SB 595 revises the roster of investments that California local agencies may hold, clarifies custody and delivery requirements, and codifies maturity and concentration limits and operational rules for repurchase/reverse repurchase and securities lending arrangements. The statute lays out issuer and rating criteria for instruments from commercial paper to mortgage-backed securities and sets procedural conditions for investing beyond typical maturity limits.
For treasurers and municipal finance officers, the bill refines compliance mechanics (how to take delivery, how to measure remaining maturity, what percentage limits apply at purchase) and prescribes specific counterparty and collateral rules intended to manage liquidity and credit risk. Those operational details change how portfolios are constructed and monitored and affect bank counterparties, money managers, and any entity that issues short-term paper to local governments.
At a Glance
What It Does
Lists eligible instruments local agencies may purchase, prescribes custody and delivery methods, and imposes term, concentration, and rating requirements on many investment categories. It also sets operational conditions for repurchase, reverse repurchase, and securities lending transactions and limits how certain products may be used within a pooled portfolio.
Who It Affects
City and district treasurers, municipal investment officers, county pooled investment programs, banks and primary dealers that act as counterparties, money market and mutual fund managers, and entities that issue commercial paper or medium-term notes to public investors.
Why It Matters
The bill tightens and clarifies routine portfolio mechanics that govern risk, liquidity, and compliance for local governments — changes that will affect custody arrangements, counterparty selection, and how investment staff document and justify portfolio decisions.
More articles like this one.
A weekly email with all the latest developments on this topic.
What This Bill Actually Does
SB 595 frames local investment authority around a detailed menu of eligible securities and procedural rules that many treasurers already follow in practice, but it pulls those practices into statute and adds specificity about how to measure and safeguard investments. The statute makes clear that an investment’s remaining term is measured from settlement to final maturity and that many percentage-based concentration limits apply at the date of purchase, so portfolio managers need to check compliance at trade date rather than on an ongoing mark-to-market basis unless otherwise required.
The bill requires securities to be delivered to the local agency — either by book entry, physical delivery, or through a third-party custodial agreement — and explicitly allows the transfer of securities into a counterparty bank’s customer book-entry account when used for delivery. Where securities are physically held in a bank, the statute permits use of a bank’s trust or safekeeping department provided the security is held in the local agency’s name.
Those custody requirements are practical compliance points: recordkeeping and custody agreements must reflect legal ownership and permit clear reconciliation.Repurchase agreements and reverse repurchase arrangements are authorized but are tightly constrained. Repurchase agreements must be supported by underlying securities that are marked to market and maintained at a specified collateral level; they may be entered into for limited terms and are subject to quarterly valuation and prompt coverage if collateral dips.
Reverse repurchase and securities lending transactions require prior ownership or other preconditions and are limited as a share of the pool’s base value; counterparties for these transactions are limited to primary dealers or banks with demonstrable, substantive relationships to the local agency unless the board makes a formal finding of minimal default risk.Other product categories get category-specific rules. Short-term corporate and depository notes must meet minimum rating standards; medium-term notes are constrained by rating and concentration limits; mortgage-related securities that are not federal agency guaranteed are subject to higher rating standards and separate percentage caps; money market and diversified fund investments must meet rating or adviser-qualification thresholds and are capped as a portion of investable funds; and funds held by trustees are governed by bond documents unless inconsistent with statute.
Across these provisions the bill emphasizes rating-based eligibility, counterparty relationships, custody clarity, and per-transaction compliance checks — all practical items that will shape internal policies, compliance checklists, and vendor contracts.
The Five Things You Need to Know
The bill adds subdivision (r) permitting investment in commercial paper, debt securities, or other obligations of a public bank as defined in Section 57600.
SB 595 includes a statutory sunset: the section expires and is repealed on January 1, 2031.
A security purchased under the statute may not have a forward settlement date more than 45 days from the time of investment.
Commercial paper eligible under the bill must come from issuers meeting specified organizational and credit criteria (including an issuer-asset threshold of $500,000,000) and commercial paper is limited to a maximum maturity of 397 days.
Purchases of negotiable certificates of deposit are capped at 30 percent of investable agency funds, and the statute prohibits investing in CDs from a state/federal credit union if a local agency official or certain investment decisionmakers serve on that credit union’s board or committees.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Scope, custody, and basic timing rules
Subdivision (a) defines which local agencies the section applies to and sets baseline operational rules: investments must be delivered to the agency (book entry, physical delivery, or third-party custodian), and the term of an investment is measured from settlement to final maturity. The provision also fixes that percentage limitations apply at the date of purchase and bars forward settlements beyond a statutory limit. Practically, agencies must update trade confirmations, custody agreements, and their internal compliance checks to use settlement-date measurements and to document delivery method and legal ownership for audit purposes.
Bankers’ acceptances — maturities and concentration limits
This subdivision authorizes bankers’ acceptances but restricts maturity to short-term (statutorily capped) and sets a ceiling on portfolio concentration both in aggregate and by single bank. The language recognizes special authority for municipal utility districts under the Public Utilities Code. Investment officers will need bank-by-bank monitoring systems and trade pre-clearance to ensure single-issuer limits are not breached and that any utilities relying on different law are clearly tracked separately.
Commercial paper eligibility and issuer standards
Commercial paper must meet ‘prime’ quality thresholds and the issuer must satisfy one of two issuer profiles — broadly a large, rated general corporation or a structured issuance with program-wide credit enhancement and top short-term ratings. The provision ties eligibility to NRSRO ratings and introduces issuer-level and program-level screens that compliance officers must verify before purchase. It also differentiates aggregate concentration limits by the size of a local agency’s assets under management, so treasury teams need processes that reconcile portfolio size to allowable thresholds.
Repurchase, reverse repurchase, and securities lending rules
The statute authorizes repurchase and reverse repurchase transactions but tightly controls them: repurchase agreements must be backed by overcollateralized securities subject to periodic valuation; reverse repurchase and securities lending are permitted only under ownership and term conditions and are capped as a percentage of the pool’s base value. It also limits counterparties to primary dealers or banks with significant relationships (with a statutory definition) unless the governing body finds minimal counterparty default risk. Practically, agencies must tighten collateral valuation practices, select counterparties deliberately, and record board approvals for reverse repurchase use.
Mutual funds and money market vehicles — rating and adviser tests
Investments in publicly offered collective funds are allowed only if the fund meets high rating standards or has an experienced, well-capitalized adviser; statutory caps limit total fund exposure and per-fund positions. The provision prevents funds that charge commissions at purchase and requires adviser experience and asset thresholds. Contracting and due-diligence processes will need to document ratings and adviser credentials and to limit purchases to funds that meet the stated criteria.
Secured obligations, mortgage products, JPA pools, and supranational debt
These sections permit secured obligations collateralized by eligible securities (with UCC perfection and third-party custody), constrained mortgage-related securities with higher rating and concentration standards, joint powers authority pooled shares under adviser and asset thresholds, and short-term obligations of specified multilateral development banks meeting high ratings. For trustees and fiscal agents, the bill defers to bond-specific statutory provisions or governing documents where applicable. Agencies must ensure collateral custody arrangements are independent and that UCC perfection steps are documented for secured transactions.
Public bank obligations
Subdivision (r) expressly authorizes local agencies to invest in obligations issued by a public bank as defined elsewhere in the code. That change introduces a new issuer type into the statutory investment universe and will require treasurers to incorporate public bank securities into their due-diligence frameworks — assessing creditworthiness, market liquidity, and how such holdings interact with existing concentration and collateral rules.
This bill is one of many.
Codify tracks hundreds of bills on Finance across all five countries.
Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Local treasurers and investment officers — receive clearer statutory mechanics on custody, settlement measurement, collateralization, and permitted counterparties, reducing legal ambiguity and informing internal investment policies.
- Public banks — the explicit authorization to hold public-bank-issued obligations opens an institutional buyer base and legitimizes public bank paper as an eligible municipal investment.
- Joint powers authorities and pooled funds — the statute confirms the conditions under which JPA-issued shares and pooled products may be used, benefiting pools that meet adviser and governance thresholds.
- Municipalities with trustee-held bond proceeds — statutory text allows trustee-held proceeds to follow bond-specific governing documents, reducing friction for using invested bond cash as intended by financing documents.
Who Bears the Cost
- Local agency finance staff — must implement new compliance checks, update custody and counterparty agreements, and track per-transaction measurement rules and concentration limits, increasing operational workload and possibly systems costs.
- Smaller issuers and mid-sized banks — face tighter access to municipal cash if they cannot meet the bill’s rating, asset, or counterparty relationship tests for instruments like commercial paper or repurchase counterparties.
- Banks and custodians — may need to revise safekeeping and book-entry procedures to meet the explicit delivery and custody conditions and to support frequent collateral valuation and reporting.
- Investment advisers and money market managers — are subject to adviser-qualification standards and per-fund caps that may reduce the pool of eligible managers or require contract changes to demonstrate required experience and asset thresholds.
Key Issues
The Core Tension
The central dilemma is between statutory standardization for safety/liquidity and local policy flexibility: the bill narrows operational ambiguity and imposes conservative mechanics, but by authorizing investments in public bank obligations and other nontraditional instruments it asks treasurers to trade some measure of immediate portfolio conservatism for policy objectives and broader issuer access — a trade-off that requires local policymakers to decide how much credit and liquidity risk they will accept in pursuit of other civic goals.
The bill strikes a balance between clarifying safe-investment mechanics and expanding the investment universe — but that balance creates practical ambiguities. Adding new issuer types (notably public bank obligations) introduces credit and liquidity questions that the statute leaves largely to local due diligence; the law sets eligibility guardrails but does not prescribe concrete credit metrics or mandatory stress-testing practices.
That puts the onus on local investment policies, which will need to translate statutory standards into operational credit limits, liquidity buffers, and marketability assessments.
Operationally, the statute combines rating-based eligibility with a set of concentration and collateral rules that must be applied at purchase date or through periodic revaluation, producing implementation complexity. Agencies will need to automate settlement-date checks, custody reconciliations, and collateral calls.
Smaller agencies with thin staff or limited technology will face a disproportionate compliance burden, and the plain-language delivery requirements could produce disputes about legal ownership in tri-party custody arrangements unless documentation is tightened. Finally, the temporary nature of the authorization (sunset) creates investment horizon uncertainty: if a local agency acquires new types of paper near the end of the statutory term, it must plan for disposition risk or potential restrictions if the law lapses.
Try it yourself.
Ask a question in plain English, or pick a topic below. Results in seconds.