CMTA Legislative Update - September 2020
Wednesday, September 2, 2020
In the fall of 2019, the CMTA Legislative Committee launched two initiatives, one federal and one state, that were designed to increase the supply of corporate debt securities that state and local agencies could buy, and to allow cities and special districts with $100 million or more of investment assets to invest up to 40 percent of their portfolios in commercial paper. At that time, state and local agencies could not buy at least 80 percent of commercial paper issuance and 30 percent of medium-note issuance, due to the conversion of corporate issuance programs from 3(a)(3) corporate debt to 4(a)(2) corporate debt. The results of these two initiatives are as follows:
This initiative was successful. By the end of calendar year 2020, state, local, and tribal agencies will be able to buy 4(a)(2) corporate debt, and, if they have $100 million or more of investment assets, 144A private placement debt. On August 26, 2020, the Securities and Exchange Commission (“SEC”) announced that it would be adopting amendments to the definition of “accredited investor” that would allow the foregoing to happen. Nationally, CMTA was the only state association of local agencies that submitted proposed amendment language to the SEC, as well as written public comments that supported the rulemaking change. The Washington D.C. office of Senator Diane Feinstein (D-CA) graciously acted as a liaison between CMTA and the SEC.
State of California
This initiative is close to being successful. CMTA is the sponsor of Senate Bill 998 (Moorlach (R)/Aguiar-Curry (D)) which was introduced in the 2020 Legislative Session. SB 998 would: (1) allow cities and special districts with $100 million or more of investment assets to invest up to 40 percent of their portfolios in commercial paper; 2) establish a single issuer combined (CP/MTN) corporate debt limit of 10 percent for cities and special districts; 3) confirm that federally recognized California Indian tribes may invest in joint powers investment pools; and 4) allow local agencies to buy zero- or negative-interest accrual U.S. Government securities, if a period of prolonged negative market interest rates were to occur, and if these securities would lessen principal losses. SB 998 cleared the Senate Governance and Finance Committee (7-0), the Senate Floor (39-0), the Assembly Committee on Local Government (8-0), and the Assembly Floor (75-0). SB 998 is currently being enrolled, prior to being sent to the Governor for his signature.