HomeMy WebLinkAboutAgenda Report - July 15, 1981 (52)1
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UNCIL C011 MUNICATI
TO: TME Cffy Comm DATE NO.
FRW: TME CITY MANAGER'S OiitCE JULY 10, 1981
SUBJECT: RESOLdTI'It N RE00**ENDIW USE OF PERS RESMGMS FOR M3 DWES'TMM
Approximately 3 months ago, Mayor Pat D. Maisetti of Patterson,
at a conference of the Central Valley Division League of
California Cities seminar at Twain Harte, asked Councilman
James Pinkerton to work on a resolution to be presented to that
Committee for their approval and subsequent thereto upon appro-
val, to be presented to the League of California r'ities at its
Fall meeting. The subject of said resolution is ;.he possible
freeing -up of the Public Employees' Retirement System funds for
investments in residential real estate. Attached hereto is a
copy of the League Employee Relations Committee Report regarding
PERS investments. You will note that at the present time, the
net earnings of PERS investments is 7.91%. This amount of
interest, when compared with the investments of many cities of
their investments, is substantially low. It was with this in
mind and because of the shortage of housing in this State, that
Mayor Maisetti asked Councilman Pinkerton to look into the
possibility of opening up the area of investments of PERS funds
into higher yielding investments, and specifically real estate
investment.
What is important to note at the very outset is that the invest-
ments would not be specifically in mortgages per se, but would
be an investment in savings and loan institutions, and the
savings and loan institutions would originate and service the
investments.
For your consideration and review, there is also information
within the above -referenced Committee Report which sets out the
background regarding the present public pension system's invest-
ment limitations.
At present, there are two Bills in the Senate regarding the
investment of public pensions into other than sources where it
presently has invested monies, including the investment in real
estate. Senate Bill 211 (Keene) and Senate Constitutional
Amendment 21 (Keene) are the two Bills to which I am referring.
Copies of said Bills are attached hereto for your review and
consideration.
At present, SCA 21 :las failed in Committee but has been granted
reconsideration and will be reconsidered in August. SCA 21,
since it is a Constitutional amendment, would require an election
by the people.
SB 211 would permit the investments of monies in retirement funds
into residential real estate in the State. You will note the
language in SB 211 to the effect that this is not mandatory,
but rather somewhat of a suggestion, therefore, the fund
manageIrs would still have to be convinced to make these types
of investments.
In speaking with Ann Bailey of Senator Keene's office, I was
informed that if SCA 21 is defeated, that SB 211 will not go
into effect because SCA 21 appears to be the general enabling
act while SB 211 is the specific enabling act, and to invest
in real estate, it would require the passage of SCA 21, a vote
of the people, and passage of SB 211.
As a further note, I am attaching a copy of Assembly Bill 2167
which is authored by Assemblyman Costa which would permit the
use of retirement funds in the Carpenters' Union to be used
for shared appreciation loans. At present, this Bi -1i is in
the Banking and Commerce Committee and will be heard in the
Fall.
I have been in contact with Dwight Stenbakken of the League of
California Cities regarding the resolution and he will be keep-
ing me apprised of the progress of SB 211, SCA 21 and AB 2167.
The League's position on our resolution as it is presently
worded is that as long as there is no intent to direct or
suggest that the pension funds be used for low or moderate in-
come housing, that the League could support the resolution.
RONALD M. STEIN
CITY ATTORNEY
RMS:vc
attachments - Committee Report
SB 211
SCA 21
AB 2167
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- - COlc�= ON MOLOYEE RELATIONS +
.:. _•` .• •. `. .•.. PERS INVESTMENTS --INFORMATION ITEM
• •- April 1981
At the lase westing of the Board it was recommended that the League Employee Relations
Committee begin'an examination of the investment policies of the'Public Emploj►ee s' Retire
anent Sysiem (PERS). the net interest earnings of PERS for the fiscal year' ending Juiie'30.
1981 wx'7.91x ori Investments while employee and employer accounts were credited with
6.75X of those net interest earnings. This amount of interest earnings when compared
with the earnings of.=anny cities on -the investment of local funds Is significantly lost.
The implications of this problem for public employers is obvious. The greater the
amount of interest earnings the lower the employer contribution rate into the system.
The current interest earning rate o PERS is:doing little to defer our obligations:
A iau� of cities in the Peninsula;Diviaioa of the League have, started asystematic.
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Axamination of'thts issue and made a number.of suggestions to PERS on possible strategies
to increase interest earnings. -These suggestions have been made"at a special meeting
scheduled with the PERS investment staff.as Mall as the PERS Board meeting held on
April 22 in Los Angeles.
The League testified at the same April Board meeting of PERS and'has suggested the fol-
lowing •
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It The assumptions behind the:PERS',investment strategy on'long-term-in-
vestments be examined carefully with particular attention to increasing
FM revenues going into short-term investments. This should bq thoroughly
explored as a possible means to.increase the total investment return.
2. The League will fully support the Investigation of PERS investment policies
In the Assembly under the direction of Assemblyman lou Papan. One of the
specific suggestions of this Committee should be the examination of the
assumptions behind the PERS investment strategies. Particular attention
should be directed at the economic predictions and their implications for -
the investment of PERS revenues in short and long-term Investments.
3. The League would support legislation which Would give PERS more flexibility
to invest funds in areas where they are now limited and where greater re-
turns on investments can be achieved.
d. There should be an increase in local government management representatives
on the PERS Investment Committee. With the growth in the percentage of
-local government montes going to PERS there should be greater opportunity
for local government input on the investment strategies of the fund.
S. Local government representation on the PERS Board should also be increased °
to more accurately reflect the greater percentage of local government assets
In the system. '
• 6. The League and California Taxpayers' Association will sponsor legislation
to discourage the use of the contingency reserve account of the PERS fund.
This will also require the Board'of PERS to credit more of the interest
earnings back to employer and employee accounts. thus deferring some of
the employer obligations to the system. '
. OVER
• y
The Employee Relations committee intends to be actively involved in this Issue as
It: progresses through the Legislature. The positions taken by the League on
vestmeat issues will be directed at the goal of maximising the investment return
of thee' systen vhich in turn vita assist in offsetting employer obligations to PERS. v
The Cosmeittes will report back to the Board as the issue progresses.
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AMENDED IN SENATE MARCH 23, 1981
C SENATE BILL No. 211
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Introduced by Senator Keene
February 3, 1981
An act to add Seetien 7M Sections and 222U.5 to the
Education Coder and to add Sections 75M, 2=5.6, 2020A
31595-7. and 31558 to the Government Code, relating to
public pension and retirement plans, and making an
appropriation therefor.
• . LWAS[.AME dov OMS DIGEST
SB' 211, as * amended, Keene. Public pension and
retirement systems: investments.
• (1) - E'oist w haw prescribes the permis bl8 investments of
Me Public Employees- Be&wnent Fiend the Teachers'
Retirement Fond and the funds of systems ustabfisbed under
the County Employees Retirement Law of I9?7. •
This bill would authorize those funds to be invested in
se+cmities issued by cvrporstions and Ihnited partnerships in
this state; the m4oion'ty of whose assets are in nonpublicly
traded stocks and would establish the State Securities
Advisory .Chmmittee to review those investments for the
SWe . - Teachers' ReUrment S)stem and the Public
E alWoyees' Retirement System.
0' The Public Employees' Retirement Law, the State
Teachers' Retirement Law, *and 'the County Employees
Retirernent Law of 15947 presently provide that the systems
established under thane laws are trusts and contain p' Ovisions
regarding thefrduciaryduties of the board membersand their
oRcers and='7OMM
s; til! dW on, pre=ibe additiartal fiduciary
standards and prohibitions
(3) Existing law prescribes permissible investments of
ae
SB 211 —2—
retirement
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retirement fund moneys of public pension and retirement..
systems and some systems havq only limited authority to
invest in residential real estate. '
This bill would, notwithstanding any other provision of law,
-permit all state and local public retirement systems to invest '
in residential real estate in this state without restriction and
authorize their governing boards. to enter into agreements
with private lending institutions and individuals to originate
and service the investments.
(4) .Article A7HB - of the California Constitution and A
Section X31 of the Revenue and Taxation Code require the
state to reimburse loccal agene es and school districts for
certain casts mandated by the state. The statutory provision
also sped es'the manner for pWng this reimbursement and
requires any statute mandating these oasts to contain an
appropriation to pay for the oasts in the initial focal year..
This bill would appropriate an unspecified sum to the
. Gontrofer for allocation and disbursement in accordance
with Section 2231 of the -Revenue and Taxation Code to local
agencies and school districts for costs mandated by the state
and incurred by them pursuant to this act.
Vote: majority X. Appropriation: ne yes Focal committee:
yes. State -mandated local program: ne yes
AMENDED IN SENATE MAY 27, 1981
AMENDED IIS SENATE MAY 53, 1981
Senate Constitutional Amendment No. 21
Introduced by Senators Keene and Creene
(Principal coauthors: Senators Speraw and Foran)
(Coauthors: Assemblymen Bane and Floyd)
March 19, 1981
Senate Constitutional Amendment No. 21—A resolution to
propose to the people of the State of California an
amendment to the Constitution of the state, by amending
Section 17 of Article XVI, relating to public pension and
retirement systems.
LECISIA IVE COUNSELS DICE Sr
SCA 21, as amended, Keene. Publfc pension and
retirement systems: fiends.
The California Constitution presently permits the
Legislature to authorize public pension and retirement funds
to invest up to 25% of their assets in common stock or shares,
and 5% of their assets in preferred stock or shares, of
co tions which meet prescribed standards.
This messure .would permit the Legislature to authorise
public pension and retirement systems to instead invest up to
60 50% of their assets in common stock or shares and, Within
the 50% findtatibn, to also invest up to 5% of their assets in
the common stock or shares of corporations which do not
meet certain of the present standards, and would also permit
the Legislature, within the 505 limitation, to authorize 1%
of the funds to be invested in corporations and limited
partnerships, the majority of whose assets are in nonpublicly
traded equity instruments. The measure would also provide
that the assets of public pension or retirement funds are trust
V 30
SCA 21 —2—
funds
-2—funds and would prescribe fiduciary standards in respect to -
their investment.
Vote: %. Appropriation: no. Fiscal committee: yes.
State -mandated local program: no.
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b AMENDED IN ASSEMBLY MAY 27, 1981
AMENDED IN ASSEMBLY MAY 13P 1981
CALIFORNIA LECISLAIVRE-1981-82 REGULAR SESSION
ASSEMBLY BILI. No. 2167
Introduced by Assemblyman Costa
April 10, 1981
An act to. add Chapter 4 (commencing with Section
1917.010) to Title 4 of Part 4 of Division 2 of the Civil Code,
! relating to shared appreciation loans, and declaring the
urgency thereof, to, take effect immediately.
t.EGtsLArty$ oouNsxts 1>tcUI'
AB 2167, as amended, Costa. Shared appreciation loans.
Exis!#n 1 law contains no provisions directly relative to an
alternative mortgage instrument by which a lower than
prevailing market interest rate is given on a loan for the
i purchase of residential property in exchange for a share in the
future appreciation of the property.
Ibis bill would enact a comprehensive schem' o for
providing "shared aprelation loans" by persons acting on
behalf of pension fung subject to the Employee Retirement
Income Security Act of 1974. A shared appreciation loan
would be for the purchase of real property at an interest rate
K lower than the prevailing interest rate in return for
contingent deferred interest in the amount .of . % of the
appreciation, to be paid by the borrower upon sale, when title
is transferred, except as otherwise specified, when a lease
with an option to purchase is entered into, when a partneirship
is formed which transfers the beneficial interest to another
person, when a trust is created which affects title to the
property, upon a judicial or nonjudicial foreclosure sale, upon
M prepayment of the loan, or upon the maturity date of the
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AB 2167 -- 2 —
loan, whichever first occurs. In the absence of any such event,
the lender must provide refinancing of the balance of the loan
and any contingent deferred interest, if the borrower so
desires, for a period of at least 30 years.
The bill would exempt lenders making these shared
appreciation loans from the usury provisions of the California
Constitution. ,l
The bill would take effect immediately as an urgency
statute. Vwprovikbw of the bill would &vome inoperative
° am Immwy -1, 1990, except as to sbared appreciation loans
entered -into prior to that date.
Vote: Via• Appropriation; no. Fiscal committee: 'no. .
State -mandated local program no. --
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DRAFT RESOLUTION
WHEREAS, Rapid escalation in housing costs, in association
with unprecedented rises in mortgage interest
rates havg reduced housing opportunities within
the State of California; and
WHEREAS, the present housing crisis threatens economic
growth, job growth, prosperity and the quality of
life in California; and
WHEREAS, these housing problems have been compounded by
tremendous reductions in traditional sources of
mortgage capital; and
WHEREAS, the flow of new capital into the housing market
will make housing financing more available; and
WHEREAS, public and private pension funds make up the
greatest capital resource in the State;
NOW, THEREFORE, BE IT RESOLVED by the League of California
Cities as follows:
Big
1? Action should be taken by the State
Legislature which would facilitate the
pension fund managers entering into
agreements with savings and loan asso-
ciations to originate and service mort-
gage-backed investments on behalf of
the Public Employees -Retirement System.
2) Pension fund managers should be strongly -
encouraged to participate in mortgage-
backed investments; and further, should
be afforded maximum flexibility in their
approach to and choice of investments,
including the investment of pension funds
in residential real estate.
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RESOLUTION NO. 81-94
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
LODI RECOMMENDING USE OF P.E.R.S. RESERVES FOR
MORTGAGES
WHEREAS, rapid escalation in housing costs, in associa-
tion with unprecedented rises in mortgage interest rates have
reduced housing opportunities within the State of California;
and
WHEREAS, the present housing crisis threatens economic
growth, job growth, prosperity and the quality of life in
California; and
WHEREAS, these housing problems have been compounded by
tremendous reductions in traditional sources of mortgage
capital; and
WHEREAS, the flaw of new capital into the housing market
will make housing financing more available; and
WHEREAS, public and private pension fund's make up the
greatest capital resource in the State;
NOW, THEREFORE, BE IT RESOLVED by the City Council
of the City of Lodi as follows:
1) Action should be taken by the State Legislature
which would facilitate the pension fund managers
entering into agreements with savings and loan
associations to originate and service mortgage-
backed investments on behalf of the Public Employees
Retirement System.
2) Pension fund managers should be strongly encouraged
to participate in mortgage-backed investments;
and further, should be afforded maximum flexibility
in their approach to and choice of investments,
° including the investment of pension funds in
residential real estate.
81-94
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Dated: July 15, 1981
I hereby cert-ify that Resolution No. 81-94 was passed
and adopted by the City Council of the City of Lodi
in a regular meeting held July 15, 1981 by the follow-
ing vote:
Ayes: Councilmen - Murphy, Hughes, Pinkerton, Katnich
and McCarty
Noes: Councilmen - None
Absent: Councilmen - None
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GGCGC�/?�E#MCHEa
ALICE
City Clerk
81-94
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