BILL ANALYSIS �
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: AB 1222
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: gatto
VERSION: 5/12/11
Analysis by: Mark Stivers FISCAL: no
Hearing date: June 14, 2011
SUBJECT:
California Housing Finance Agency (CalHFA)
DESCRIPTION:
This bill requires the CalHFA board, as opposed to agency staff,
to contract for any salary survey related to executive
management compensation and makes a number of changes to
CalHFA's conflict of interest statutes.
ANALYSIS:
Established in 1975, CalHFA is the state's affordable housing
bank. CalHFA issues tax-exempt bonds and uses the proceeds to
make below market-rate loans to income-eligible first-time
homebuyers and the developers of affordable rental housing.
CalHFA is a self-supporting entity. It does receive money from
the state's general fund, and its debts obligate only CalHFA
itself, not the State of California.
Salary surveys
SB 257 (Chesbro), Chapter 748, Statutes of 2006, allowed the
CalHFA board of directors to establish the compensation for
seven top CalHFA managers (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 addition
to the executive director whose compensation the board already
set. Moreover, SB 257 exempted the compensation packages of all
eight individuals from review by the Department of Personnel
Administration and deleted the prohibition on the executive
director's salary exceeding the salary of the Secretary of the
Business, Transportation and Housing Agency.
In determining the compensation for these positions, current law
requires the "agency" to contract with an independent outside
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advisor to conduct a salary survey of other state and local
housing finance agencies that are most comparable to CalHFA and
of other related labor pools. The Department of Personnel
Administration must review the methodology used in the salary
surveys, and the CalHFA board is prohibited from setting a
salary for one of these positions that exceeds the highest
comparable salary for a comparable position as determined by the
survey.
Conflicts of interest
Current law generally prohibits any state officer or employee
from being financially interested in any contract that that
person makes in his or her official capacity or that any body or
board of which that person is a member makes. As applied to
CalHFA, this general statute precludes the CalHFA board from
contracting with any entity with which a board member has a
financial interest even when that board member does not
participate in the decision.
CalHFA's specific statute provides that it shall not be a
conflict of interest for an official of any local public entity,
a resident of any housing development, or an officer,
stockholder, or employee of any association or corporation to
serve as a member of the CalHFA board, provided that if any
board member has a financial interest in any matter before the
board, the board member must disclose that interest as a matter
of official public record and must not attempt to influence,
participate in deliberations concerning, or vote on that matter.
The statute also provides that no CalHFA officer or employee
shall be employed by, hold any paid official relation to, or
have any financial interest in, any housing development financed
or assisted by CalHFA.
This bill :
Requires the CalHFA board, as opposed to agency staff, to
contract for the salary survey.
Provides that the general law provision prohibiting a board as
a whole from entering into a contract with an entity with
which one board member has a financial interest does not apply
to CalHFA, but maintains the CalHFA-specific statute allowing
local officials, affordable housing residents, and persons
affiliated with corporations or other associations to serve on
the CalHFA board generally, provided that when a conflict of
interest arises, the conflicted board members discloses the
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conflict and recuses himself or herself from the matter.
Allows a CalHFA board member who is not an employee of the
agency to be employed by, hold a paid official relation to, or
have a financial interest in a housing development financed or
assisted by CalHFA.
COMMENTS:
1.Purpose of the bill . According to the author, current law's
reference to the "agency" when requiring an outside salary
survey 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 to be established by the
board, the requirement to commission a salary survey also
appropriately rests with the board, as opposed to the agency.
The author is not aware of any impropriety relating to the
last salary survey but believes this should be clarified to
avoid any possibility for future abuse.
The Assembly Housing and Community Development Committee
recommended the addition of the bill's conflict of interest
provisions. The committee analysis argues that 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 a
financial interest in any entity with whom CalHFA contracts,
even if that board member does not participate personally in
the awarding of the contract. This prohibition significantly
narrows the pool of financial institutions from which the
governor can appoint board members, potentially depriving the
CalHFA board of knowledge and experience that would be
valuable in governing the agency. The bill allows CalHFA to
have board members from entities with whom the agency does
business on its board provided that the board member discloses
and recuses himself or herself from any matter in which his or
her institution has a financial interest.
2.Balancing goals . In allowing a person to sit on the CalHFA
board when an entity he or she is affiliated with contracts
with CalHFA, this bill seeks to realize the language in the
current CalHFA statute that states, "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." These provisions are also intended
to respond to the recommendation in the February 2011 Bureau
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of State Audits report that states, "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."
While the bill clearly prevents a board member affiliated with
a CalHFA contractor from participating in matters related to
that entity's contract, the general law prohibition on such
relationships to which this bill creates an exemption is
presumably intended to prevent more subtle types of influence,
whereby board members without an interest in a particular
contract support the contract in the hope that the interested
board member will return the favor later. The committee may
wish to consider whether allowing for greater CalHFA
business-related experience on the CalHFA board is worth
opening the door to subtle types of influence.
Assembly Votes:
Floor: 78-0
HCD: 5-0
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
June 8, 2011)
SUPPORT: None received.
OPPOSED: None received.