SAN FRANCISCO — California lawmakers are planning a hearing to discuss conduit bond financing for Wednesday.
The agenda for the Senate Local Government Committee’s informational hearing — not connected to pending legislation — includes discussion of increasing competition among bond insurers, the fees they charge, their financial reporting requirements, and open meetings law requirements.
The informational hearing follows the release of a Senate Office of Research paper that had been requested by the committee’s chairwoman, Gloria Negrete McLeod, D-Chino.
The paper draws distinctions between the government-sponsored authorities operating out of the State Treasurer’s Office, and issuers that are formed as joint-powers authorities, which can be created through an agreement between any two or more public agencies. They are not directly overseen by any state agency.
“We welcome the committee’s review,” said Tom Dresslar, spokesman for Treasurer Bill Lockyer. “We’ve seen in California a proliferation of JPAs, including conduit issuers.”
The largest of the joint-powers authorities is the California Statewide Communities Development Authority, the nation’s fifth-largest debt issuer by volume in 2007, credited by Thomson Financial with more than $4.3 billion. More conduit agencies have been created in recent years.
The two busiest bonding authorities run through the Treasurer’s Office in 2007 were the California Health Facilities Finance Authority, credited with $941.5 million in volume, and the California Educational Facilities Authority, credited with $846.9 million.
“We’re trying, from our perspective, to level the playing field,” Dresslar said.
The legislation that established the state authorities overseen by the treasurer sets requirements for achieving public benefits and meeting the California Environmental Quality Act, he said.
“These same mandates aren’t imposed on some of the conduit issuers,” Dresslar said.
Committee staff consultant Brian Weinberger, in a memo prepared for Wednesday’s hearing, suggested a number of policy questions to pursue.
They include: What factors are responsible for the relatively strong growth in the volume of conduit bonds issued by JPAs when compared to state authorities? In what ways does the JPAs’ growing share of conduit financing offer advantages or disadvantages for local borrowers and the public benefit projects they finance?
The memo also suggests a review of why different bond-issuing agencies have different fee structures, as well as what those agencies do with the fees.
It also recommends a review of public noticing requirements for JPA board meetings, as well as of their financial reporting.
“Do current JPA reporting requirements provide sufficient transparency for understanding the activities of bond-issuing authorities?” the memo asks. “Should financial reporting requirements for state and JPA conduit bond issuers be more standardized?”
According to the Office of Research report, JPAs are required to file audited financial reports that are to be available as public records and provided to, among other agencies, the State Controller’s Office.
The controller’s most recent annual report on special districts, for fiscal 2005, included an endnote on the largest bond-issuing JPA. It said the California Statewide Communities Development Authority, which facilitated billions in bond issuance, “is a pure financing conduit with no revenues, expenditures, assets, or liabilities.”
