Treasurer

Reporting from Sacramento — The job of state treasurer today involves managing billions of dollars, overseeing complex borrowing and investment decisions and working to restore California’s reputation on Wall Street.

It follows that candidates face particular scrutiny over their own finances, and the two leading candidates have each provided plenty of fodder for the opposition.

Incumbent Treasurer Bill Lockyer, a Democrat, has spent campaign funds on a variety of items related loosely if at all to his reelection bid. His expenditures include $1.2 million to help his wife win election as a county supervisor in the Bay Area, $16,000 in babysitting bills and a weekend trip with his family to the resort at Disneyland.

His GOP challenger, state Sen. Mimi Walters of Laguna Niguel, has voted on numerous bills that could affect her husband’s business interests. David Walters is the president and largest shareholder of a medical services firm whose subsidiary was paid more than $34 million in the last four fiscal years by the state’s prison system.

The subsidiary, Drug Consultants Inc., provides nurses, pharmacists and other healthcare workers for California’s overcrowded prisons. Federal courts seized control of prison healthcare several years ago because judges said unwarranted inmate deaths were civil rights violations. Outside firms such as Walters’ have been hired to provide medical staff until the corrections department can ramp up its own operations.

Mimi Walters declined to speak with The Times but said in a radio appearance this month that “whenever there has been any sort of slightest conflict, I’ve always recused myself.” Her campaign strategist, Dave Gilliard, said Walters has consulted with legislative lawyers about what bills she should abstain from voting on and has followed their advice.

Gilliard could not identify any bills on which Walters abstained because of a conflict.

This year, she voted against an $811-million cut in the prison healthcare budget, the largest cutback in a package of spending reductions that lawmakers approved through AB2 x8. Gilliard said Walters’ vote reflected her concern that reducing prison spending would result in a court-ordered early release of criminals.

As an assemblywoman and then as a state senator, Walters has also voted against legislation requiring more disclosure of state contracts (AB 2603 in 2008 and AB 983 in 2007) and against giving contract bid preferences to small businesses and those that hire California workers (SB 1108 and SB 967 in 2010). None of the bills became law.

“She’s a pro-business, conservative Republican,” Gilliard said, adding that the legislation would have imposed more costly regulations on state businesses. “You’re going to see very consistently: Anything that increases the cost of doing business in the state, she votes against.”

The chairman of the Senate Public Safety Committee, Democrat Mark Leno of San Francisco, said that even if legislative attorneys said Walters did not violate state ethics laws, “it’s just hypocritical for someone who is so outspokenly opposed to government to have her family at the public trough.”

Her tough-on-crime stances, he said, “would only benefit her husband’s business: more prisoners, more potential contracts.”

If elected treasurer, Walters, who chairs the Senate Ethics Committee, would face other financial entanglements. Her husband also owns a boutique investment bank, Monarch Bay Associates, and financial disclosure forms show that her holdings include between $100,000 and $1 million in Goldman Sachs, the powerful and controversial Wall Street firm that has business with the state treasurer’s office.

Gilliard said Walters would consult with attorneys in the treasurer’s office to avoid conflicts.

The treasurer is California’s chief banker, serving on the board of the state’s two giant pension funds and managing billions in taxpayer assets. The treasurer also oversees the state’s debt and finances public works projects.

Lockyer cites among his accomplishments a campaign to get Wall Street rating agencies to abandon practices that cost state taxpayers millions in extra interest payments, opening California’s bond market to small investors and maximizing public works spending to create jobs.

He has shown little fear that Walters or any other candidate will muster enough support to overcome Democrats’ double-digit voter registration advantage in California. As of mid-October, Walters’ campaign treasury was more than $14,000 in debt; Lockyer was sitting atop nearly $5 million.

That cushion has allowed him to spend on other things, such as the effort to elect his wife, Nadia Lockyer, to the Alameda County Board of Supervisors. “I think Nadia Lockyer is particularly qualified to be a county supervisor and will do an excellent job,” he said.

With both parents on the campaign trail, Lockyer has also used his campaign funds to pay for at least $16,000 in babysitting services, according to the campaign’s filings with the state. Although campaign funds can be used only for governmental or political purposes, the state’s ethics watchdog agency has advised candidates in the past that babysitting can qualify under limited circumstances.

In 2009, Lockyer spent the weekend after Thanksgiving at the Disneyland Resort in Anaheim with his wife and son. He billed the campaign $884.28, citing a meeting with Frank Barbaro, the chairman of the Orange County Democratic Party.

Lockyer said he wanted to stay in a hotel “in the heart of Orange County” and did not recall if he and his family went to Disneyland that weekend. The campaign was billed only for the hotel stay, he said. The following winter, Lockyer used campaign money to buy wedding and holiday gifts for his staff and spent more than $17,000 on two holiday parties.

Lockyer defended the spending: “I am not personally benefiting from my campaign expenditures.”

Gillard, the Walters strategist, said such spending “shows an attitude of entitlement” common among veteran politicians. “It only gets worse the longer they are there,” he said.

Walters has vowed to bring a limited-government approach to the job if elected: pulling back on borrowing she says the state cannot afford, curbing government spending and using the position to argue for lower taxes.

Walters’ lone TV ad pillories Lockyer’s decades-long tenure in office; he is a former state attorney general, assemblyman and leader of the state Senate. “After 37 years in Sacramento … Bill Lockyer is the problem,” the ad says.

Lockyer accused Walters of masking her own role as a legislator in the state’s recent fiscal meltdown. On the June primary ballot, she identified herself as a “businesswoman/senator.” This fall, she has dropped “senator” from her ballot designation.

Lockyer called it “hypocrisy” that she “hides that she’s an elected official.”

Also running for the post are Charles Crittenden of the Green Party, Robert Lauten of the American Independent Party, Debra Reiger of the Peace and Freedom Party and Edward Teyssier of the Libertarian Party.

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The field of candidates for California governor expanded rapidly this year as a growing number of politicians entered the race to replace Gov. Gavin Newsom, but now it’s starting to shrink.

Lt. Gov. Eleni Kounalakis, a major Democratic donor and the first well-known candidate to formally launch a campaign for governor in April 2023, said Friday morning that she is dropping out of the governor’s race and will instead run for state treasurer.

Her announcement is the second big development in the governor’s race in the last two weeks. Last Wednesday, former Vice President Kamala Harris said she would not run, creating a vacuum other Democrats in the race are rushing to fill.

Kounalakis said in a statement that as treasurer, she can “make the greatest impact by focusing on California’s financial future.”

The state treasurer manages California’s assets and serves on powerful boards that oversee the state employee pension systems and award financing for affordable housing and infrastructure projects. That role, Kounalakis said, would allow her to focus on “fiscal responsibility, economic opportunity and strategic investment in our state’s priorities — from affordable housing and clean energy to infrastructure and education.”

“This work is critical and I am prepared for the challenge,” Kounalakis said.

Kounalakis is the former U.S. Ambassador to Hungary and the daughter of a wealthy real estate developer from Sacramento. In 2016, Kounalakis was a California co-chair of Hillary Clinton’s presidential campaign, helping raise money and advising on foreign policy.

Her family has deep ties to the well-heeled world of Bay Area political donors and power brokers, including U.S. Rep. Nancy Pelosi (D-San Francisco) who gave Kounalakis a nod on TV last week after Harris decided not to run for governor.

Her exit from the governor’s race creates an opening for other candidates to build relationships and secure contributions from those donors, some of whom were waiting to give until Harris made a decision.

The other Democrats in the race include Toni Atkins, a former Assembly speaker and Senate president pro tem; Xavier Becerra, former California attorney general and Biden Cabinet secretary; Stephen Cloobeck, a philanthropist and businessman; Katie Porter, a former congresswoman from Orange County; Tony Thurmond, the superintendent of public instruction; Antonio Villaraigosa, the former mayor of Los Angeles; and Betty Yee, the former state controller.

There are two prominent Republicans running: former Fox News commentator Steve Hilton and Riverside County Sheriff Chad Bianco.

Early polling showed Kounalakis in the top half of the gubernatorial field, but most voters also said they haven’t made a decision yet and don’t know the candidates.

Kounalakis had raised millions of dollars in her race for governor, most of which her campaign said she will be able to transfer to her race for treasurer.

She will face several other longtime California politicians in that race, including state Sen. Anna Caballero (D-Salinas); the former mayor of Oakland, Libby Schaaf; and Tony Vazquez, a member of the state Board of Equalization.

Kounalakis was first elected lieutenant governor in 2018 and was reelected in 2022. The office is a largely ceremonial post that has been a launchpad for the governor’s mansion in the past: Both Newsom and former Gov. Gray Davis previously served as lieutenant governor.

After years of soaring rents, increasingly out-of-reach home prices and an enduring homelessness crisis that touches every corner of the state, California is finally creating a state agency exclusively focused on housing issues.

You might wonder what took so long.

Earlier this year, Gov. Gavin Newsom introduced a proposal to split up the Business, Consumer Services and Housing Agency — an awkward grab bag of disparate bureaucratic operations — into two fresh agencies: one just for housing and homelessness-related departments and one for everything else.

The Legislature had until July 4 to veto the plan. It didn’t (though some Republicans tried). Now the work of setting up California’s first housing agency begins.

Supporters of the bureaucratic reshuffle say the move is long overdue. In surveys, Californians regularly name housing costs and homelessness as among the state’s top concerns. That alone warrants the creation of a new Cabinet-level advisor to the governor, said Ray Pearl, executive director of the California Housing Consortium, which advocates for affordable housing development.

“A Cabinet-level secretary who will sit with other Cabinet secretaries, whose purview will be housing … that is elevating the agenda to the highest level,” he said.

Pearl, like virtually every expert interviewed for this article about the new agency, described the reorganization as “just the first step” in bringing much-needed order and efficiency to California’s network of funding programs for affordable housing.

“Simply moving people around and giving them a new business card doesn’t change the system,” he said.

A spokesperson for the governor stressed that the creation of a new housing agency is part of a broader effort by Newsom to prioritize one of California’s most vexing issues. Since taking the helm of state government in 2018, the governor has ramped up pressure on local governments to plan for more housing, urged them to clear encampments of unhoused Californians and pushed for legislation aimed at ramping up construction.

“This is the first administration to make this a part of our everyday conversation — putting a magnifying glass on the issue of homelessness and finding ways to effectively address it. These structural and policy changes are going to create a generational impact,” said spokesperson Tara Gallegos.

Among the seven Cabinet-level agencies, the BCSH has always seemed like the “everything else” wing of state government. Affordable housing grantmakers, lenders and urban planning regulators share agency letterhead with cannabis and alcohol industry overseers, professional licensors, car mechanic watchdogs and everyone at the California Horse Racing Board.

“We used to call it ‘The Island of Misfit Toys,’” said Claudia Cappio, who ran both the California Housing Finance Agency and the Department of Housing and Community Development in the years immediately before and after 2012 when both were packed into the newly created BCSH. “Imagine a staff meeting of all those things … I learned a lot about horse racing.”

Aside from giving housing and homelessness their own box atop Newsom’s organizational chart, the chief selling point of the reorganization has been to simplify the state’s hydra of affordable housing financing systems.

Currently, there is one state organization where affordable housing developers apply for loans, another where they go for most grants, a third where they apply for the federal tax credits that builders use to entice private investors to back their projects and a fourth for the bonds needed to secure many of those credits. This doesn’t include one-off programs for veterans, transit-oriented development and short-term housing for homeless people, which are sprinkled across state government.

Complicating things further, the tax credit and bond funding programs — the backbone of funding for affordable housing development across the country — aren’t even under the governor’s control. Those programs are run by the state’s independently elected treasurer.

“Many, many states have what is essentially a housing finance agency that controls the majority of affordable housing funds,” said Sarah Karlinsky, who directs research at UC Berkeley’s Terner Center for Housing Innovation. California’s programs are split up, which is unusual.

Beyond that, “what makes California so unique,” said Karlinksy, “is the fact that the resources are spread across two different constitutional officers.”

That fragmentation appears to be adding to the cost of construction in California. A Terner Center analysis this spring estimated that each additional public funding source delays a project by, on average, four months, and adds an additional $20,460 in costs per unit.

Affordable housing construction is already distinctly expensive here. Building a publicly funded project in California costs more than 2.5 times more per square foot than in both Texas and Colorado, a recent report from the Rand Institute found.

Will the new housing agency solve that problem? Not everyone is convinced.

Of the many ways in which the scarcity of affordable housing affects most people, “the lines on the org chart” don’t crack the “top 100 list,” Sen. Christopher Cabaldon, a Napa Democrat, said about the governor’s proposal at a hearing in March.

Cabaldon noted that executive reorganizations are a semi-regular feature of California governance. The Business, Consumer Services and Housing Agency is itself the product of a reorganization which spun off California’s independent transportation agency.

“The dance of the secretaries we do constantly, always with grand ambitions,” said Cabaldon. “Simply saying that it’s going to cause more focus, that it will be streamlined, that it will cause leadership level action — but how?”

As written, the new housing agency will consist of the current agency’s housing-related entities along with a new Affordable Housing Finance Committee, which will be tasked with coordinating the housing subsidy programs currently under the governor’s control.

But the major funding sources managed by the treasurer’s office will remain where they are. The California Constitution wouldn’t have allowed Newsom to commandeer those functions from the independent treasurer even had he wanted to.

That’s a significant shortcoming, according to the Little Hoover Commission, the state government’s independent oversight agency, which reviewed the governor’s plan before it was passed along to the Legislature. In its final report, the commission recommended that the governor and treasurer strike a formal deal to “create a unified application and review process” for all the affordable finance programs under their respective purviews.

Neither the governor’s office nor the office of state Treasurer Fiona Ma would say whether or how they are pursuing that goal.

A single, unified application for every one of California’s public affordable housing funding programs has been the bureaucratic holy grail of California affordable developers and policy wonks since at least the mid-1990s. Though the reorganization stops short of requiring that, it set up both constitutional offices to better coordinate in the future, said Matt Schwartz, president of the California Housing Partnership, a nonprofit that advocates for affordable housing.

“There’s going to be a bit of diplomacy” between the two executive branches to work out a joint application, said Schwartz, who spoke to CalMatters earlier this year after the governor first introduced the proposal. “That’s the longer-term prize that many of us will be pushing to come out of this process.”

Some affordable housing advocates have urged lawmakers to be cautious in mushing the various bureaucracies together.

In a letter to four powerful Democratic legislators, the California Housing Consortium stressed that the application systems administered by the treasurer’s office already “function extremely well.”

That process “is not broken and doesn’t need fixing,” said Pearl, the consortium’s director. Before monkeying with it, he said, “let’s get the agency set up.”

Pearl and the consortium also noted that past legislation has already mandated the creation of a working group to propose a consolidated application. The findings of that group are due on July 1, 2026. That’s the same day the current BCSH is set to officially dissolve and the two new agencies will take its place.

That’s also just five months before statewide elections will be held to replace Newsom and Ma, giving voters a chance to decide who will shape the future of affordable housing policy in California.

Christopher writes for CalMatters, where this article originally appeared.