California legislators voted to open an official inquiry into two state agencies that channel money earned from issuing municipal bonds to private companies.
Assemblyman Mike Feuer (D-Los Angeles) in May requested the audit of the California Statewide Communities Development Authority (CSCDA) and the California Municipal Financial Authority (CMFA).
The Joint Legislative Audit Committee approved the request on an 8-3 vote Wednesday and will now conduct a full review of both agencies.
The CSCDA has grown over the last two decades into one of the largest issuers of municipal bonds in the country. It specializes in so-called conduit bonds, which allow public agencies to raise money through tax-free bonds and then channel that money to private businesses and nonprofit organizations.
At most public agencies the fees collected for issuing such bonds are used to fund other public projects and programs. The CSCDA is a public agency but passes along most of the fees it collects — $32 million in the last two years — to HB Capital Resources, a private company in Walnut Creek, Calif.
A Los Angeles County staff report concluded in 2008 that the CSCDA was a “shell entity operated solely by a private contractor.”
CSCDA has disputed that characterization and said it is run by a board of public officials.
The CMFA was created more recently on a similar business model with guidance from former HB Capital employees.
The business model has come under scrutiny from more traditional municipal bond issuers, The Times reported in May at the same time that Feuer issued his call for an audit.
“There are many unanswered questions about how these two joint-powers authorities operate and whether they adequately protect the public’s investment of scarce tax dollars,” Feuer said Wednesday after the vote. “I am pleased that we are moving forward with a more extensive review today.”
Neither agency responded to a request for comment.
The audit is expected to take several months.