Senate Bill 998 would raise the commercial paper portfolio concentration limit to 40% for cities and special districts with $100 million or more in investment assets, establish a combined issuer concentration limit of 10% for commercial paper and medium-term notes for cities and special districts based upon their total investment assets, authorize local governments to invest in zero- or negative-interest accrual securities and allow federally recognized California Indian tribes to invest in JPA investment pools.
Under current law, counties and the cities of San Francisco and Los Angeles are authorized to invest up to 40% of their securities portfolios in commercial paper (unsecured, short-term corporate debt). Other cities and special districts are only authorized to invest up to 25%. SB 998 would allow cities and special districts with $100 million or more of investment assets (the SEC’s benchmark for a sophisticated institutional investor) to invest up to 40% of their portfolios in commercial paper.
Under current law, cities and special districts have a 10% single issuer commercial paper concentration limit, based on the issuer’s total commercial paper allocation. Yet corporate medium-term notes, which carry higher risk due to longer maturities, have no single issuer concentration limit. SB 998 closes this loophole by establishing a combined 10% single issuer commercial paper and medium-term note concentration limit, based upon a local agency’s total investment assets.
Under current law, if negative market interest rates prevail, then local agencies’ only option is to deposit surplus cash into bank and trust accounts in order to preserve principal. These entities, however, may pass through negative interest charges to institutional clients, resulting in a loss of principal. If this happens, SB 998 would give local agencies the additional option of buying and holding zero- or negative-interest accrual securities, if it would preserve more principal.
Under current law, federally recognized California Indian tribes are classified as public agencies, but cannot participate in JPA investment pool agreements. SB 998 would allow Indian tribes to invest in these pools, which offer stable investment opportunities.
- City of San Diego (pdf)
- California Municipal Treasurers Association (pdf)
- California Special Districts Association (pdf)
- California Asset Management Program (pdf)
Spencer Street, (916) 651-4037