SAN FRANCISCO — California Treasurer Bill Lockyer is sending another legislative broadside at conduit issuers run by private companies.
The state treasurer’s office is sponsoring a bill meant to force joint-power authorities — quasi-governmental agencies — to change how they select and pay private contractors.
The bill targets two JPA conduit bond issuers, the California Statewide Communities Development Authority and the California Municipal Finance Authority, which are run by private companies and against whom the treasurer has railed for years.
“We believe the bill will help insure that JPAs operate with more transparency and accountability, obtain the most cost-effective service and operate free from potential conflicts of interests,” Lockyer spokesman Tom Dresslar said Wednesday. “We look forward to having the debate in the Capitol.”
Conduit bond issuers handle billions of dollars of debt annually in California. They operate by helping municipalities and nonprofit companies, such as health care providers, sell tax-exempt bonds approved by the state. The conduits collect fees for their services and pay the private companies that run operations based on the amount of deals.
Partner agencies that helped form and oversee the conduits also share in the money made through selling the bonds.
The CSCDA and CMFAA are not the only conduit issuers in California but they are the only ones run by private entities.
The treasurer’s office also operates its own conduit issuers that compete with the JPA conduits.
“We fear it is another one of their efforts to eliminate competition, which is us and CMFA, to benefit their own issuers,” James Hamill, a program manager at the CSCDA, said Wednesday. He said they are still evaluating the bill’s potential impact.
Proposed by state Sen. Gloria Negrete McLeod, D-Chino, the legislation would force JPAs to use a competitive bidding process before selecting an operating contractor and limit contracts to three years.
“Senate Bill 1557 is a continuation of my work to make government more transparent,” McLeod said in a statement. “It’s important that all levels of government, including joint-power authorities, are held to the highest standard especially when millions or billions of public dollars are at stake.”
Additionally, the measure would prohibit the authorities from paying the contractors based on a percentage of revenues or on a contingency basis. A hearing is set for April 18 in the Senate Governance and Finance Committee.
The CMFA issued a statement Thursday saying it looks forward to working with the senator, adding that current law already provides public benefits to many that use the authority’s financing.
“Taxpayers should be concerned that this proposed legislation would limit financing options needed to jump-start local projects in these difficult times,” the statement said.
The bill is not the treasurer’s first effort try to change how the CSCDA and CMFA operate.
The new legislation is reminiscent of a battle around four years ago that ended with the Legislature passing a bill in 2009 demanding more transparency from joint-powers authority conduits. That bill ran into pushback from the conduit issuers and their partners, as McLeod’s bill likely will.
The CSCDA spent nearly $100,000 on lobbying efforts during the 2011 to 2012 legislative session, according to data from the California Secretary of State’s office. The CMFA spent none during the same session.
The new legislation also takes the stage amid a legislative probe ordered last summer.
In August, Lockyer gave unusual testimony to the Joint Legislative Audit Committee, in a favor of an audit of the CSCDA and CMFA.
The committee narrowly approved the audit request.
The two conduit authorities fought the scope of the audit during the hearing because it didn’t include other conduit issuers in the state and they denied any wrongdoing.
The report on the state auditor’s investigation into the two conduit issuers’ finances and compliance with state law is due in July.
Both conduits have boards overseeing operations and report annual financial statements. However, the management firms do not have to disclose their specifics of their finances.
The CMFA, a smaller joint-powers authority created in 2004 by municipalities and special districts, is managed by the private firm Sierra Management Group LLC.
The CSCDA, as one of the largest conduit issuers in the country, has seemed to draw the majority of Lockyer’s ire.
The agency issued $2.2 billion of conduit revenue bonds in fiscal 2011, according to its audited financial reports, making it one of top 50 issuers in the country for both years.
More than 500 cities, counties and special districts are members of the authority, which has issued more than $48 billion of debt through more than 1,300 bond transactions. The CSCDA gets approval from city councils or county supervisors governing the area where a project funded through them is located.
The CSCDA is operated by HB Capital Resources Ltd., a private firm that won the original contract to run the conduit issuer JPA in 1988 from the authority’s co-sponsors, the California State Association of Counties and the League of California Cities.
In fiscal 2011, CSAC and the League of Cities split $3.4 million from the conduit’s $16 million of revenue that came mainly from fees, according to the financial report. HB Capital and its subsidiaries made $9.4 million.
Last year, amid public pay scandals, HB Capital’s perceived high salaries came under new fire from critics. The criticism has focused on HB Capital founders Stephen Hamill and Gerald Burke.
HB Capital, based in Walnut Creek, Calif., also operates the Public Finance Authority, a conduit issuer founded last year in Wisconsin that handles nationwide bond issues.
Aside from the CSCDA, HB Capital also runs a nationwide government-purchasing cooperative, called U.S. Communities.
Some of the same staff working on the bond side also work on purchasing, according to the websites for the two entities.
