Every bond counsel attorney in New Jersey probably owes a debt of gratitude to John L. “Jack” Kraft.
Kraft, of the firm John L. Kraft, Esq., LLC, has been bond counsel attorney for more than 45 years. During that time, he played a key role in establishing the bond counsel business in New Jersey, along with handling some of the state’s most significant bond deals.
More recently, he’s been at the forefront of defending the tax-exemption for municipal bonds as a co-founder of the political action committee Americans Calling for Truth NOW.
“He’s an important person to have in law, and an important person to have in this industry,” said longtime municipal bond promoter James A. Lebenthal, of Lebenthal & Co.
In all, Kraft has served as bond counsel for 18 of the state’s 21 counties, as well as for hundreds of municipalities, school districts and authorities in New Jersey, advising on thousands of issues.
“I’ve loved being a lawyer and a bond lawyer; it’s been a tremendous and stimulating career for me,” Kraft, 77, said in an interview. “From the very beginning, bond counsel work has been exciting.”
But his career as a bond attorney almost didn’t happen. Even though his father and brother were attorneys, Kraft joined the Air Force following his graduation from Georgetown University in 1958 with the aim of becoming a pilot.
That summer, however, he met his future wife on the beach in Lavallette, N.J., and decided that a career in the Air Force would lead to a hard life for a family. Instead, he resolved to study for a law degree at Yale University, from which he graduated in 1964.
After three years as a litigator at a Newark, N.J., law firm, Kraft was recruited into the ranks of bond counsel by Robert E. Ferdon, then of Hawkins Delafield & Wood in New York, who became his mentor. Later, Kraft followed Ferdon to Mudge, Rose, Guthrie & Alexander, all the time focusing on New Jersey bond law.
In 1970, New Jersey Governor William T. Cahill appointed Kraft associate counsel, responsible for all bonding matters. These included dealings with the New Jersey Sports and Exposition Authority, the New Jersey Mortgage Finance Agency, preparation of proposed legislation, review of actions by the Port Authority of New York and New Jersey and liaising between the governor and members of the state’s legislature.
Kraft left the governor’s office in 1971 to establish Kraft & Hughes, New Jersey’s first nationally recognized bond counsel firm, and the only such firm in the state for the next decade or so. Today, the most recent Bond Buyer red book lists 43 firms in New Jersey as sole bond counsel.
In 1985, Kraft served as bond counsel on a $2 billion deal for the New Jersey Turnpike Authority. It was the largest municipal bond issue to date in the U.S., and one that would have implications for the bond counsel business in the state.
A group of about eight underwriters on the issue constructed a financing plan for what they called a “multi-modal transaction,” Kraft said. The major road-widening project called for the broadening of some parts of the turnpike to 12 lanes in the northern part of the state, he said. And it added the western spur of the turnpike.
What’s more, participants had to modify the bond resolution to contend with outstanding debt. The Turnpike wound up issuing the new debt as additional bonds under the existing general bond resolution.
“It was the most complicated bond issue I ever worked on,” Kraft said. “There were a lot of mini issues within the overall issue. And it had a lot of moving parts.”
The deal worked out well, he added, but little of it came easily. It required a significant time commitment, involving many overtime hours, to meet the schedule.
And though Kraft used the services of a few of the bond attorneys in the office, he did the lion’s share of the work.
“It was innovative, with the size of the issue and the complexity of the multi-modal aspect, and I wanted to devote my time to it,” Kraft said. “So, I did most of the work myself.”
Serving as bond counsel on so large and complex a deal, while gratifying in its own right, would later help Kraft in his role to legitimize and usher in the bond counsel business in New Jersey. The New Jersey Turnpike Authority deal proved a New Jersey law firm could perform bond counsel duties on the largest and most complex deals from state issuers.
This wasn’t always understood to be the case within the bond counsel business. Until then, most New Jersey issues were handled by law firms based in New York and Philadelphia, Kraft said.
During the 1990s, though, the New Jersey State Bar Association raised the issue of whether out-of-state lawyers were authorized to serve as bond counsel for New Jersey governmental units. The New Jersey Supreme Court Committee on the Unauthorized Practice of Law rendered an opinion that they were not.
But the New Jersey Attorney General appealed to the state Supreme Court to continue to permit out-of-state bond counsel to serve on in-state deals that might be too much for New Jersey attorneys. Kraft represented the state bar association in the appeal, and demonstrated that, indeed, there were no issues too large or too complex for New Jersey attorneys.
The state Supreme Court ruled in Kraft’s favor, holding that only New Jersey lawyers with bond counsel experience can serve in the role for the state’s governmental units.
According to Robert Ferdon, of Norton Rose Fulbright, who hired Kraft in the late-1960s, the appeal decision opened the door for firms in New Jersey to take on more of the business.
“He got the bond counsel business going in New Jersey because he organized members of the New Jersey bar,” Ferdon said.
A bond counsel attorney at a competing firm in the Garden State agreed.
“Jack was instrumental in getting New Jersey firms’ opinions accepted in the marketplace,” said the attorney, who asked not to be identified. “He was probably the most important figure to do that. He broke the monopoly of the New York and Philly firms, and opened things up to New Jersey-based firms.”
For all of this, Kraft’s job has changed over the years. Tax law, for starters, has become more complex.
The rendering of the tax opinion — that the bonds were tax-exempt — used to be routine. That changed in 1968 and 1969, when the Internal Revenue Code added industrial development-bond provisions and arbitrage bond-provisions that expanded substantially the body of tax law, Kraft said.
“This has become more complicated and more difficult for bond attorneys,” Kraft said. “There are people who just do tax work, as opposed to the more traditional bond work, namely validity, which was the original role of bond counsel, going back to the 1800s.”
The body of federal securities law has become more complex in recent years, he added. Consequently, there are many more bond lawyers today than there ever were because the volume of work has increased.
But it’s another potential change in the marketplace that has Kraft’s attention: the threat to munis’ tax-exemption status as the U.S. seeks ways to boost revenue. Removing or limiting the tax-exemption designation from interest on municipal bonds would heap costs on municipalities and citizens, Kraft said.
“State and local governments pay for about 65%, or more, of all the infrastructure improvements in the country,” he said. “And if the investors who buy municipals cannot get tax-exempt interest, they’re going to require higher interest rates. And those higher interest rates are going to be a burden on the states, and will increase the cost of borrowing.”
As a case in point, New Jersey Gov. Chris Christie urged voters in 2012 to approve $1.3 billion in bonds to improve higher education facilities across the state at a time when no questions were raised about tax exemption.
If the tax-exemption status for muni bonds changes, Kraft said, it’s been estimated that the added interest cost to borrow $1.3 billion on a taxable basis would amount to more than $800 million.
“That’s just one state project,” Kraft said. “The real people affected by this are the states, the students that attend these colleges and their parents, who will have to pay higher tuition rates.”
In fighting for the preservation of munis’ tax-exempt status, Kraft has chosen a good hill on which to plant his flag, Ferdon said. Making it more expensive for states and local governments to raise funds undermines their ability to get a lot of the desperately needed infrastructure projects done, he added.
“Jack’s a good man to have doing that, because he not only knows the bond business very well, he’s also very personable and very active,” Ferdon said.
Lebenthal, who has known Kraft since before the 1986 Tax Reform Act, said Kraft’s commitment and knowledge of the business make him a credible spokesman.
“He is an intellectual,” Lebenthal said. “And that, to me, suggests not only the thoughtfulness of ideas, but the pain that goes with them; you get a profound sense of his caring.”