BILL ANALYSIS Ó AB 984 Page 1 Date of Hearing: April 17, 2013 ASSEMBLY COMMITTEE ON APPROPRIATIONS Mike Gatto, Chair AB 984 (Chau) - As Amended: April 9, 2013 Policy Committee: Housing and Community Development Vote: 7-0 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill adds two additional members to the board of directors of the California Housing Finance Agency (CalHFA). The members are the Secretary of Veterans Affairs and a person appointed by the Governor who has specific knowledge of finance issues. FISCAL EFFECT Minor and absorbable. COMMENTS 1)Purpose. The author argues AB 984 adds financial expertise to the CalHFA board to assist the board in its mission of making housing more affordable to Californians. The author notes the Bureau of State Audits released a report in 2011 which found that while state law requires the governor's appointees to the CalHFA board to include members with certain types of experience, existing law does not appear to call for the kind of sophisticated financial expertise that would have been valuable in determining whether CalHFA should launch into variable-rate bond debt and interest-rate swaps to the degree that it did. The author states that although profitable for many years, CalHFA suffered significant losses in fiscal years 2008-09 and 2009-10, as a result of these actions. 2)Background . Established in 1975, CalHFA was chartered as the state's affordable housing bank to make below market-rate loans for single-family and multi-family housing through the sale of tax-exempt bonds. CalHFA is a self-supporting entity and its costs and debts, including those related to the AB 984 Page 2 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. According to the State Auditor, CalHFA experienced losses on its single-family portfolio of $146 million and $189 million in fiscal years 2008-09 and 2009-10, respectively. These losses were a result of the high delinquency rates on its single-family loans and the risk the agency was exposed to because it had issued so much variable-rate debt. These factors led to a downgrade in the credit rating. The Bureau of State Audits identified several actions that CalHFA's board could take to shore up the financial viability of the agency. The auditor recommended the Legislature amend CalHFA's statute to require that the board include appointees with knowledge of housing finance agencies, single-family mortgage lending, bonds and related financial instruments, interest-rate swaps and risk management. 3)CalHFA Board . The board of directors of CalHFA is composed of 11 voting members, including the Treasurer, the Secretary of Business, Transportation and Housing and the Director of Housing and Community Development, or their designees, one member appointed by the Speaker of the Assembly, one member appointed by the Senate Committee on Rule, and six members appointed by the Governor, of which two must be residents of rental or cooperate housing financed by the Agency or have experience in counseling, assisting or representing tenants. The Director of Planning and Research, the Director of Finance and the Executive Director of CalHFA are non-voting members. 4)Previous legislation. AB 1222 (Gatto) Chapter 408, Statutes of 2011, responded to the Bureau of State Audits audit by amending CalHFA's conflict of interest statutes to give the agency more flexibility to include board members who are single-family lenders. 5)There is no registered opposition to this bill. AB 984 Page 3 Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081