The Abridged version:
- Davis joined the California Public Finance Authority last week, opening the door for a $15 million dollar bond arrangement for renovation of Mutual Housing properties.
- This kind of deal is not uncommon in California, where billions of dollars in bonds are used to finance projects that benefit the public.
- Another bond financing agency with the same board members and staff as CalPFA has come under scrutiny in recent years.
After a brief hearing last week, Davis joined dozens of other cities and counties as the newest member of the California Public Finance Authority.
The move opens the door for an infusion of $15 million into three local affordable housing properties owned by Mutual Housing for renovation and repair work.
To make that happen, CalPFA, a joint powers authority established in Kings County just over a decade ago, will issue tax-exempt bonds and pass the proceeds along to Mutual Housing in the form of a loan. In return, the housing organization will pay interest on the money to bondholders and thousands of dollars in fees to the finance authority.
Officials said that no financial or operational obligation from this deal will fall to the city of Davis.
This kind of arrangement is not uncommon in California, where billions of dollars of bond financing are used to fund infrastructure projects of all kinds. Proponents say it is an accessible way for public benefit projects to access large amounts of cash.
But some deals have come under increased scrutiny, including one arranged by a separate funding authority with the same board members and staff as CalPFA.
So, how does it all work?
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Hundreds of millions in bonds
All municipalities have the power to issue bonds, which they can sell to investors as a way to raise money for projects that benefit the public. For projects spearheaded by a private company like Mutual Housing, bonds need to be borrowed through a public agency, known as a conduit.
In some places, that can be a local entity, like the Sacramento Housing and Redevelopment Agency for projects in Sacramento.
But Davis doesn’t have an equivalent agency, and it doesn’t issue these kinds of bonds on its own. That’s where an organization like CalPFA comes in.
The finance authority was established in 2015 after Kings County and the Housing Authority of Kings County entered into a joint powers agreement for the purpose of issuing bonds. Since then, dozens of other municipalities from all over the state have joined.
“Simply stated, these JPAs were formed for the purpose of promoting public benefit projects throughout California,” Matthew Boyett, spokesperson for Kings County, said in an email.
Many of those projects are worth hundreds of millions of dollars each. In September, CalPFA approved three separate deals for St. Anton Communities in Placer County that add up to $187 million and a $400 million deal for Sharp HealthCare in San Diego. In August, it approved a deal with Hard Red Energy, Inc. in Glenn County for up to $270 million.
No projects have been financed in Kings County.
“There have not been any bond deals out of Kings County yet, however, we have had some in Fresno County,” Boyett said.
Similar finance authorities
Approving these bonds for CalPFA is a five-member board, made up entirely of Kings County supervisors. They meet two or three times per month to vote on financing deals that are brought to them by a group of program administrators staffed by GPM Municipal Advisors.
When the deals go through, CalPFA collects a fee at issuance of the bonds and an annual administration fee. Each is dependent on the dollar amount of the bonds, with a higher fee being levied for larger deals.
Caitlin Lanctot, program manager for CalPFA and employee of GPM, said that her firm was brought on through a request for proposal process after CalPFA was formed.
GPM is a small, four-person company based in Walnut Creek with experience in this kind of bond financing. They staff the Wisconsin-based Public Finance Authority, which was established in 2010 and operates similarly to the CalPFA but finances projects across the country.
GPM’s advisers are also the listed staffers for the California Community Housing Agency, which is a separate joint powers authority that was established in Kings County in 2019 and has the same board members as CalPFA.
Boyett said the California Community Housing Agency, or CalCHA, was established by the county and housing authority to finance projects “that provide, preserve and support affordable local housing for low-income, moderate-income and middle-income families and individuals.”
But recently, deals facilitated by CalCHA have come under scrutiny.
A city withdraws
The Bay Area city Larkspur, which joined the CalCHA in 2019, pulled out of the joint powers authority last year. After an investigation by an ad hoc committee, its members released a scathing report.
The committee, according to the report, determined that “the CalCHA JPA structure has too many layers where fees are paid to boards and external advisers who are not fulfilling their duties. We no longer see value in our membership in CalCHA and are recommending withdrawal from the CalCHA JPA effective immediately.”
That decision was the result of a deal in which the CalCHA issued more than $226 million in bonds to a group called Catalyst Housing to convert a large market rate rental property into affordable housing.
Five years later, the property had provided “little to no benefits for income qualified tenants,” committee members said in the report, while taxpayers were providing the property a $3 million annual subsidy and CalCHA, GPM and Catalyst collected roughly $7 million in fees.
“The Kings County Board of Supervisors is the board of CalCHA, yet not a single one of the 14 properties owned by CalCHA is located in Kings County,” the officials said. “It appears that the Kings County Board of Supervisors has delegated its duties and powers to GPM Municipal Advisors.”
The report ends by tallying hundreds of thousands of dollars collected each year by Catalyst, CalCHA and GPM.
Lanctot said she could not speak to what happened in Larkspur because it was not her deal. She is one of three program administrators listed on the CalCHA website.
She also said that CalCHA is a separate entity from CalPFA, despite sharing board members and staff.
“They’re two separate entities looking at financing different projects,” she said.
The deal in Davis
The deal in Davis is not the same as the deal in Larkspur. Mutual Housing is well known in the region, with a track record of successfully operating affordable housing properties.
In California, affordable housing projects are required to be partially financed with bonds, and CalPFA is one of the options to secure that funding.
What’s more, other sources of funding need to be secured before bonds are issued.
“You cannot even apply until you have all your other money lined up,” said Parker Evans, acquisitions manager for Mutual Housing.
That makes CalPFA’s role in this project limited.
“They don’t have to do a whole lot,” Evans said. “Their role is really perfunctory.”
But fees still apply.
For a $15 million affordable housing deal, the authority and its advisers would bring in approximately $26,250 at issuance, according to CalPFA’s fee schedule. It would also take a yearly $7,500 administration fee.
