BILL ANALYSIS Ó
AB 1222
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ASSEMBLY THIRD READING
AB 1222 (Gatto)
As Amended May 12, 2011
Majority vote
HOUSING 5-0
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|Ayes:|Atkins, Buchanan, | | |
| |Bradford, Hueso, Jeffries | | |
| | | | |
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SUMMARY : Makes changes to the statute governing the California
Housing Finance Agency (CalHFA). Specifically, this bill :
1)Requires the board of directors of the CalHFA to contract
directly with an independent outside advisor when
commissioning a salary survey for key exempt management
positions at CalHFA.
2)Allows a board member of CalHFA to be employed by or have a
financial interest in a housing sponsor or affordable housing
project financed by CalHFA.
FISCAL EFFECT : None
COMMENTS : Established in 1975, CalHFA was chartered as the
state's affordable housing bank to make below market-rate loans
through 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.
SB 257 (Chesbro), Chapter 748, Statutes of 2006, clarifies the
board of director's authority to set salaries for key exempt
management positions at CalHFA. SB 257 (Chesbro) requires the
board of directors of CalHFA to set the salaries for the
following positions as part of the annual budget: executive
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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 (Chesbro), 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 (Chesbro) was a
credit rating that CalHFA received from the rating agency,
Standard & Poors, which took specific note of CalHFA'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 this
personnel situation.
CalHFA sponsored SB 257 (Chesbro) 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
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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" (CalHFA) 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. This bill
would require the board of directors of CalHFA to work directly
with the outside advisor to complete the salary survey rather
than delegating that activity to CalHFA staff. The author has
not identified any impropriety under the current practice but
feels to insure any potential abuse in the future this change is
needed.
Bureau of State Audits (BSA): In February 2011, BSA completed a
comprehensive audit of CalHFA at the request of the Joint
Legislative Audit Committee. The Auditor made several
recommendations regarding CalHFA, including the 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 CalHFA. This
prohibition significantly narrows the pool of financial
institutions from which CalHFA can recruit board members, this
bill would allow CalHFA to have board members who the agency
does business with on their board.
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Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085
FN: 0000660