TAHOMA, Calif. — Ending years of acrimony, California Treasurer Bill Lockyer has agreed to a peace treaty with two conduit bond issuers he has long criticized.
Lockyer, the California Statewide Communities Development Authority, and the California Municipal Finance Authority announced late Monday the accords, which will result in major changes to the issuers' operations while shelving proposed legislation sponsored by the treasurer meant to reform the two joint powers authorities.
"These are major steps forward, and the leadership of the JPAs should be commended for taking them. I look forward to working with CSCDA and CMFA as partners," Lockyer said in a statement.
Lockyer, who oversees state conduit issuers that compete with CSCDA and CMFA, had been a long-time critic of the two joint-powers authorities, which are operated by private firms.
Conduit bond issuers help local governments, nonprofits or other projects with a public benefit sell and manage bonds. CSCDA ranked second by volume among all municipal bond issuers in California from 2008 through 2013, according to Thomson Reuters data. CMFA ranked 26th.
The treasurer argued the contractors for the two authorities participated in their boards' decisions about projects, and thus had a direct financial interest in the boards' approval of projects because they make money on the resulting bond sales. Both issuers had said they did not believe their services violated any conflict of interest laws.
The key changes highlighted by Lockyer are that CSCDA and CMFA will each hire an executive director who will answer directly to their governing board, who will make recommendations on approval of bond financing, have no financial stake in those decisions, and that both authorities will competitively bid contracts for the advisor services every three years.
In return, the author of the Lockyer-sponsored legislation, Assemblyman Bob Wieckowski, D-Fremont, has agreed to shelve his bill regulating the JPA conduits, Assembly Bill 1059, which would have extended 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.
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 report last year by the state auditor.
The treasurer has signed an agreement with CSCDA, a joint powers authority, and its JPA sponsors the California State Association of Counties and the League of California Cities. The CSCDA board is expected to approve the agreement soon.
A similar, tentative agreement has been reached with the CMFA representatives, which should be approved this week by its board, Lockyer's office said.
"We're pleased to enter into this agreement with Treasurer Lockyer," said CSCDA Chairman Larry Combs in the announcement provided by the treasurer's office. The CMFA made a similar comment in the statement.
The CMFA is a joint-powers authority created in 2004 by municipalities and special districts.
The CSCDA is one of the largest conduit issuers in the country. HB Capital won the original contract to run the JPA in 1988 from the authority's co-sponsors, the California State Association of Counties and the League of California Cities.
Lockyer has targeted the JPA conduits for years; the authorities, particularly CSCDA, have been doing deals that would otherwise likely been issued through authorities staffed by the state treasurer's office, such as the California Health Facilities Financing Authority.
The feud between Locker and the conduits flared up again this year over Wieckowski's proposed measure.
Lobbyists for the two JPAs sent a letter to lawmakers in January asking them to come to them first before putting forward any legislation proposed by Lockyer's office. Lockyer responded with a letter to Senate President Pro Tem Darrell Steinberg, calling their lobbyists' comments "a tired canard they have trotted out time and again to kill reasonable reforms."
Lockyer had urged lawmakers to request the state auditor's review of the two JPA conduits.
In August, state auditor Elaine Howle said in her report that 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 in February that the legislature should either enact a law that creates an exception for the two conduits or clearly prohibit or limit such a model.