California's Stradling marks four decades of public finance law
LOS ANGELES — Stradling Yocca Carlson & Rauth's four-decade-old public finance practice has grown and evolved along with Southern California, the place where it started.
Public finance attorneys at the Orange County-based firm shared tales of their years in the muni industry as the firm celebrated the practice's 40th anniversary.
Those years have brought the Orange County and San Bernardino bankruptcies, the elimination of redevelopment agencies, changes in California's tax laws and more onerous federal regulations for the municipal bond market.
In January 1978, bond lawyers Fritz Stradling, John Murphy and Tom Clark joined the firm, which had been founded three years earlier.
The trio had established bond marketplace acceptance at their old firm, Rattan & Tucker, and were taking a chance that their reputation would carry over, said Murphy, who remains of counsel with Stradling. Fritz Stradling has retired, and Clark remains a shareholder.
At the time, Orrick, Herrington & Sutcliffe and O’Melveny & Myers were the big firms whose opinions were accepted by the California municipal bond market, Murphy said. The trio had worked hard at Rattan to become the third firm that government issuers looked to for bond counsel.
After Nick Yocca, Craig Carlson and Bill Rauth left to start their own firm, Murphy said he and his colleagues began to question whether Rattan was still the best platform for a public finance practice.
Yocca, Carlson and Rauth were Rattan’s experts on federal regulatory matters and the public finance trio had counted on them for advice in writing bond counsel opinions, Murphy said.
The public finance practice’s first deal at its new firm was as sole bond counsel on a transaction for a local water district.
Today, the full-service law firm with 121 attorneys in nine offices has risen to consistently rank in the top 10 nationally as bond counsel, disclosure counsel, and underwriter’s counsel. During the last four years, the firm has closed more public finance transactions than any other firm in California, said Carol Lew, a shareholder in the firm's tax and public finance practices.
“I think we were fortunate to be in the right place at the right time — and to add the right people,” Murphy said.
The Newport Beach-headquartered firm’s public finance practice grew along with the Southern California region.
The combined population of the three counties originally served by Stradling — Los Angeles, Orange and San Bernardino — grew from 10.3 million to more than 15 million between 1980 and 2010.
“We were at ground zero during this extraordinary growth,” Murphy said. “We now have substantially more offices than we had lawyers at the beginning."
The practice was challenged right away by the 1978 passage of property tax-limiting Proposition 13, leaving local governments struggling for funding to pay for infrastructure.
Among the tools that bond lawyers applied was a new one: 1982's Community Facilities Act, commonly known as Mello-Roos after co-authors Sen. Henry Mello and Assemblyman Mike Roos.
It allows property owners to levy a special tax to back bonds that pay for infrastructure improvements and was commonly used to fund new development.
The post-Proposition 13 environment also spurred the increased use of redevelopment agencies, which the state authorized in 1945 to encourage economic growth in blighted areas.
As more property tax revenue was diverted to redevelopment tax increment, the state struck back and abolished RDAs, effective in 2012.
“Under Tom Clark’s direction, early on the firm also became a leader in redevelopment transactions in California, doing work for Anaheim, Los Angeles, San Diego, San Francisco, Sacramento, Chula Vista and many others,” Lew said. “This expertise has allowed the firm to continue to assist cities in economic development and affordable housing programs even after the dissolution of redevelopment agencies with Celeste Brady and now Vanessa Legbandt leading that practice area.”
While the firm’s initial clients “were predominantly in Southern California, the firm’s expertise in housing, land secured, redevelopment, and water transactions, fueled by the growth in California and the need for affordable housing and infrastructure, enabled the firm to expand its client base to the rest of the state,” Lew said.
Lew said the attorneys expect the firm’s affordable housing practice to expand significantly as California grapples with a housing shortage. One of the firm's first growth trends was in mortgage housing bonds.
Stradling was also at ground zero when the 1994 Orange County bankruptcy rocked the industry after the county treasurer's questionable investments in variable rate debt went awry.
Murphy said that period was the practice's most challenging, because the bankruptcy affected local governments and special districts.
“The bankruptcy froze out of the market all of the Orange County-based issuers and the issuers who had invested in the Orange County investment pool,” Murphy said. “It was several months before people started to say we think we can accommodate an Orange County-based bond issue.”
The firm struggled through the drought of financial issuers in its core area, Murphy said.
In 1995 the firm decided to diversify both into different practice areas and different regions, Lew said.
In 1996, a San Francisco office was added, headed by David Casnocha, expanding the firm’s education practice into the largest in California, Lew said. It also added Kevin Civale and Doug Brown to bolster its bond counsel, underwriter’s counsel and disclosure practice, she said.
In the recent San Bernardino bankruptcy, Stradling attorney Paul Glassman was the city's outside counsel.
The firm has expanded to offices in Nevada and the Pacific Northwest.
It also has maintained its original expertise in federal regulatory matters. As regulations have become more complex, it has added to its bench. Those additions in recent years include two full-time public finance tax attorneys and a former SEC enforcement officer, Kathleen Marcus.
Lew is among the lawyers who have helped build the firm’s deep bench of expertise through the years.
Lew, who joined in 1991, has chaired the firm’s public finance tax practice and has served as president of the National Association of Bond Lawyers.
Lew has worked with the Transportation Corridor Agencies as the dual agencies in charge of two separate Orange County toll roads worked through some tough times when anticipated toll revenues failed to materialize when the country entered a recession in 2008. The tollways have since been able to successfully refinance billions in debt.
Stradling's public finance team, led by Murphy, represented the toll road agency as bond counsel on the transaction.
They say timing is everything, and Lew said the firm has been fortunate to have been founded at the right time to be able to grow along with California.