SAN FRANCISCO – California legislation to ban financial firms with potential conflicts of interest from participating in school district bond elections unanimously passed out of committee Tuesday.

The measure, Assembly Bill 621, proposed by Don Wagner, R-Irvine, would prohibit a local agency from working on any bond deal with an individual or firm that provides services to the bond election campaign. The Assembly Committee on Elections and Redistricting passed the measure 7-0.

A loophole in current law allows districts to use taxpayer dollars to fund campaigns, Wagner said during the hearing. The bill, he said, would “prohibit the end run” around conflict of interest rules.

“You are really doing us justice by trying to close this loophole,” committee Chairman Paul Fong, D-Campbell, said before the vote.

Wagner said the conflict of interest occurs most egregiously with elections that result in the issuance of capital appreciation bonds.

Lori Raineri, president of independent financial advisory firm Government Financial Strategies in Sacramento, testified that the state’s Legislative Counsel has opined twice that bundling campaign bond services with other professional services and compensating the firms with bond proceeds is illegal.

“My experience is that this bundling is unfortunately common,” Raineri said.

The California School Boards Association, the Small School Districts’ Association of California and the California Association of School Business Officials all testified against the measure.

They said bill would limit the school district’s financial flexibility, making it harder to pass school bond ballot measures in some parts of the state.

Wagner’s bill, amended last month, is similar to unsuccessful legislation proposed in 2011 by former Assembly member Chris Norby, a Fullerton Republican who lost his re-election bid in 2012.

There is more interest in the issue following a number of articles related to campaign contributions and services provided by bond firms, including stories in The Bond Buyer.

Treasurer Bill Lockyer, a Democrat, supports the legislation.

Lockyer sent letters last month to Attorney General Kamala Harris asking her to give an opinion on the roles of underwriters, financial advisers and bond counsels in school bond elections.

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