Aug. 7 (Bloomberg) -- California should limit negotiated bond sales by school districts and restrict underwriters and financial advisers’ involvement in campaigns for voter approval of the offerings, according to state Treasurer Bill Lockyer.
Lockyer advocates statewide rules covering the issues, rather than a local approach, spokesman Tom Dresslar said. This week, Los Angeles County Treasurer Mark Saladino said underwriters who donate to school-bond campaigns would be barred from doing business with the state’s most-populous county.
Campaign donations are less troubling than bond underwriters and advisers that assist in such efforts and then receive no-bid underwriting contracts, Dresslar said.
“The aroma emanating from the school-bond finance arena is not pleasant,” Dresslar said in a statement. “The whole system is due for a deep cleaning.”
Saladino, whose office handles general-obligation security offerings for the county’s 93 school districts, is informing 36 underwriting firms of the cutoff if they donate to their bond campaigns, Assistant Treasurer Glenn Byers said by telephone. No other California county has taken the step, he said.
“This is designed to curb pay-to-play,” Byers said. “It’s the taxpayers who have to foot the bill.”
Two underwriting firms voluntarily agreed not to donate to campaigns, leading to the countywide policy. Treasurers in some of California’s 57 other counties have reacted positively to the rule, Byers said.
“If we had all or most of the treasurers in the 10 largest counties in the state, that’s effectively a statewide policy,” he said. Los Angeles County has almost 10 million residents.
Lockyer, 72, supports statewide rules that also would apply to financial advisers and bond lawyers as well as underwriters, Dresslar said. The Democrat also would bar school districts from conducting negotiated sales involving issues that would raise less than a certain amount, Dresslar said.
“You have district officials that have cozy relationships with finance professionals, who contribute to campaigns, then get no-bid contracts to manage noncompetitive bond sales,” Dresslar said. “You have district officials and finance professionals making unrealistic promises to voters to get bond measures passed. Then when the promises can’t be met, you have the same folks sticking future generations of taxpayers with unjustified, outrageous debt service tabs.”
Lockyer backed a bill by state Assemblyman Donald Wagner, an Irvine Republican, that would bar firms that advise bond campaigns from working as underwriters or financial advisers on bond issues. The bill, which passed the Assembly 51-10, is stalled in the Senate’s Governance and Finance Committee, where the last hearing on it was July 3, according to the state’s legislative tracking website.
Saladino’s move likely will encourage other beneficiaries of school bonds, such as construction firms, to compensate by boosting their own campaign contributions, Byers said.
“To actually fix this is going to require a legislative fix,” he said.
Leaders of the California Association of County Treasurers and Tax Collectors today plan to discuss whether to push for statewide legislation or a local approach, said Shari Schapmire, the Mendocino County treasurer and president of the group. It plans a teleconference on the issue.
“I can see some of the larger counties following Mark’s lead on this,” Schapmire said by telephone.
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