SB1438 - Local government: investments and deposits.

Amended IN Assembly June 01, 2026 Amended IN Senate April 13, 2026 CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION Senate Bill No. 1438 Introduced by Committee on Local Government (Senators Durazo (Chair), Arreguín, Ashby, Cervantes, Choi, Laird, and Seyarto) March 11, 2026 An act to amend Sections 41015, 41033, and 42651 of the Education Code, to amend Sections 6509.5, 6509.7, 6558, 16431, 27000.1, 27000.3, 53600, 53620, 53630, 53631, 53635.2, 53641, 53651, 53682, 53684, 53844, 57603, 59283, 67476, and 67480 of, to amend and renumber Sections 53600.5, 53600.6, 53601, and 53601.8 of, and to repeal Sections 53600.3, 53601, 53601.1, 53601.2, 53601.5, 53601.6, 53602, 53603, 53604, 53605, 53606, 53607, 53608, 53609, 53610, 53630.5, and 53635 of, the Government Code, to amend Sections 1702 and 6077.6 of the Harbors and Navigation Code, to amend Sections 9066 and 9067 of the Health and Safety Code, to amend Sections 12368, 28818, and 107105 107015 of the Public Utilities Code, and to amend Section 100.06 of the Revenue and Taxation Code, relating to local government. LEGISLATIVE COUNSEL'S DIGEST SB 1438, as amended, Committee on Local Government. Local government: investments and deposits. Existing law regulates the investment of public funds by local agencies, as defined. Existing law authorizes the legislative body of a local agency, as specified, that has money in a sinking fund or in its treasury not required for immediate needs to invest the money as it deems wise or expedient in certain securities and financial instruments. Among other things, existing law authorizes investment in commercial paper issued by entities meeting one of 2 sets of specified requirements and in United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by specified development banks if certain conditions are met. Existing law prohibits investment in securities that could result in zero-interest accrual unless issued by the United States government in the event, and for the duration, of a period of negative market interest rates. Existing law removes that exception on January 1, 2031. This bill would revise and recast the provisions regulating investment of public funds by local agencies, including, among other things, additionally authorizing investment in commercial paper issued by an entity organized as a federally or state-chartered bank or a federally or state-licensed branch of a foreign bank and in senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the Inter-American Investment Corporation. The bill would remove the January 1, 2031, sunset date for investments in United States-issued securities in a period of negative market interest rates, thereby extending that exception indefinitely. Existing law imposes various limits on local government investment in commercial paper. Specifically, existing law imposes a separate maximum percent investment limit for local agencies that are a county, city and county, the City of Los Angeles, or other local agency that pools investments with other local agencies that do not share the same governing body. Existing law sets those limits at 40% of total investments, with no more than 10% in commercial paper from any one issuer. For the remaining local agencies, and until January 1, 2031, existing law imposes a maximum of 25% for local agencies with less than $100,000,000 in total investment assets and at 40% for those agencies with $100,000,000 or more in investment assets. Beginning January 1, 2031, the limit is reduced to 25% for those local agencies with $100,000,000 or more in investment assets. This bill would revise and recast these provisions and would remove the January 1, 2031, reduction in the maximum investment for the above-described local agencies with $100,000,000 or more in investment assets. Existing law makes the treasurer of a local agency responsible for the safekeeping of money and authorizes them to enter into a contract with a depository, as specified. Existing law requires the depository and the depository agent to secure the deposits in eligible securities. Existing law defines eligible securities for this purpose to include, among other things, letters of credit issued by the Federal Home Loan Bank of San Francisco, as specified. This bill would make various nonsubstantive changes to those provisions and, for a county, city and county, or local agency that pools money in deposits or investments with other agencies, would additionally authorize an eligible bank headquartered outside of the state to submit letters of credit drawn on its regional federal home loan bank. This bill would make additional nonsubstantive changes, including, among other things, to update cross-references. Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: NO Local Program: NO Bill Text The people of the State of California do enact as follows: SECTION 1. Section 41015 of the Education Code is amended to read: 41015. The governing board of any school district or any county office of education that has funds in a special reserve fund of the district or county office of education or any surplus moneys not required for the immediate necessities of the district or county office of education, is hereby authorized to invest all or any part of the funds in any of the investments specified in Section 16430 or 53603 of the Government Code. SEC. 2. Section 41033 of the Education Code is amended to read: 41033. The governing board of a school district which has placed funds in the Foundation Fund is hereby authorized to invest all or any part of those funds as it deems wise and expedient as follows: (a) In the securities, warrants, or instruments of indebtedness specified by Section 53603 of the Government Code. (b) In corporate securities other than corporate shares, provided that the amount of investment under this subdivision shall not exceed 50 percent of the amount invested under subdivision (a). Any security, warrant, or instrument of indebtedness purchased pursuant to this section may be sold and the proceeds reinvested in similar securities, warrants, or instruments, or placed in the Foundation Fund. SEC. 3. Section 42651 of the Education Code is amended to read: 42651. (a) The governing board of a school district may authorize a bank, savings and loan association, or credit union in which school district deferred compensation funds are invested pursuant to Section 53602 of the Government Code, to disburse benefits to eligible school district employees or retired employees, or their beneficiaries, provided the following conditions are met: (1) No payment shall be made to any person by the bank, savings and loan association, or credit union unless authorized in writing by the school district. (2) Written authorization from a school district to a bank, savings and loan association, or credit union to make a payment shall include the name of each person to receive payment and the amount each person is to receive. (3) The written authorization shall be signed by a majority of the members of the governing board of the district or by a person or persons authorized by the governing board to sign the authorization, so long as such person or persons is an officer or an employee of the district. (b) The bank, savings and loan association, or credit union authorized to disburse funds pursuant to this section shall be considered an agent of the school district for the purposes of this section. SEC. 4. Section 6509.5 of the Government Code is amended to read: 6509.5. Any separate agency or entity created pursuant to this chapter shall have the power to invest any money in the treasury pursuant to Section 6505.5 that is not required for the immediate necessities of the agency or entity, as the agency or entity determines is advisable, in the same manner and upon the same conditions as local agencies pursuant to Section 53603. If a nonprofit corporation is designated by the agreement to administer or execute the agreement for the parties to the agreement, it shall invest any moneys held for disbursement on behalf of the parties in the same manner and upon the same conditions as local agencies pursuant to Section 53603. SEC. 5. Section 6509.7 of the Government Code is amended to read: 6509.7. (a) Notwithstanding any other provision of law, two or more public agencies that have the authority to invest funds in their treasuries may, by agreement, jointly exercise that common power. Funds invested pursuant to an agreement entered into under this section may be invested in securities and obligations as described by subdivision (m) of Section 53603. A joint powers authority formed pursuant to this section may issue shares of beneficial interest to participating public agencies. Each share shall represent an equal proportionate interest in the underlying pool of securities owned by the joint powers authority. To be eligible under this section, the joint powers authority issuing the shares of beneficial interest shall have retained an investment adviser that meets all of the following criteria: (1) The adviser is registered or exempt from registration with the Securities and Exchange Commission. (2) The adviser has not less than five years of experience investing in the securities and obligations authorized in subdivisions (a) to (l), inclusive, and subdivisions (n) to (p), inclusive, of Section 53603. (3) The adviser has assets under management in excess of five hundred million dollars ($500,000,000). (b) As used in this section, “public agency” includes a nonprofit corporation whose membership is confined to public agencies or public officials, in addition to those agencies listed in Section 6500. (c) A joint powers authority formed pursuant to this section is authorized to establish the terms and conditions pursuant to which agencies may participate and invest in pool shares. Consistent with its status as a public agency as provided under Section 6500, a federally recognized Indian tribe is eligible to participate in a joint powers authority formed under this section or otherwise invest in pool shares consistent with the terms and conditions established by the joint powers authority. SEC. 6. Section 6558 of the Government Code is amended to read: 6558. The indenture may include covenants or other provisions, other than or in lieu of the provisions required by Article 1 (commencing with Section 6500) of this chapter, relating to the collection, deposit and safekeeping of the revenues, the permissible uses thereof, the special fund or funds to be kept for the payment of principal and interest of the bonds, including reserve, sinking, bond service, redemption and trust funds, and any bond payable from the revenue fund may be paid from any such special fund set up therefor; the appointment of a trustee; the permissible investments for moneys in said funds, or any thereof, the accounts and records to be kept, audits thereof and examination thereof by bondholders and others, and reports to be made by the entity. Any indenture providing for the appointment of a trustee shall limit such trustee’s power of investment to only those investments as are authorized by Section 53603. SEC. 7. Section 16431 of the Government Code is amended to read: 16431. (a) Notwithstanding any other provisions of this code, funds held by the state, pursuant to a written agreement between the state and employees of the state to defer a portion of the compensation otherwise receivable by the state’s employees and pursuant to a plan for that deferral as adopted by the state and approved by the Department of General Services, may be invested in the types of investments set forth in Sections 53602 and 53603 and may additionally be invested in corporate stocks, bonds, and securities, mutual funds, savings and loan accounts, credit union accounts, annuities, mortgages, deeds of trust, or other security interests in real or personal property. This section shall not be construed to permit any type of investment prohibited by the California Constitution. (b) Deferred compensation funds are public pension or retirement funds for the purposes of Section 17 of Article XVI of the California Constitution. SEC. 8. Section 27000.1 of the Government Code is amended to read: 27000.1. Subject to subdivision (p) (o) of Section 53602, the board of supervisors may, by ordinance, delegate to the county treasurer the authority to invest or reinvest the funds of the county and the funds of other depositors in the county treasury, pursuant to Chapter 4 (commencing with Section 53600) of Part 1 of Division 2 of Title 5. The county treasurer shall thereafter assume full responsibility for those transactions until the board of supervisors either revokes its delegation of authority, by ordinance, or decides not to renew the annual delegation, as provided in subdivision (p) (o) of Section 53602. This section does not limit the county treasurer’s authority pursuant to Section subdivision (h) of Section 53603 or pursuant to Section 53684. SEC. 9. Section 27000.3 of the Government Code is amended to read: 27000.3. (a) With regard to county funds deposited in the county treasury, the board of supervisors is the agent of the county who serves as a fiduciary and is subject to the prudent investor standard, unless a delegation has occurred pursuant to subdivision (p) (o) of Section 53602 in which case the county treasurer shall be the agent of the county with respect to these funds, serve as a fiduciary, and be subject to the prudent investor standard and the board of supervisors shall not be the agent, serve as a fiduciary, or be subject to the prudent investor standard. (b) With regard to funds deposited in the county treasury that are deposited by local agencies other than the county and at the discretion of those local agencies, the county treasurer serves as a fiduciary subject to the prudent investor standard. (c) When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, the county treasurer or the board of supervisors, as applicable, shall act with care, skill, prudence, and diligence under the circumstances then prevailing, specifically including, but not limited to, the general economic conditions and the anticipated needs of the county and other depositors, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the county and the other depositors. Within the limitations of this section and considering individual investments as part of an overall investment strategy, investments may be acquired as authorized by law. This chapter is not intended to grant investment authority to any person or governing body except as provided in Sections 53602 and 53603. SEC. 10. 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