BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2348| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 2348 Author: Levine (D), et al. Amended: 5/27/16 in Assembly Vote: 21 SENATE GOVERNMENTAL ORG. COMMITTEE: 10-3, 6/28/16 AYES: Hall, Block, Galgiani, Glazer, Hernandez, Hill, Hueso, Lara, McGuire, Vidak NOES: Berryhill, Bates, Gaines SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/11/16 AYES: Lara, Beall, Hill, McGuire, Mendoza NOES: Bates, Nielsen ASSEMBLY FLOOR: 76-4, 6/1/16 - See last page for vote SUBJECT: Department of Finance: infrastructure investment SOURCE: Author DIGEST: This bill authorizes the Department of Finance (DOF), to identify infrastructure projects in California where DOF can guarantee a rate of return on investments for an investment made in that infrastructure project by the California Public Employees' Retirement System (CalPERS), as specified. ANALYSIS: Existing law: 1)Creates DOF and provides that the department has general powers of supervision over all matters concerning the AB 2348 Page 2 financial and business policies of the state. 2)Creates CalPERS, through the Public Employees' Retirement Law (PERL), which provides a defined benefit to its members based on age at retirement, service credit, and final compensation. 3)Specifies that the Board of Administration of CalPERS manages and controls CalPERS, including the exclusive control of the investment of the retirement fund, and requires the Board and its officers and employees to discharge their duties with respect to this system solely in the interest of the participants and beneficiaries. This bill: 1)Authorizes DOF do identify infrastructure projects in California where DOF can guarantee a rate of return on investments for an investment made in that infrastructure project by CalPERS. 2)Establishes the Reinvesting California Special Fund (Fund) in the State Treasury to be used to pay the rate of return guaranteed by DOF. 3)Specifies that the guarantee rate of return is subject to the availability of money in the Fund. 4)Prohibits General Fund moneys from being deposited in the Fund. 5)States that it is the intent of the Legislature to identify special fund moneys, including trust fund moneys that can be used for these purposes. Background Purpose of the bill. According to the author, "private pension funds have already established policies to make substantial investments in infrastructure. These investments allow these funds to meet their financial responsibilities while investing in jobs for their members. AB 2348 will improve public pension investment in California-based infrastructure projects by allowing DOF to identify infrastructure projects where DOF can guarantee a rate of return for CalPERS. This bill creates no AB 2348 Page 3 requirements on CalPERS or DOF. Instead, this bill creates a potential tool that can be used to increase investment in California-based infrastructure projects." CalPERS. CalPERS manages pension and health benefits for roughly 1.8 million California public employees, retirees, and their families. It is the largest and in many ways most successful public pension system in the United States. CalPERS has the second largest investment portfolio, among public pension funds, in the entire world. CalPERS is governed by a 13 member Board of Administration. Seven members are either appointed or serve because they are elected to offices such as State Treasurer and Controller. Six Board members are elected by CalPERS members themselves. CalPERS manages a $300 billion pension fund that has a diverse portfolio of investments. Only one-third of one-tenth of one percent of CalPERS holdings are in California infrastructure. CalPERS states in their Winter, 2016 Perspective report that CalPERS invested $107.7 million in seven California based infrastructure projects, which supports 1,300 California jobs. The author states that, "if CalPERS were to increase its investment in California based infrastructure projects to just one-tenth of one percent, this would produce an additional 2,600 California jobs." Prior Legislation SB 955 (Pavley, Chapter 760, Statutes of 2012) authorized CalPERS and the California State Teachers' Retirement System to prioritize investment in in-state infrastructure projects over alternative out-of-state project if the investments are consistent with its fiduciary responsibility. FISCAL EFFECT: Appropriation: Yes Fiscal Com.: YesLocal: No According to the Senate Appropriations Committee, significant ongoing costs of $1.5 million to $3 million per year to run the proposed program. DOF does not currently have the internal AB 2348 Page 4 expertise to analyze or create such a program, and as such must recruit and hire investment staff with the necessary experience and background. In addition, potentially significant cost pressure on unidentified special funds to be deposited into the Reinvesting in California Special Fund in order to pay the guaranteed rate of return. Finally, 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. SUPPORT: (Verified8/12/16) California Association of Port Authorities California Trade Coalition Coalition of Adequate School Housing Pacific Merchant Shipping Association State Building and Construction Trades Council of California OPPOSITION: (Verified8/12/16) None received ARGUMENTS IN SUPPORT: According to the State Building and Construction Trades Council of California, "AB 2348 would allow DOF to identify infrastructure projects which the state could provide a guaranteed rate of return to public pension investment. Providing this tool will encourage greater voluntary investment in California infrastructure from CalPERS. Additional investments in these projects mean more California jobs and economic growth as well." ASSEMBLY FLOOR: 76-4, 6/1/16 AYES: Achadjian, Alejo, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina AB 2348 Page 5 Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon NOES: Travis Allen, Brough, Grove, Hadley Prepared by:Felipe Lopez / G.O. / (916) 651-1530 8/15/16 20:29:58 **** END ****