WASHINGTON - Los Angeles County, provoked after some recent bad brushes with unauthorized vendor lease sales, plans to push a bill in the California Legislature next year that would outlaw such deals within the state and impose criminal penalties on the violators, county officials said.
With about $2 billion of public lease offerings on the drawing board, it is critical that the county control what is said about us in the marketplace," said Sharon Yonashiro, the county's director of public finance, before the fall meeting of the Association for Governmental Leasing and Finance in Tucson earlier this month.
Her comments came as she described two encounters the county has had with lease deals being offered to the public in the county's name but without its involvement or consent.
"We feel so strongly about this that we are sponsoring state legislation which would require approval" by California municipal governments of any such sales of their leases, she said. "We want to get somebody's attention."
County attorney Mark Saladino said yesterday the legislation would make the sale of any fractionalized interest in a California municipal obligation, without the consent of the government, a state securities law violation that would carry both civil and criminal penalties.
"We would add this as one more item to the laundry list of things you can't do in California," making unauthorized lease sales comparable to other kinds of securities fraud, he said.
The county maintains a lobbying office in Sacramento and is looking for a sponsor for the bill from among the county's delegation in the state Legislature, he said, adding that he expects the bill to be introduced when the Legislature reconvenes in January.
Steve Juarez, executive director of the California Debt Advisory Commission, which oversees local debt practices within the state, offered some support for the proposal and said the commission most likely will hold hearings on it next year.
"Without endorsing the proposal, it does seem that it gets at a big part of the problem" that the commission has found with a growing number of unauthorized vendor deals around the state, he said.
While the bill prescribes some strong medicine for errant vendor dealers, it would not appear to prevent authorized and desirable vendor activities, he said, emphasizing that he has not yet had a chance to fully review the proposal. "The outcome may be simply to require the issuing agency to be an active participant he secondary sale of the leases," he said.
Juarez predicted that the bill would get a sympathetic response from issuers in California who have had problems like Los Angeles County, but he said it might upset the state's powerful vendor leasing industry.
Los Angeles County's resolve to do something about unauthorized vendor deals began in January 1991, when it unexpectedly ran into a vendor lease offering while it was trying to market its own equipment lease securities. The $1.7 million vendor deal, derived from a county lease, was being sold by Chicago Corp., which used offering documents that looked much like the county's own.
"You can imagine our chagrin at competing with our own name in the market." Yonashiro said.
Saladino said the vendor deal cost the county close to $200,000 in higher interest because it had to delay the sale of its own $28 million offering while it investigated the vendor deal. During the delay, market rates surged in reaction to developments in the Persian Gulf War.
The county and Chicago Corp. have been discussing a possible settlement involving the costs incurred by the county, county officials said. Neil Hertenstein, the Chicago Corp. vice president who handled the vendor deal, said he was not free to discuss the negotiations.
Meanwhile, the county uncovered a second allegedly unauthorized deal, again sponsored by Chicago Corp., this time being advertised in the name of an entity related to the county, the Foothill Transit Zone, Saladino said.
The dealer and bond counsel on the deal, Carlson & Hug of Chicago, were determined to go ahead with their proposed $3.35 million certificates of participation deal based on a Foothill lease for 15 new buses, even though county officials objected and said they wanted to reserve the right to "opt out" of the lease, Saladino and Yonashiro said.
Only after two years of arguing did the deal's sponsors agree to back off, Yonashiro said. "We urge all issuers and governmental entities to be aware of what they're doing." said.
Hertenstein said the problems with the lease deals stemmed primarily from "misunderstandings" between the county and Chicago Corp.