SAN FRANCISCO – A California lawmaker has introduced legislation to curb what he calls possible conflicts of interest by private contractors running conduit issuers in the state.
Assembly Bill 1069, authored by Bob Wiekowski, D-Fremont, would extend current law that bans government employers or politicians from having a financial interest in any contract they make in their official capacity to independent contractors.
The bill, sponsored by California Treasurer Bill Lockyer, targets conduit issuers California Statewide Communities Development Authority and California Municipal Finance Authority, which have contracted out their operations to private firms.
Lockyer, a long-time critic of the two joint-powers agencies, oversees state issuers that compete with CSCDA and CMFA.
Lobbyists for the firms sent a letter to lawmakers in January asking them to come to them first before putting forward any legislation proposed by Lockyer’s office.
“In recent years, the State Treasurer’s Office has pursed efforts, including legislation, to disrupt the marketplace by seeking unfair competitive advantage over its competitors, including CMFA and California Communities,” the letter said.
Lockyer responded with a letter to Senate President Pro Tem Darrell Steinberg on Tuesday, calling the lobbyists’ comments “a tired canard they have trotted out time and again to kill reasonable reforms.”
In August, state auditor Elaine Howle said in a report it was unclear whether the two JPAs, staffed by employees of private consulting firms, have violated conflict of interest laws by paying fees to the firms based on how many bonds they sell.
Howle said in an update to its report released this month that the legislature should either enact a law that creates an exception for the two conduits or clearly prohibits or limits such a model.
The treasurer contends both contractors participate in their boards’ decisions about projects, and thus have a direct financial interest in the boards’ approval of projects because they make money on the resulting bond sales.
CSCDA, known as California Communities, paid the consulting firm HB Capital Resources Ltd. $50 million, or 59% of revenues, from July 2006 through June 2011, and the CMFA paid its consultant Sierra Management Group LLC $4.6 million, or 49% of revenues, over the same period, according to the auditor.
Both firms have said they do not believe their service violates any conflict of interest laws.
The auditor said CSCDA changed it contract with HB Capital in October, eliminating payment to employees based on dollar amount of volume of bonds issued by the JPA.
CFMA’s board, according to the report, is reviewing contract language that would prohibit the consultants from being paid on a commission basis or on volume of bond sales.