BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 2348 (Levine) - Department of Finance:  infrastructure  
          investment
          
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          |Version: May 27, 2016           |Policy Vote: G.O. 10 - 3        |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: August 1, 2016    |Consultant: Debra Cooper        |
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          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  







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            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.








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          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.




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