New law: School districts can't invest bond funds


San Mateo Community College District Chancellor Ron Galatolo, who also happens to be a certified public accountant, said he has long believed that some of the district's bond funds might earn the taxpayers a little extra money while they were waiting to be spent on construction if they were invested differently.

He won't have a chance to find out.

Last month Gov. Jerry Brown signed a new state law that the legislative analyst's office said was written in direct response to the community college district's attempts to invest its own bond money. The law, signed by the governor on Sept. 22, says only county treasurers can invest bond proceeds for public school districts and community college districts.

Chancellor Galatolo said he asked San Mateo County Treasurer Sandie Arnott in 2015 if the county, which is charged with handling school district funds, might put some funds in longer-term investments that were deemed safe, but would bring in a slightly higher return, because he knew the community college district wouldn't need some of its bond money for years.

When Ms. Arnott declined, Chancellor Galatolo said he decided the district should invest the money itself, since doing so wasn't specifically prohibited by law. In June 2015, the district declared $109 million in bond proceeds "surplus," the first move in taking the funds from the county investment pool and transferring them to the district's control.

Because interest rates on long-term investments currently aren't much higher than short-term rates, the investment plans remained on the back burner, he said.

In February of this year, a legislator from Stanislaus County, Kristin Olson introduced Assembly Bill 2738, prohibiting what Chancellor Galatolo wanted to do. The bill, backed by the California Association of County Treasurers and Tax Collectors and the Howard Jarvis Taxpayers Association, was approved by a large margin in the state Assembly and unanimously in the state Senate.

The request to allow the college district to invest its own funds wasn't his first, Chancellor Galatolo said. He said he made the same request to then-county treasurer Lee Buffington in 2008. Not long after Mr. Buffington turned down the request, the county lost $155 million from its investment pool after the collapse of Lehman Brothers. (It later recouped $70 million of the losses.)

Chancellor Galatolo said the college district was the biggest loser in the debacle, losing about $25 million.

It is ironic that "they passed a law to preclude me from having money that they lost once before," he said. "We should have the freedom and flexibility to invest the money. I'm trying to maximize the return on that investment."

He said he wasn't upset about it. "It's unfortunate," he said. "If I can 100 percent protect my money and make a little bit more money why not do it?"

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Posted by Calypso41
a resident of another community
on Oct 20, 2016 at 3:47 pm

Calypso41 is a registered user.

Good for Governor Brown.

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Posted by MJ Renzi
a resident of another community
on Oct 20, 2016 at 6:38 pm

I think what the Chancellor proposed is sound given the construction climate may require districts to wait or properly plan, which takes time. Meanwhile, available bond funds lose their dollar value as time goes on because of the inflation related to building construction. This causes the unintended consequences of rushing construction or awarding to the lowest bidder without safe guards of time or terms. In addition, districts will now have to carry the burden of underwriting costs more frequently or manage funds without much leverage against the inevitabilities of inflation.

Like this comment
Posted by Info
a resident of Atherton: West Atherton
on Oct 21, 2016 at 8:01 am

This makes sense statewide. Ironically, here in San Mateo County, however, it was our county treasurer, not the school district managers, who lost school district funds through irresponsible investments. Hopefully, this will never be repeated.

Sorry, but further commenting on this topic has been closed.

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