BILL ANALYSIS                                                                                                                                                                                                    Ó






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                                   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  








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            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  







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          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  







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          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 
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            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


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