Item 18 - Status Report on Pending Legislation
,(J~
4GENDA REPORT SUMMARY -
INITIATED BY:
Honorable Mayor and Members of the City Council
James L. Bowersox, City Man~
John D, Fitch, Assistant City Manager~
Penny Riley, Senior Management Analy~
TO:
FROM:
DATE:
May 2, 1995
SUBJECI':
Status Report on Pending Legislation
ABSTRACI'
The League of California Cities has informed the City of the following measures which are pending
in the State Legislature: SB 27 and SB 14XX(Kopp) Prohibiting Specified Investment Securities;
SB 44 and SB 13XX (Kopp) Local Investments: Prohibition to Delegate Investment Authority;
SB 117 (Lewis) Local Investments: Reporting Requirements; SB 564 (Johnston) Local Investments:
Reporting Requirements; SB 861 (Craven) Local Investments: Delegation of Powers; SB 864
(Craven) Local Investments: County Treasury Oversight Committee; SB 866 (Craven) Local
Investments: Terms of Notes; SB 867 (Craven) Local Investments: Repurchase and Reverse
Repurchase Agreements SB 868 (Craven) Local Investments: Zero Interest Accrual Periods;
AB 1865 and ACA 24 (Baldwin) Expenditure of Public Monies; AB 1392 (Conroy) Public Works;
and SB 1073 (Costa) Housing Elements.
ENVIRONMENTAL REVIEW - Environmental review is not required for this item under CEQA.
FISCAL IMPACf - There is no fiscal impact associated with this informational report.
ADDITIONAL PUBLIC NOTIFICATION AND CORRESPONDENCE
Assemblyman Jan Goldsmith; Senator David Kelley; Bob Wilson, the City's Lobbyist; and the
League of California Cities were notified of this agenda item.
RECOMMENDATION
It is recommended that the City Council oppose.sJl..21 and SB 14XX; oppose SB 44 and SB 13XX;
support..sH...111; support ~ support.sJiID; support.sß..ßM; support~; support.sß.Ml;
support SB 868; oppose AB 1865 and ACA 24; oppose AB 1392; and oppose SB 1073,
ACI'ION
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MAY 2 1995
ITEM 18
CITY OF POWAY
AGENDA REPORT
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TO:
FROM:
INITIATED BY:
Honorable Mayor and Members of the City Council
James L. Bowersox, City Man~
John 0, Fitch, Assistant Ci~anager~~
Penny Riley, Senior Management AnalYs~
DATE:
SUBJECT:
May 2, 1995
Status Report on Pending Legislation
BACKGROUND
The League of California Cities has informed the City of the following measures
which are pending in the State Legislature: SB 27 and SB 14XX (Kopp) Prohibiting
Specified Inyestment Securities; SB 44 and SB 13XX (Kopp) Local Investments:
Prohibition to Delegate Investment Authority; SB 117 (Lewis) Local Inyestments:
Reporting Requirements; SB 564 (Johnston) Local Inyestments: Reporting
Requirements; SB 861 (Craven) Local Investments: Delegation of Powers; SB 864
(Crayen) Local Investments: County Treasury Oversight Committee; SB 866 (Craven)
Local Investments: Terms of Notes; S8867 (Craven) Local Investments: Repurchase
and Reverse Repurchase Agreements; SB 868 (Craven) Local Investments: Zero
Interest Accrual Periods; AB 1865 and ACA 24 (Baldwin) Expenditure of Public
Monies; AB 1392 (Conroy) Public Works; and SB 1073 (Costa) Housing Elements.
FINDINGS
.Local Investment Policies LeQislation
BackGround
On March 29 and 30, the Senate Local Government Committee held a two-day hearing
on Orange County's Bankruptcy. The League offered the following written comments
to members of the committee:
The League, working in conjunction with the California Municipal Treasurers
Association (CMTA) and the California Society of Municipal Finance Officers
(CSMFO), has reviewed the preliminary report of the Senate Special Committee on
Local Government Inyestment and the recommendations of the Investment Task Force
of the State Treasurer. The League has significant concerns with legislation
which focuses on micro-management of local inyestments rather than focusing on
the basic principles of sound public investment practices.
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MAY 2
1995
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Agenda Report-Pending L~ýislation
May 2, 1995
Page 2
The League has major concerns with the prohibition of specific investment
securities. The inyestment policy of the local agency should be to avoid
inyestment strategies with a high degree of risk, i.e., those which put principal
and liquidity in jeopardy. It should be emphasized that "derivatives" are not
inherently bad securities for public investors. Many derivatives can be used to
reduce the risk of a portfolio. Examples would be yariable rate securities which
are tied directly to short-term interest rates or purchase of futures to hedge
the price of gasoline used by agencies which haye large automobile fleets.
The League endorses the following recommendations of the Investment Task Force of
the State Treasurer:
1.
The local treasurer or chief fiscal officer should be required to
annually submit a written investment policy to the legislative body of
the local agency. Additionally, a quarterly report on the local
agency's investment securities should be required.
The use of leverage in local investment portfolios should be
restricted by limiting reverse repurchase agreements used to buy
securities to no more than 20 percent of the portfolio.
2.
The League, CMTA and CSMFO would be willing and eager to work with the
California Debt AdYisory Commission to develop enhanced continuing
education programs for city financial managers, treasurers and elected
officials in matters related to the inyestment of public funds.
The League offers the following comments on the preliminary report of the Senate
Special Committee on Local Government Investment:
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3.
1.
All local agencies should annually adopt written policy guidelines
related to financial management and agree that the guidelines should
stress, in order of importance: a) safety of principal; b) liquidity;
and, c) yield.
Debt issuance should be directly related to the entity's principal
activity. The League also asserts, however, that borrowing for
investment purposes under some circumstances is a valid, long-accepted
practice and should not be prohibited.
2.
3.
The issue of matching assets and liabilities is a long-held principle
of financial management and portfolio management which would best be
addressed through the adoption of inyestment policies which emphasize
liquidity oyer yield.
Local agency inyestment professionals should and must be held
accountable for their actions. Shifting the responsibility from the
investment officer to the broker-dealer would result in increased
transaction costs to eyery local agency.
4.
MAY 2
1995
ITEM 18
Agenda Report-Pending Legislation
May 2, 1995
Page 3
5.
The League agrees that the use of financial derivatives for
"speculative purposes" is not a proper purpose for public inyestment.
It is, however, very difficult to define this concept. It should be
noted that any position taken by an investment official represents an
opinion on interest rates in the future."
The league, California Society of Municipal Finance Officers and the California
Municipal Treasurers Association were represented at the hearing to proYide
specific testimony on the various bills before the committee. The County
Treasurer's Association and CSAC also offered similar testimony. Although these
local officials presented testimony asking for a more reasonable approach to the
issue, the committee approved all of the bills heard during the two-day hearing.
The following bills were approyed by the committee and are now pending on the
Senate Floor or in Senate Appropriations Committee. The League of California
Cities recommends the following positions on the myriad of local investment
policies legislation,
SB 27 (Kopp)
SB 14XX (Kopp)
Local Investments: Prohibition of Soecified Investment Securities
These two bills are identical, SB 27 and SB 14XX delete repurchase agreements
and reyerse repurchase agreements from the list of authorized inyestments for
local agencies. In addition, they prohibit inverse floaters, seyen-day floaters
and leveraging, They provide that no inyestment by a local agency shall mature
in over five years, even with the approval of the legislative body. The bill
proYides public investment officials are "Unsophisticated Investors" and local
agencies have the right to rescission for any investment transaction. This
legislation would severely restrict the flexibility of financial managers to
select appropriate financial instruments. It is recommended that the City
Council oppose SB 27 and SB 14XX.
SB 44 (Kopp)
SB 13XX (Kopp)
Local Investments: Prohibition to DeleQate Investment Authority: Requires
Competitive Bids
These two bills are identical. SB 44 and SB 13XX prohibit a local agency from
delegating inyestment authority to a treasurer for more than one year at a time.
In addition, they require negotiated competitive bidding or competitive bidding
to retain any financial service, including bond counsel. Further, they require
any decision involving investments or borrowing of $100,000 or more be considered
as a separate item of business on the agenda of the local agency legislative
body. It is in the best interest of any local agency to hire the most
experienced consultant for financial services based on their qualifications, not
just accept the lowest bid for seryices. It is recommended that the City Council
oppose SB 44 and SB 13XX.
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SB 117 (Lewis) Local Investments: Reoortinq Reauirements
SB 564 (Johnston) Local Inyestments: ReDortina Reauirements
These bills require a local agency treasurer to file an annual investment policy
with the legislative body. It also requires the treasurer to file a quarterly
report on all securities, investments and moneys of the local agency; a statement
of compliance with the inyestment policy; and a statement of the local agency's
ability to meet the pool's expenditure requirements for the next six months. It
is recommended that the City Council support SB 117 and S8 564 as a mechanism to
strengthen reporting criteria.
The following bills are a package of bills sponsored by the County Treasurer's
Association:
SB 861 (Craven) Local Investments: Deleqation of Powers
This bill provides that local agencies and their treasurers are trustees and
fiduciaries, which is a common structure for local agencies. It further allows
goyerning boards to delegate the authority to inyest to the treasurer and the
treasurer would assume full responsibility for those transactions until the
governing board revokes its delegation. This legislation, coupled with increased
reporting requirements for the Treasurer, will provide greater safeguards for
public funds. It is recommended that the City Council support SB 861.
SB 864 (Craven) Local Investments: County Treasurv OversiGht Committee
This bill would require the County treasurer to prepare an annual inyestment
policy and would require the County treasury oversight committee to review the
report and to periodically monitor compliance with the adopted policy. It
specifies the membership of the oyersight committee. It is recommended the City
Council support SB 864.
SB 866 (Craven) Local Investments: Investments May Not Exceed Terms of Notes
This bill would prohibit local agencies from inyesting the proceeds from tax
anticipation warrants, revenue anticipation notes and grant anticipation notes or
funds set aside for the repayment of notes, for a term that exceeds the term of
the notes. It i s recommended the City Council support SB 866 as a necessary
measure to ensure that financial commitments do not force agencies to liquidate
part of their portfolio securities at a loss to meet debt requirements.
SB 867 (Craven) Local Investments: Limits on Reourchase and Reverse Reourchase
Aqreements
This bill would limit the inyestment in repurchase and reyerSe repurchase
agreements to terms that do not exceed one year. It further requires the market
value of the securities to be at least 102 percent or greater of the dollars
invested and adjusted no less than quarterly. It is recommended the City Council
support SB 867.
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SB 868 (Craven) Local Investments: Zero Interest Accrual Periods
This bill would prohibit local agencies from investing money in any security that
could result in zero interest accrual periods. It is recommended the City
Council support SB 868 as a mechanism to responsibly use derivatives as a valid
and long-accepted security for public investors.
AB 1865 and ACA 24 (Baldwin) Exoenditure of Public Monies - Constitutional
Revisions and Amendments
ACA 24 and its companion statutory measure AB 1865 were introduced February 24,
1995. These measures will enact procedures to permit registered voters within
the jurisdiction of a public agency to require the agency to seek voter approval
at an election before expending public funds to bring legal action to challenge
constitutional amendments or reyisions preyiously approved at a statewide
election, or attempt to prevent, by litigation, constitutional amendments or
revisions from appearing on the statewide ballot.
These measures have been introduced by the author to deal with public agencies
that challenged and/or threatened to challenge the recently passed Proposition
187. A number of cities were concerned that they would be required to expend
large amounts of public resources to implement a measure that may be
unconstitutional. Also, the provisions of these proposals go far beyond the
debate around Proposition 187, Local agencies would be subject to these
limitations on any such measure, no matter how poorly drafted. Experience shows
that many of these proposals are drafted with little or no input from the public
agencies that are required to implement the laws or constitutional amendments
passed through the initiatiye process.
The Administrative Seryices Committee of the League voted this year to oppose
these and other similar measures which would limit the ability of local
goyernment to challenge or litigate poorly thought out constitutional reyisions
or amendments introduced in the Legislature. It is recommended that the City
Council oppose AB IB65 and ACA 24.
AB 1392 (Conroy) - Public Works. Force Accounts. Mandate
Assemblymember Conroy introduced AB 1392 on February 24, 1995, which specifies
that where plans and specifications have been prepared for a public project to be
put out for formal or informal bid, and the appropriate department subsequently
elects to perform the work by in-house labor, the department shall perform the
work in strict accordance with the plans and specifications originally produced
for bid. This intentionally rigid standard is aimed at making it as difficult as
possible to use city employees as opposed to private contractors. In the course
of a construction project, plans are frequently modified to accommodate design
changes, local conditions, or material needs, The League believes that AB 1392
represents a massiye intrusion into the public works practices of municipalities
and should be vehemently opposed by all cities.
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SB 1073 (Costa) - Housinq Elements: Preoaration and ReYiew
The League began sponsoring comprehensiye housing element reform in the belief
that housing element law was failing local goyernments which haye the sole
responsibility for housing plans and land use decisions. To date, the efforts of
the League haye been unsuccessful. The League belieyes costs associated with the
current housing element process could be better spent proYiding homes for
Californians. By reducing the certification process, more funds would be made
available for the production of units.
Senator Costa introduced SB 1073 on February 24, 1995, which would increase the
Department of Housing and Community Development's {HCD} authority oyer cities and
provides "self certification" standards that local government officials have
described as impossible. The bill is comprehensiye in scope revising
definitions, content requirements, the regional need allocation process, the HCD
review and certification process, HCD guidance, and legal standards.
In general, the League believes the fair share allocation process needs to be
reworked to accomplish three objectiyes. First, allocations should be consistent
with local plans. Second, the COG (Council of Governments) or HCD should be
required to hold a public hearing after releasing draft allocations and data.
Finally, local agencies need to haye a right to an appeal by a panel of locally
elected officials. SB 1073 makes the process even worse. The proposed
legislation would give the COGs or the Department authority for considering
alternative zoning schemes for local agencies.
The League has worked with the sponsors of this bill for years on developing a
clear standard that would allow local governments which are exercising their
authority to promote housing to be spared HCD review. The standards in this bill
appear impossible to meet. Staff recommends that the City Council oppose
SB 1073.
ENVIRONMENTAL REVIEW
Environmental review is not required for this item under California Enyironmental
Quality Act guidelines,
FISCAL IMPACT
There is no fiscal impact associated with this informational report.
ADDITIONAL PUBLIC NOTIFICATION AND CORRESPONDENCE
Assemblyman Jan Goldsmith; Senator David Kelley; Bob Wilson, the City's Lobbyist;
and the League of California Cities were notified of this agenda item.
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MAY 2 1995
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3.
4.
5.
6.
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11.
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Agenda Report-Pending~egislation
May 2, 1995
Page 7
RECOMMENDATION
It is recommended that the City Council take the following actions:
1.
Oppose SB 27 and SB 14XX and direct staff to notify the Senate
Appropriations Committee of the City's opposition to the measure.
2.
Oppose SB 44 and SB 13XX and direct staff to notify the Senate
Appropriations Committee of the City's opposition to the measure.
Support SB 117 and direct staff to notify the Senate Appropriations
Committee of the City's support for the measure.
Support SB 564 and direct staff to notify the Local Senate Delegation of
the City's support for the measure.
Support SB 861 and direct staff to notify the Local Senate Delegation of
the City's support for the measure.
Support SB 864 and direct staff to notify the Local Senate Delegation of
the City's support for the measure.
Support SB 866 and direct staff to notify the Local Senate Delegation of
the City's support for the measure,
Support SB 867 and direct staff to notify the Senate Appropriations
Committee of the City's support for the measure.
Support SB 868 and direct staff to notify the Senate Appropriations
Committee of the City's support for the measure.
10.
Oppose AB 1865 and ACA 24 and direct staff to notify the Assembly Local
Government Committee of the City's opposition to the measure.
Oppose AB 1392 and direct staff to notify the Assembly Local Government
Committee of the City's opposition to the measure.
Oppose SB 1073 and direct staff to notify the Senate Housing and Land Use
Committee of the City's opposition to the measure.
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