BILL ANALYSIS Ó
AB 1222
Page 1
Date of Hearing: May 11, 2011
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Norma Torres, Chair
AB 1222 (Gatto) - As Introduced: February 18, 2011
SUBJECT : California Housing Finance Agency: executive
compensation
SUMMARY : Requires the board of directors of the California
Housing Finance Agency (CalHFA) to contract directly with an
independent outside advisor when commissioning a salary survey
for key exempt management positions at CalHFA. Specifically,
this bill :
EXISTING LAW (Health & Safety Code Section 50909):
1)Requires the board of directors of CalHFA to set the salaries
for the, executive director, chief deputy director, general
counsel, director of finance, director of homeownership
programs, director of multifamily programs, director of
insurance and financial risk management director, in the
agency's annual budget in amounts reasonably necessary, at the
discretion of the board of directors, to attract and hold a
person with superior qualifications.
2)Requires the agency, in order to determine the compensation
for the positions listed above, to contract with an
independent outside advisor to conduct a salary survey of the
following: other state and local housing finance agencies that
are most comparable to CalHFA and other related labor pools.
3)Provides the board of directors cannot set a salary for one of
the positions listed above that exceeds the highest comparable
salary for a comparable position as determined by the survey.
4)Requires the Department of Personnel Administration to review
the methodology used in the salary surveys.
FISCAL EFFECT : None.
COMMENTS :
Established in 1975, CalHFA was chartered as the state's
affordable housing bank to make below market-rate loans through
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the sale of tax-exempt bonds. CalHFA is a self-supporting entity
and its debts, including those related to the compensation and
retirement costs of its employees are separate from the State of
California. Investor capital, through the sale of bonds,
provides the agency's source of revenue; not taxpayers'
proceeds. Existing statutes and bond indentures state that the
agency's debts are not a debt or liability of the state or any
political subdivision thereof and are not backed by the faith
and credit of the State of California.
In 2006, SB 257 (Chesbro), Chapter 748, clarified the board of
director's authority to set salaries for key exempt management
positions at CalHFA. SB 257 required the board of directors of
CalHFA to set the salaries for the following positions as part
of the annual budget: executive director, chief deputy
director, general counsel, director of finance, director of
homeownership programs, director of multifamily programs, and
director of insurance and financial risk management director.
Prior to SB 257, the board was only specifically directed to set
the salary for the executive director in "an amount that was
reasonably necessary, at the discretion of the board, to attract
and hold a person of superior qualifications." The genesis for
SB 257 was a credit rating that CalHFA received from Standard &
Poors which took specific note of the Agency's difficulty in
attracting and retaining experienced management because of
non-competitive salaries. CalHFA receives an issuer credit
rating that is separate from the State of California. In
addition to other elements including asset quality, debt and
financial strength the credit rating is dependent up the
expertise of the management personnel. The following excerpt
from the report discusses the concern:
"Over the past few years, the effectiveness of management
and staff has helped steer the agency through difficult
economic times and an extremely competitive lending market
in California. As of the date of this report, the agency is
in the process of filling several key management positions
that have become vacant through retirement or departure for
the private sector. The agency recruits nationally to
locate the most highly qualified individuals to replace key
members of the top management team but faces a compensation
gap from the private sector that affects the ability of the
agency to fill positions and retain staff. An aging
workforce within the agency, particularly as it leads to
retirement of senior staff in the future, might exacerbate
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this personnel situation."
CalHFA sponsored SB 257 to address the concern by the rating
agency and to give the agency greater flexibility to set
salaries that would allow them to recruit experts in their
field. At the time, CalHFA stated the concern as follows: "the
inability to recruit and retain management personnel with
sufficient expertise could jeopardize the Agency's existing
issuer rating increasing the Agency's cost of funds, which in
turn will increase its borrowing costs for customers/borrowers
and erode its ability to offer affordable loan products. One of
the Agency's most important financial tools are the ability to
credit enhances unique products backed by the Agency's general
obligation rating. A downgrade would greatly restrict the
effectiveness of the Agency in supporting creative affordable
housing solutions."
Setting salaries: In order to set salaries for the specified
management positions, the "agency" is required to conduct a
salary survey using independent outside advisors for the
positions listed above. The salary survey must include
information regarding other state and local housing finance
agencies comparable to CalHFA and other relevant labor pools.
The salaries for these positions cannot be higher than the
highest comparable position in the salary survey.
Purpose of the bill : According to the author, "SB 257 (Chesbro)
allowed the board of directors of CalHFA to establish salaries
for specified exempt employees of the agency. In determining the
compensation, the law states that the 'agency shall cause to be
conducted through the use of independent outside advisors,
salary surveys'. The reference to the agency could be
interpreted as allowing the staff, whose salaries are the
subject of the survey, to select the survey entity. Given that
the salaries are established by the board, the requirement to
commission a salary survey also appropriately rests with the
board, as opposed to the agency. The author has no heard of any
impropriety but feels this should be clarified to avoid any
possibility for future abuse."
State Bureau Audit : In February 2011, the State Bureau Auditor
(SBA) completed a comprehensive audit of CalHFA at the request
of the Joint Legislative Audit Committee. The auditor made
several recommendations regarding CalHFA, including the
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following: "to ensure that CalHFA's business plans and
strategies are thoroughly vetted by an experienced and
knowledgeable board, the Legislature should consider amending
the statute that specifies the composition of CalHFA's board to
include appointees with knowledge of housing finance agencies,
single-family mortgage lending, bonds and related financial
instruments, interest-rate swaps, and risk management."
CalHFA does business with many different lenders through their
single-family mortgage program. The existing conflict of
interest statute prohibits CalHFA board members from having any
financial interest in any contract made by the agency. This
prohibition significantly narrows the pool of financial
institutions from which CalHFA can recruit board member, the
amendments below would allow CalHFA to have board members who
the agency does business with on their board. Existing conflict
of interest laws would still apply, including requiring board
members to recuse themselves from decisions in which their
institutions have a financial interest.
Committee amendments :
The committee may wish to consider the following amendments to
address the issue raised by the SBA:
1)Section 50904 of the Health & Safety Code is amended to read:
The representation of varied interest groups on the board
shall be deemed essential to obtain information for the
development of policy and decisions of the board. It
Notwithstanding Section 1090 of the Government Code, it shall
not be a conflict of interest for an official of any local
public entity or a resident of any affordable housing
development , or a director, officer, stockholder, or employee
of any savings and loan institution, investment banking firm,
brokerage firm, commercial bank or trust company,
architectural firm, insurance company, labor union, or any
other person, association, or corporation to serve as a member
of the board. If any board member has a financial interest in
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any matter before the board for a decision, that interest
shall be disclosed as a matter of official public record. The
board member shall not attempt to influence, participate in
deliberations concerning, or vote as to that matter.
2)Section 50905 of the Health and Safety Code is amended to
read:
(a) No officer or employee of the agency shall be employed by,
hold any paid official relation to, or have any financial
interest in, any housing sponsor or any affordable housing
development financed or assisted under this part, provided
that this prohibition shall not apply to a member of the board
of directors who is not an employee of the agency. No real
property to which a member of the board or employee of the
agency holds legal title or in which the person has any
financial interest shall be purchased by the agency or sold by
the member of the board or employee of the agency to a housing
sponsor for a affordable housing development to be financed
under this part.
Any violation of this section shall be a conflict of interest
that shall be grounds for disqualification of the member from
the board or employee of the agency from his or her employment
with the board or agency.
(b) Except as provided by subdivision (c), the following
actions shall be voidable in the discretion of the agency:
(1) Any purchase by the agency of real property in which a
member of the board or employee of the agency has legal title
or a financial interest.
(2) Any commitment by the agency to provide financial
assistance to a housing sponsor in which a member of the board
or employee of the agency is employed, holds any official
relation, or has any financial interest.
(3) Any commitment by the agency to provide financial
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assistance to a housing sponsor to which real property has
been or is transferred for a affordable housing development to
be financed under this part, if a member of the board or
employee of the agency has or has had legal title or any
financial interest in the real property.
(c) Any commitment by the agency to provide financial
assistance under the circumstances specified in paragraph (2)
or (3) of subdivision (b) shall not be voidable following
release of the funds.
(d) Notwithstanding the provisions of this section and Section
50904, any conflict of interest by a member of the board or
employee of the agency shall not affect the validity of any
bonds or insurance issued pursuant to this division.
(e) Notwithstanding the provisions of this section, an agency
employee or board member may, if not acting as an investor and
if otherwise eligible, participate in owner-occupied
single-family financing and insurance programs operated by the
agency.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
None on file.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085