF does not currently have the internal expertise to analyze or create such a program, and as such must recruit and hire investment staff with the necessary experience and background. (GF) Potentially significant cost pressure on unidentified special funds to be deposited into the Reinvesting in California AB 2348 (Levine) Page 1 of ? Special Fund in order to pay the guaranteed rate of return. Potential growth to the CalPERS portfolio if investments in the projects identified by DOF generate a higher rate of return than current or alternative investments. Background: CalPERS manages pension and health benefits for California's public employees, retirees, and their families. CalPERS manages a portfolio of $300 billion, making it the largest public pension system in the United States. In its Winter 2016 report, CalPERS states that in fiscal year 2013-14, CalPERS invested $107.7 million in seven California-based infrastructure projects. CalPERS currently has an infrastructure program to evaluate and identify projects for investment. According to CalPERS, "the role of CalPERS' Infrastructure program is to hold ownership of essential infrastructure assets that provide predictable returns with moderate long-term inflation protection." The program currently makes up nearly one percent of the total pension fund. Proposed Law: This bill would: Authorize DOF to identify infrastructure projects in California in which DOf will guarantee a rate of return on investments for an investment made in that infrastructure project by CalPERS. Establish the Reinvesting in California Special Fund (Fund) in the State Treasury, and require all money in the Fund to be continuously appropriated and used to pay the guaranteed rate of return. Specify the guaranteed rate of return is subject to availability of money in the Fund. Prohibit General Fund moneys from being deposited in the Fund. State that it is the intent of the Legislature to identify and deposit special fund moneys, including trust fund moneys, into the Fund. AB 2348 (Levine) Page 2 of ? Related Legislation: SB 955 (Pavley, Chapter 760, Statutes of 2012) authorizes CalPERS and the California State Teachers' Retirement System (CalSTRS) to prioritize investment in an in-state infrastructure project over a comparable out-of-state infrastructure project. Staff Comments: CalPERS already has a dedicated infrastructure program to identify and evaluate projects for investment. This bill would create a duplicative program within DOF; however, DOF currently does not have the resources or in-house expertise to run a similar program. Additionally, this bill does not require that CalPERS invest in any of the projects that DOF identify; therefore, it is unclear if the proposed program will be effective in meeting its intended purpose. It is unclear whether the guaranteed rate of return is actually guaranteed. This bill specifies that the rate of return on investment is subject to the availability of moneys in the Fund. Therefore, it is unclear whether the rate of return is guaranteed in the circumstance that there are not sufficient moneys in the Fund. -- END --