Existing law creates the Department of Finance and provides that the department has general powers of supervision over all matters concerning the financial and business policies of the state.

The Public Employees Retirement Law (PERL) creates the Public Employees Retirement System (PERS) and provides a defined benefit to its members based on age at retirement, service credit, and final compensation. PERL vests management and control of PERS in the Board of Administration of the Public Employees Retirement System, 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 would authorize the Department of Finance to identify infrastructure projects in the state for which the department will guarantee a rate of return on investment for an investment made in that infrastructure project by the Public Employees Retirement System. The bill would create the Reinvesting in California Special Fund as a continuously appropriated fund and would require the moneys in the fund to be used to pay the rate of return on investment. The bill would require the rate of return on investment to be subject to the availability of moneys in the fund. The bill would also state the intent of the Legislature to identify special funds to be transferred into the fund for the purposes of these provisions. By creating a new continuously appropriated fund, this bill would make an appropriation.

Existing law creates the Department of Finance and provides that the department has general powers of supervision over all matters concerning the financial and business policies of the state.

The Public Employees Retirement Law (PERL) creates the Public Employees Retirement System (PERS) and provides a defined benefit to its members based on age at retirement, service credit, and final compensation. PERL vests management and control of PERS in the Board of Administration of the Public Employees Retirement System, 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 would authorize the Department of Finance to identify infrastructure projects in the state for which the department will guarantee a rate of return on investment for an investment made in that infrastructure project by the Public Employees Retirement System. The bill would create the Reinvesting in California Special Fund as a continuously appropriated fund and would require the moneys in the fund to be used to pay the rate of return on investment. The bill would require the rate of return on investment to be subject to the availability of moneys in the fund. The bill would also state the intent of the Legislature to identify special funds to be transferred into the fund for the purposes of these provisions. By creating a new continuously appropriated fund, this bill would make an appropriation.

Existing law creates the Department of Finance and provides that the department has general powers of supervision over all matters concerning the financial and business policies of the state.

The Public Employees Retirement Law (PERL) creates the Public Employees Retirement System (PERS)and (PERS) and provides a defined benefit to its members based on age at retirement, service credit, and final compensation. PERL vests management and control of PERS in the Board of Administration of the Public Employees Retirement System, 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 would authorize the Department of Finance to identify infrastructure projects in the state for which the department will guarantee a rate of return on investment for an investment made in that infrastructure project by the Public Employment Employees Retirement System, the State Teachers Retirement Plan, or the retirement system created pursuant to the County Employees Retirement Law of 1937. System. The bill would create the Reinvesting in California Special Fund as a continuously appropriated fund and would require the moneys in the fund to be used to pay the rate of return on investment. The bill would require the rate of return on investment to be subject to the availability of moneys in the fund. The bill would also state the intent of the Legislature to identify special funds to be transferred into the fund for the purposes of these provisions. By creating a new continuously appropriated fund, this bill would make an appropriation.

Existing law creates the Department of Finance and provides that the department has general powers of supervision over all matters concerning the financial and business policies of the state.

The Public Employees Retirement Law (PERL) creates the Public Employees Retirement System (PERS)and provides a defined benefit to its members based on age at retirement, service credit, and final compensation. PERL vests management and control of PERS in the Board of Administration of the Public Employees Retirement System, 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.

The Teachers Retirement Law creates the State Teachers Retirement System and State Teachers Retirement Plan for the purpose of providing teachers and other specified employees with financially sound retirement plans. The law provides for the administration of the system and the plan by the Teachers Retirement Board and requires the board and its officers to discharge their duties with respect to the system and the plan solely in the interest of the members and beneficiaries.

The County Employees Retirement Law of 1937 authorizes counties and districts to establish retirement systems for their employees and vests management of the retirement system in the board of retirement.

This bill would authorize the Department of Finance to identify infrastructure projects in the state for which the department will guarantee a rate of return on investment for an investment made in that infrastructure project by the Public Employment Retirement System, the State Teachers Retirement Plan, or the retirement system created pursuant to the County Employees Retirement Law of 1937. The bill would create the Reinvesting in California Special Fund as a continuously appropriated fund and would require the moneys in the fund to be used to pay the rate of return on investment. The bill would require the rate of return on investment to be subject to the availability of moneys in the fund. The bill would also state the intent of the Legislature to identify special funds to be transferred into the fund for the purposes of these provisions. By creating a new continuously appropriated fund, this bill would make an appropriation.

GOVERNOR'S VETO

GV Bill Id:AB 2348

Author:(Levine)

As Enrolled Ver:September 2, 2016

2/3 vote

SUMMARY: Authorizes the Department of Finance (DOF) to identify infrastructure projects in California where DOF can guarantee a rate of return on investments made by the California Public Employees' Retirement System (CalPERS), the California State Teachers' Retirement System (CalSTRS) or a 1937 Act County Retirement System ('37 Act Retirement System) in that infrastructure project, as specified. Specifically, this bill:

1. Authorizes DOF to evaluate and identify California infrastructure projects for which they can guarantee a rate of return on investments made in the project by CalPERS, CalSTRS, or a '37 Act Retirement System.
2. Establishes the Reinvesting in California Special Fund (Fund) in the State Treasury to be used to pay the rate of return guaranteed by DOF.
3. Specifies that the guaranteed 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.

FISCAL EFFECT: According to the Assembly Appropriations Committee:

1. Significant ongoing costs to DOF in the range of $1.0 million annually to run the proposed program, as specified. DOF does not currently have the in-house expertise required to identify infrastructure projects that would be generate sizable returns for CalPERS, and the hiring and retention of investment staff would be a major cost driver.
2. Cost pressures on unidentified special funds. The bill specifies that, through the annual Budget Act, special fund dollars would be deposited into the Fund to pay the guaranteed rate of return if infrastructure investments themselves do not produce them.
3. Potential growth to the CalPERS portfolio if CalPERS chooses to invest in the projects identified by DOF and that these investments generate a higher rate of return than alternative investments.

COMMENTS: According to the author, "California has a large infrastructure funding gap that is growing every day. California Forward estimates that the state will need to spend $835 billion over the next decade to meet our water, transportation, and K-12 infrastructure needs alone. The [United States] U.S Environmental Protection Agency has put California at the top of the list for water system needs.

"CalPERS and CalSTRS are the two largest public pension funds in the United States. CalPERS manages a $300 billion pension fund that has a diverse portfolio of investments. Only 1/3 of 1/10 of 1% 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 support 1,300 California jobs. If CalPERS were to increase its investment in California-based infrastructure projects to just 1/10 of 1%, this would produce an additional 2,600 California jobs.

"CalSTRS manages a nearly $180 billion pension fund. CalSTRS established an infrastructure investment portfolio in 2010 that is intended to control risk and maximize returns. The current policy on CalSTRS infrastructure investment specifies the amount of infrastructure investments that are to occur around the globe including in the United States and Canada, but does not specify how much investment should occur in California.

"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. This bill encourages similar investments by public employee pension funds."

GOVERNOR'S VETO MESSAGE:

This bill authorizes the Department of Finance to identify infrastructure projects for investment by the Public Employees' Retirement System and then guarantee those investments a certain rate of return.

This bill makes the state a guarantor of PERS investments. In the event that any such investment fails to meet the expected return, the state General Fund would be forced to make up the difference. That's not prudent.

Analysis Prepared by: Karon Green / P.E.,R., & S.S. / (916) 319-3957 FN: 0005086

 THIRD READING  

Bill No: AB 2348

Author:

:

Vote:

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:

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 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 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: Fiscal Com.: Local:

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 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: (Verified 8/12/16)

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: (Verified 8/12/16)

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 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:

8/15/16 20:29:58

**** END ****

SENATE COMMITTEE ON

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

AB 2348 (Levine) - Department of Finance: infrastructure investment

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 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.

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 --

SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION

Senator Isadore Hall, III

Chair

2015 - 2016 Regular

Bill No: AB Hearing Date: 6/28/2016

SUBJECT:

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 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 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. The California Public Employees’ Retirement System 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.

I-Bank. The California Infrastructure and Economic Development Bank (I-Bank) was created in 1994 to finance public infrastructure and economic development that promote a healthy climate for jobs, contribute to a strong economy and improve the quality of life in California communities.

The I-Bank has extremely broad statutory powers to issue revenue bonds, make loans and provide credit enhancements for a wide variety of infrastructure and economic development projects and other government purposes. Since its creation in 1994, the I-Bank has loaned over $400 million to local agencies, developing a high-level of expertise in the financing of public infrastructure. The I-Bank also serves as the state's only general purpose financing authority with broad statutory powers to issue revenue bonds. Over $30 billion in revenue bonds have been issued by the I-Bank since 2000.

Currently, the I-Bank activities are governed by a five-member board of directors comprised of the California Business, Transportation and Housing Agency Secretary (chair), State Treasurer, Director of the Department of Finance, Secretary of the State and Consumer Services Agency and a Governor's appointee.

Policy Consideration. The author may wish to consider amending the bill to specify that the I-Bank, instead of DOF, is the appropriate agency to be providing information and guarantees on returns on investment for infrastructure projects due to the I-Bank’s involvement in providing infrastructure loans to public agencies. At the very least the DOF should be required to consult with I-Bank when evaluating and identifying such projects.

Prior/Related 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.: Yes Local: No

SUPPORT:

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:

None receive

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 THIRD READING

ATR Bill Id:AB 2348

Author:(Levine)

As Amended Ver:

Majority vote

SUMMARY: Authorizes the Department of Finance (DOF) to identify infrastructure projects in California where DOF can guarantee a rate of return on investments made by the California Public Employees' Retirement System (CalPERS), the California State Teachers' Retirement System (CalSTRS) or a 1937 Act County Retirement System ('37 Act Retirement System) in that infrastructure project, as specified. Specifically, this bill:

1. Authorizes DOF to evaluate and identify California infrastructure projects for which they can guarantee a rate of return on investments made in the project by CalPERS, CalSTRS, or a '37 Act Retirement System.
2. Establishes the Reinvesting in California Special Fund (Fund) in the State Treasury to be used to pay the rate of return guaranteed by DOF.
3. Specifies that the guaranteed 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.

FISCAL EFFECT: According to the Assembly Appropriations Committee:

1. Significant ongoing costs to DOF in the range of $1.0 million annually to run the proposed program, as specified. DOF does not currently have the in-house expertise required to identify infrastructure projects that would be generate sizable returns for CalPERS, and the hiring and retention of investment staff would be a major cost driver.
2. Cost pressures on unidentified special funds. The bill specifies that, through the annual Budget Act, special fund dollars would be deposited into the Fund to pay the guaranteed rate of return if infrastructure investments themselves do not produce them.
3. Potential growth to the CalPERS portfolio if CalPERS chooses to invest in the projects identified by DOF and that these investments generate a higher rate of return than alternative investments.

COMMENTS: According to the author, "California has a large infrastructure funding gap that is growing every day. California Forward estimates that the state will need to spend $835 billion over the next decade to meet our water, transportation, and K-12 infrastructure needs alone. The [United States] U.S Environmental Protection Agency has put California at the top of the list for water system needs.

"CalPERS and CalSTRS are the two largest public pension funds in the United States. CalPERS manages a $300 billion pension fund that has a diverse portfolio of investments. Only 1/3 of 1/10 of 1% 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 support 1,300 California jobs. If CalPERS were to increase its investment in California-based infrastructure projects to just 1/10 of 1%, this would produce an additional 2,600 California jobs.

"CalSTRS manages a nearly $180 billion pension fund. CalSTRS established an infrastructure investment portfolio in 2010 that is intended to control risk and maximize returns. The current policy on CalSTRS infrastructure investment specifies the amount of infrastructure investments that are to occur around the globe including in the United States and Canada, but does not specify how much investment should occur in California.

"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. This bill encourages similar investments by public employee pension funds."

Analysis Prepared by: Karon Green / P.E.,R., & S.S. / (916) 319-3957 FN: 0003118

Date of Hearing: May 11, 2016

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 2348

Author:(Levine) – As Amended Ver:April 28, 2016

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill creates an infrastructure investment program through a partnership with the Department of Finance (DOF) and the California Public Employees’ Retirement System (CalPERS). Specifically, this bill:

1. Authorizes DOF evaluate and identify infrastructure projects in California for which DOF can guarantee a rate of return of investment for an investment made by CalPERS.
2. Creates the Reinvesting in California Special Fund (Special Fund), which will be used to pay the guaranteed rate of return if funds are available.
3. Specifies that no General Fund moneys may be deposited in to the Fund and that it is the intent of the legislature to identify and deposit special fund money into the Fund through the Budget Act.

FISCAL EFFECT:

1. Significant ongoing costs to DOF in the range of $1.0 million annually to run the proposed program, as specified. DOF does not currently have the in-house expertise required to identify infrastructure projects that would be generate sizable returns for CalPERS, and the hiring and retention of investment staff would be a major cost driver.
2. Cost pressures on unidentified special funds. The bill specifies that, through the annual Budget Act, special fund dollars would be deposited into the Fund to pay the guaranteed rate of return if infrastructure investments themselves do not produce them.
3. Potential growth to the CalPERS portfolio if CalPERS chooses to invest in the projects identified by DOF and these investments generate a higher rate of return than alternative investments.

COMMENTS:

1. Purpose. According to the author, AB 2348 will encourage greater investment in California’s infrastructure and generate job growth. The author states that if CalPERS were to increase its current investment in California-based infrastructure to just 1/10^th of 1 percent, this would produce an additional 2,600 jobs.
2. Background. CalPERS’ Perspective: Winter 2016 publication summarizes current investments that the public retirement system makes in California infrastructure projects. The publication cites the case of Antelope Valley Water Storage, LLC, located in Kern County. According to CalPERS, once constructed, it will be the largest groundwater storage banks in California. In total, CalPERS has invested $107.7 million in California infrastructure projects, representing 6.0% of all the system’s infrastructure investments.
3. Carrot, not a stick. This bill takes an admirable approach in how it tries to shape CalPERS’ investment strategy. Unlike previous legislation that has required CalPERS to divest from certain enterprises, such as tobacco or South African securities, AB 2384 is trying to create a mechanism to make investments in California infrastructure more attractive for CalPERS. These investments are entirely optional for CalPERS and would allow the retirement system to make choices that are in the best interest of both California and the long-term health of the public retirement system.
4. Staff comments. As drafted, there remain a number of unanswered questions about the proposed program:
   1. Is the guaranteed rate of return actually guaranteed? The current draft of AB 2384 says that DOF must identify projects with a guaranteed rate of return, but it does not specify that DOF owes CalPERS the difference between the return these projects generate and what is available through the Special Fund. In fact, Special Fund dollars will go to paying the guaranteed rate of return only if funds are available.
   2. Will CalPERS use the program? Given the deep investment expertise at CalPERS, it is unclear if DOF staff could do a better job of identifying potential projects for investments. On top of this, the financial “carrot” that is offered – a guaranteed rate of return – isn’t actually guaranteed.

Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081