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State Treasurer Bill Lockyer has asked Attorney General Kamala Harris to probe conflict of interest allegations against two bond-issuing agencies after a state audit raised concerns.

Lockyer sought the audit a year ago, suggesting the California Statewide Communities Development Authority and the California Municipal Finance Authority operate with conflicts. The joint powers authorities serve as "conduit financiers" between hundreds of local public agencies and investors and make project financing decisions based upon recommendations from the private companies that serve as their staff. Lockyer has asserted that because the companies are paid based on the tax-exempt bonds issued by the authorities, they have an inherent conflict of interest.

State Auditor Elaine Howle, in a report released Thursday, did not go that far. She said the joint powers authorities have broken no laws, but suggested their mode of operation "raises concerns" that the practice violates the state Political Reform Act.

Howle concluded that the Legislature or the Fair Political Practices Commission should clarify how the conflict law applies to such arrangements with joint powers authorities.

Despite Howle's findings, Lockyer said the problems are "sufficiently serious" to warrant an investigation from Harris. He also urged lawmakers to ban the compensation arrangements and force JPAs to bid their contracts.

The chairman of the California Statewide Communities Development Authority board, which is co-sponsored by the League of California Cities and the California State Association of Counties, issued a statement emphasizing that the audit found no conclusive evidence of wrongdoing.

"We're pleased, but not surprised that the auditor found California Communities business practices to be in full compliance with the law," said Larry Combs.



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