SACRAMENTO — One of California’s largest conduit bond issuers had a turn under the microscope during a state Senate hearing here yesterday.
Senate Local Government Committee chairwoman Gloria Negrete McLeod, D-Chino, made it clear that the inspiration for the informational hearing on conduit bond issuance practices came from the California Statewide Communities Development Authority, which issued more than $4 billion last year.
McLeod sponsored an ultimately unsuccessful bill last year that would have allowed the CSCDA to finance out-of-state projects.
“Today’s hearing came about because of questions and concerns that came to my attention as the author of that legislation,” she said.
According to a Senate Office of Research report prepared for the hearing, a growing share of conduit bond financings for nongovernment entities have come to be issued through joint-powers authorities such as the CSCDA, rather than through the older bond authorities run through the state treasurer’s office.
State law permits any two or more government agencies to join forces to form a JPA.
Deputy treasurer Tricia Wynne told committee members that while the agencies in the treasurer’s office must follow rules laid down in state law, joint-powers authorities have less oversight.
State agencies like the treasurer’s office must provide 10 days’ notice of meetings, Wynne said. JPAs, on the other hand, operate under rules that allow them to meet with as little as 24 hours notice of a meeting.
“Maybe borrowers know, if they can go to the CSCDA, they can obtain tax-exempt financing without public scrutiny,” she said.
Wynne also criticized the lack of public financial information released by many JPA bond issuers. “Who exactly is receiving the public benefit from the torrent of money flowing through these entities?” she said.
Wynne raised questions about the operation of the CSCDA and the California Municipal Finance Authority, which are administered through private contractors.
JPAs, like other local governments, are required to report financial information to the state controller’s office. The CSCDA, for its part, has said that it doesn’t have any financial reports to file.
“CSCDA continues to maintain that, even though more than $4 billion in bonds were issued in the name of CSCDA during 2007, with associated fees being charged, the district continues to contend that CSCDA has no assets, liabilities, revenues, or expenditures,” said a controller’s office paper prepared for the hearing.
Nancy Valle of the controller’s office told lawmakers that Controller John Chiang plans to implement stronger reporting requirements for conduit-bond JPAs.
The CSCDA was represented at the hearing by Dwight Stenbakken, deputy director of the League of California Cities, which co-sponsors the CSCDA along with the California State Association of Counties.
Stenbakken defended the authority’s public meeting practices, saying that unlike the state treasurer’s conduit issuers, all issues by the CSCDA must be also be approved after a public hearing by an affected local government.
Committee member Michael Machado, D-Linden, questioned the authority’s financial reporting practices and the way it distributes its fees.
Stenbakken told Machado that the CSCDA collected about $2 million in fees in 2007, of which about 40% went to its sponsors, the League of California Cities and California State Association of Counties.
“Why should you extract more than you need for your operations?” Machado said.
Stenbakken said that the money flowing to the city and county organizations is a public benefit.
He also said the authority plans to release an audited financial report soon — its first ever.