S2554

An Act establishing a Bureau of Short-Term Local Government Note Investments in the Division of Investment in the Department of the Treasury and supplementing Title 52 of the Revised Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. As used in this act:

“Authority” means the same as the term is defined in section 3 of P.L.1983, c.313 (C.40A:5A-3).

“Bureau” means Bureau of Short-Term Local Government Note Investments in the Division of Investment in the Department of the Treasury, established by P.L. , c. (C. ) (pending before the Legislature as this bill).

“Chief” means the Chief of the Bureau of Short-Term Local Government Investments.

“Director” means the Director of the Division of Investment in the Department of the Treasury.

“Division” means the Division of Investment in the Department of the Treasury.

“Local unit” means a county, municipality, or authority

“Short-term local unit obligation” means an obligation issued by a New Jersey local unit, or by a municipality, county, or other political subdivision of a state other than New Jersey, having a maturity not more than 397 days from the date of issuance.

“United States Treasury Obligation” means debt obligations of the United States Treasury or any debt obligations that are explicitly guaranteed by the full faith and credit of the United States.

2. a. There is established within the Division of Investment in the Department of the Treasury a Bureau of Short Term Local Government Note Investments. The bureau shall be responsible for managing the investment and reinvestment of moneys of the State of New Jersey Cash Management Fund and any pension or annuity fund under the jurisdiction of the division in short-term local unit obligations.

b. (1) The bureau shall be under the immediate supervision and direction of a chief, who shall be a person qualified by training and experience to direct the work of the bureau. The chief shall administer the work of the bureau under the director of the Director of the Division of Investment in the Department of the Treasury and shall perform such other functions as the director may prescribe.

(2) Any vacancy occurring in the office of chief shall be filled in the same manner as the original appointment.

(3) The chief shall devote their entire time and attention to the duties of their office and shall not be engaged in any other occupation or profession. Notwithstanding any other provision of law to the contrary, the State Treasurer shall determine the salary of the chief.

3. a. Notwithstanding the provisions of any law or regulation to the contrary, the chief may, subject to and consistent with their fiduciary duties and the standard for prudent investment set forth in section 11 of P.L.1950, c.270 (C.52:18A-89), invest and reinvest moneys of the State of New Jersey Cash Management Fund and any pension or annuity fund under the jurisdiction of the division in any short-term local unit obligation provided that:

(1) the obligor is not in default as to the payment of principal or interest upon any of its outstanding obligations;

(2) the return on investment would be at least one percent higher than the rate of return on United States Treasury Obligations with a similar maturity;

(3) (a) Except as otherwise provided in subparagraph (b) of this paragraph, the short-term local unit obligations have a credit rating not less than two of the following thresholds: A3 by Moody’s Investor’s Service; A- by Standard & Poor’s Corporation; and A-higher by Fitch Ratings; except one of the ratings shall be sufficient if only one rating is available. If a rating for the obligations has not been obtained from the above services, the obligation may be purchased if the issuer rating meets the minimum rating criteria. Subsequent to purchase, if the ratings fall below the minimum rating for such obligations, the bureau shall not be required to sell the obligations, and the obligations may be exchanged with obligations with a credit rating lower than the minimum rating if the obligations received in exchange, are on balance, similarly rated;

(b) The bureau may purchase any bond anticipation notes issued by a county or a municipality pursuant to section 11 of P.L.2003, c.15 (C.40A:2-8.1), tax anticipation notes issued by a county or municipality pursuant to N.J.S.40A:4-64, temporary funding notes issued by an authority pursuant to section 13 of P.L.1983, c.313 (C.40A:5A-13), deficit funding notes issued by an authority pursuant to section 14 of P.L.1983, c.313 (C.40A:5-14), and bond anticipation notes issued by an authority pursuant to section 24 of P.L.1983, c.313 (C.40A:5A-24) without consideration of the requirements set forth in subparagraph (a) of this paragraph;

(4) investments made pursuant to this act shall comply with the federal regulations pertaining to arbitrage, 26 U.S.C. s.148 et seq.; and

(5) all moneys invested by the bureau pursuant to this act shall be invested in accordance with the regulations of the State Investment Council, except as otherwise provided in this section.

b. The bureau shall, using such data and information sources as the chief deems appropriate, keep track of notices or offers of the proposed sale of short-term obligations by a local unit. The bureau may submit a bid for the purchase of short-term local unit obligations.

c. The bureau shall annually research and review the local finance regulations of other states, and the incidence of substantive default on the payment of short-term county and municipal obligations issued in other states. If the bureau finds that that the local finance regulations of other states provide similar or greater assurances of payments to note holders than provided under current State law, and the incidence of substantive default is similar to the incidence of substantive default by New Jersey local units, then the bureau may purchase any short-term local unit obligations issued by any county or municipality pursuant to the laws of that state and without consideration to the minimum rating requirements in subparagraph (a) of paragraph (3) of subsection a. of this section.

4. The State Investment Council in the Division of Investment in the Department of the Treasury shall, in accordance with the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.), adopt rules and regulations as necessary to implement this act.

5. This act shall take effect immediately.

STATEMENT

This bill requires the State of New Jersey to take steps to maximize its returns in short-term investments made through the State of New Jersey Cash Management Fund and the State’s pension and annuity funds.

The bill establishes a Bureau of Short-Term Local Government Note Investments in the Division of Investment in the Department of the Treasury. The bureau would be supervised by a chief who would work under the Director of the Division of Investment in the Department of the Treasury.

The bill requires the bureau to monitor the sale of short-term local government notes and allows the bureau to submit responsible bids or offers to purchase short-term notes issued by local governments the investment would generate a rate of return of at least one percent higher to United States Treasury Obligations with a similar maturity. The bill also authorizes the bureau to purchase short-term notes issued by local units that do not otherwise meet the minimum credit rating requirements established by current State regulations, if the issuers’ finances and financial systems are regulated by the State of New Jersey, or another state determined by the bureau to have a similar local finance regulatory structure that protects investors in case there is a substantive default on the payment of the notes.

In addition to increasing the State’s investment returns, this bill is intended to spur competition for the purchase of short-term local government debt and reduce the interest rates charged to certain underserved local governments that experience high borrowing costs even through the notes issued by those local government units have proven to be extremely safe investments.