SENATE BUDGET AND APPROPRIATIONS COMMITTEE
STATEMENT TO
[First Reprint]
SENATE, No. 1413
with Senate committee amendments
STATE OF NEW JERSEY
DATED: DECEMBER 16, 1996
The Senate Budget and Appropriations Committee reports favorably Senate Bill No 1413 (1R) with amendments.
As amended, Senate Bill No. 1413 (1R) expands the methods by which school boards and local units may purchase and redeem authorized mutual funds by permitting direct purchase and redemption from the issuer, government money market mutual funds, local government investment pools, or the State of New Jersey Cash Management Fund. Purchase and redemption will also be permitted through the use of certain broker-dealers or certain securities dealers. Currently, the only avenue through which a school board or local unit may purchase and redeem such securities is a national or State bank located within this State.
The bill equalizes investment authority between school boards and local units, while restricting the type of investments in mutual funds to government money market mutual funds and tightening existing practices with respect to investments in local government investment pools and repurchase agreements. The bill defines a government money market mutual fund to mean an investment company: that is registered with the Securities and Exchange Commission and operated in accordance with federal regulations; the portfolio of which is limited to U.S. Government securities and repurchase agreements that are collateralized by U.S. Government securities; and that has attained the highest rating or ranking from a nationally recognized statistical rating organization or has retained an investment advisor who meets certain criteria.
In addition, local units are required to approve on an annual basis a cash management plan; local units must receive a monthly report summarizing all investments made or redeemed since the last meeting of the governing body; and any local unit official involved in selecting an entity seeking to sell an investment to the local unit is required to disclose to the governing body of the local unit and to the Local Finance Board or a county or municipal ethics board, as appropriate, information on a material or personal relationship, if any, that official has with that entity. The local unit is also required to provide its cash management plan to the registered principal of any security brokerage firm selling securities to the local unit and that registered principal is required to sign an acknowledgment that the registered principal has seen and reviewed the local unit's cash management plan, and that the firm will not execute transactions resulting in investments that are not authorized under the local unit's cash management plan or State law. If the registered principal of any security brokerage firm selling securities to the local unit is only selling securities of a government money market mutual fund, the registered principal will be provided with and must sign an acknowledgment that the government money market mutual fund whose securities are being sold to the local unit meets the criteria of a government money market mutual fund and has been so designated in the local unit's cash management plan.
Finally, the bill provides that: the maturity date of certain federal obligations or other bonds or obligations approved by the Division of Investment shall be 397 days, consistent with federal regulation, 17 C.F.R. §270.2a-7; the purchase of investment securities shall be executed under a "delivery versus payment" method which requires that the securities are to be received either by the school district, local unit or a third party custodian prior to or upon release of the school district's or local unit's funds; and deposits or purchases of financial instruments made by boards of education or local units consistent with the requirements of the bill are not subject to the requirements of the "Public School Contracts Law," N.J.S.18A:18A-1 et seq. or of the "Local Public Contracts Law," P.L.1971, c.198 (C.40A:11-1 et seq.), respectively.
As amended and reported, Senate, No. 1413 (1R) is identical to Assembly, No. 832 (3R) of 1996 (Arnone/Jones) as amended and reported by this committee on December 16, 1996.
COMMITTEE AMENDMENTS
The committee amended the bill to: change the definition of "local government investment pool" to limit such pools to the purchase and redemption of investments from or through certain sources; provide that an investment company or investment trust can qualify as a government money market mutual fund by having attained the highest ranking or rating of a nationally recognized statistically rating organization or by retaining an investment advisor registered or exempt from registration with the Securities and Exchange Commission, with experience investing in U.S. Government securities for at least the most recent 60 months and with assets under management in excess of $500 million; provide a third intermediary through which a local unit or board of education may purchase and redeem investments, namely a securities dealer who makes primary markets in U.S. Government securities and reports daily to the Federal Reserve Bank of New York its position in and borrowing on such U.S. Government securities ; and provide that if the registered principal of any security brokerage firm selling securities to the local unit is only selling securities of a government money market mutual fund, the registered principal will be provided with and must sign an acknowledgment that the government money market mutual fund whose securities are being sold to the local unit meets the criteria of a government money market mutual fund and has been so designated in the local unit's cash management plan.
FISCAL IMPACT
This bill has not been certified as requiring a fiscal note because it will not have an impact on State revenues or expenditures.