SAN FRANCISCO - A dustup over who gets to issue industrial development bonds in California appears to have ended with the current base of IDB issuers heading off the entry of the state treasurer's office.
The California Industrial Development Financial Advisory Commission is one of the alphabet soup of authorities and commissions operating out of the treasurer's office.
CIDFAC developed a strategic plan to streamline the process of allocating private-activity bond volume cap to industrial development projects, with an emphasis on encouraging environmentally oriented industries.
In its draft of the strategic plan, the commission's staff raised hackles by proposing to make the agency an issuer of bonds, in addition to its current role of vetting IDB applications.
The commission's board met Wednesday and approved the new strategic plan, with one key amendment: "to remove any reference from the plan of CIDFAC's expanded authority to issue IDBs," according to treasurer's office spokesman Joe DeAnda.
"They wanted to get into the business of issuing IDBs," said Stan Hazelroth, executive director of the California Infrastructure and Economic Development Bank, a state government entity that already issues the bonds. "There was kind of a general backlash from local [IDB] issuers, in some of the letters they sent in, that another state issuer wasn't needed."
The strategic plan lays out a vision of CIDFAC pursuing "aggressive marketing" and "broad-based outreach" to encourage the use of IDBs, particularly to drive the state's "green economy" of environmentally oriented businesses. Details of the plan can be seen at http://www.treasurer.ca.gov/cidfac/staff/20080924/4d.pdf.
The most important step to bolstering CIDFAC's relevance, according to the draft plan, was to begin acting as an issuer of industrial development bonds. That would have required legislation, which would also have changed the commission's name to the California Economic Development Finance Authority.
Such a change was seen as critical by participants in the state's IDB market, according to the draft strategic plan. But none of the formal comments - submitted in response to the draft and published in the staff report for Wednesday's meeting - favored the idea.
"Giving CIDFAC the ability to issue IDBs seems unnecessary," according a comment submitted by Dan Bronfman of Growth Capital Associates Inc., a financial adviser on industrial development bond transactions. "IDB borrowers currently have access to a variety of local, JPA, and statewide issuers. I can't remember a situation where an appropriate issuer wasn't available for an IDB project."
CIDFAC does have a limited authority to serve as an issuer for pooled IDB issues, but reports never having done so.
Hazelroth's I-Bank also submitted formal comments advising against a change in the commission's status.
"I-Bank does not support CIDFAC's efforts to become an IDB issuer, and believes that there is an inherent conflict of interest between an allocation entity that also has an issuance function and does not believe that there is a need for expansion of IDB issuers at the state level," the comment said.
Hazelroth represented I-Bank's parent, the California Business, Transportation and Housing Agency, at the CIDFAC board meeting. That seat is one of three on the five-member commission board held by agencies controlled by Gov. Arnold Schwarzenegger. Hazelroth said they all voted to amend the plan to remove references to CIDFAC becoming an issuer.
Hazelroth said the I-Bank was created in the 1990s largely as a vehicle for IDBs, but does much more business today as a conduit issuer for nonprofit organizations, which don't require an allocation of private-activity bond volume cap in order to issue. The I-Bank serves as an IDB issuer where local governments don't have the resources to do so, he said.
The depth of feelings aroused by CIDFAC's desire to become an issuer was revealed in an e-mail and response included in the staff report, though it was not submitted as part of the formal comment process.
"If CIDFAC becomes an issuer and there no longer are local or statewide issuers available to do these things or don't have the local connections to make all of them happen, there just won't be very many IDB projects making it to CIDFAC and there won't be any reason for the program to continue," said the e-mail to CIDFAC staff from Keith Sutton of the Alameda County Industrial Development Authority.
Furthermore, Sutton wrote, the commissioin's proposal to add environmental criteria to the point system threatens to make an already extremely complicated application process even more difficult, thereby discourage businesses from participating.
Sutton added that a focus on "green tech" could have unintended consequences by discouraging other businesses.
"So we have the non-sexy, family-owned machine shop that is still needed to manufacture parts for the currently hot product," he wrote. "Without those businesses, these new tech businesses could not 'make' their products or would go overseas or out of state for those components."
"Mr. Sutton expresses concern with the direction CIDFAC seems to be heading," said the e-mail response from the commission's executive director, Tom Dresslar. "But California, thanks in large part to the leadership of Gov. Schwarzenegger, has adopted landmark laws and regulations to fight climate change. That endeavor will not succeed unless we make our economy greener and more sustainable. A primary objective of the strategic plan is to make sure the IDB program helps accomplish these intertwined environmental and economic objectives."
Dresslar also wrote that CIDFAC had no intent to undermine local IDB issuers.
Though the commission ultimately voted to remove all language relating to it becoming a bond issuer, it did approve the remainder of the strategic plan.
Other elements of the plan include simplifying the application process, a process that started late last year when the state's debt-limit allocation committee delegated CIDFAC the responsibility of awarding IDB cap space, allowing the commission to reduce the two-step process of obtaining volume cap allocation and getting the IDB project approved into one.
The California Debt Limit Allocation Committee voted in January to allocate $120 million of the state's bond volume cap to industrial development bonds.
Other components of the strategic plan including the aforementioned addition of environmental criteria as part of a reform of the point system, which is currently underway; increased efforts to market the program; and supporting lobbying efforts by the national Council of Development Finance Agencies to pass federal legislation extending IDB financing - currently limited to producers of tangible products- to "knowledge-based" industries.