Legislator May Aid Rescue of American S&L; : Garamendi Wants to Keep Operations in State
An influential state senator said Tuesday that he will support a bill designed to help private investors--led by Texas billionaire Robert M. Bass--buy ailing American Savings & Loan only if the investors guarantee to keep the financial institution’s base of operations in Stockton.
In an interview, Sen. John Garamendi also said the bill won’t pass until the end of next month “assuming there are no problems.” Garamendi is a Democrat from Walnut Grove, south of Sacramento, whose legislative district includes Stockton.
Submitted by Garamendi in May, the bill seeks to ensure that federal government assistance for buyers of failing savings and loans is not subject to California state tax. A hearing on the bill is scheduled for early August.
“The Bass people tell me this is crucial to them and their acquisition of American Savings,” Garamendi said.
The necessity of such a bill raises doubts about whether the Federal Home Loan Bank Board will be able to complete the sale of American Savings by Aug. 1, a deadline that regulators themselves had set.
The bank board had initially given Bass and his investors a 75-day period during which they had the exclusive right to negotiate the purchase of the insolvent financial institution. That 75-day period was later extended another 3 1/2 weeks to Aug. 1.
A spokesman for the bank board said “there’s nothing sacred” about the Aug. 1 deadline, saying it could easily be pushed back. He added that the bank board will have an announcement about the Bass talks this week, possibly as early as today.
Wants Assurances
Though Garamendi is sponsoring the tax-clarification bill, he wants clear-cut pledges from Bass that the Texan won’t dismember the Stockton operations. Garamendi is chairman of the Senate Revenue and Taxation Committee.
“If we are going to provide a clarification and a tax break, then I want assurances this company will remain in California,” the senator said. He also said that Bass’ lawyers are “working on that,” adding “we want more than just a letter from Mr. Bass.” He declined to be more specific, and a spokesman for Bass declined comment.
Crippled by poor-quality real estate loans, American Savings is being run as a virtual ward of the Federal Home Loan Bank Board. The financial institution has about $30 billion in assets and 185 retail branch offices in California.
Though 40-year-old Robert Bass runs his financial investments from Ft. Worth, his representatives have sought to assure local politicians and business leaders in California that American Savings will stay where it is.
American Savings is the operating arm of Irvine-based Financial Corp. of America, which employs nearly 6,000 people at locations throughout the state. It’s also building a new headquarters in Stockton and is the city’s second-largest non-manufacturing employer.
“It means about 1,800 jobs to us and that’s about as bottom line as you can get,” said D. David Smith, executive vice president of the Stockton Chamber of Commerce.
Has the Authority
The tax issue centers around whether the state of California has the authority to tax the financial assistance that the U.S. government, through the Federal Savings & Loan Insurance Corp., provides to buyers of bankrupt thrifts. Such assistance sometimes totals hundreds of millions of dollars and could run into the billions of dollars in the case of American Savings.
Though the California Franchise Tax Board apparently has not taxed this kind assistance in past rescue operations, a close reading of the tax code indicates the state tax agency does have that authority, Garamendi said.
Thus, what Bass wants is a law that codifies the past state tax practices. “In my view, they’re being prudent,” Garamendi said.
But the issue is a touchy one because several California savings and loans have bought sick thrifts with the assistance of FSLIC. There is a fear that the Franchise Tax Board might change its past tax policies if the Garamendi bill does not pass.
But after some initial alarm, the state’s savings and loan industry is now “generally supportive” of the bill, according to Kirk Hallahan, a spokesman for the California League of Savings Institutions, a trade group. Added Garamendi: “They came around to the view that sleeping dogs are not dead dogs.”
A Franchise Tax Board spokeswoman said the agency became aware of the issue just recently. “We’re looking into it right now,” she said.
