SAN FRANCISCO - The sponsor of a California bill to limit the ability of municipal bond firms to participate in bond referendum campaigns has put the measure on ice.

Its first hearing had been scheduled this week, but last month the sponsor, Sen. Patricia Wiggins, D-Santa Rosa, converted SB 799 into a two-year bill, taking it off the menu for this year.

It can still be taken up again when the Legislature meets in 2010, though it can also be left to expire quietly.

According to her staff, Wiggins, chair of the Senate Local Government Committee, introduced the bill with support from the California Public Securities Association, the trade and lobbying group for public finance firms, mostly broker-dealers.

It would have barred local municipal agencies from entering into financial advisory, legal, underwriting or "similar" relationships if the public finance firm, one of its employees, or an agent had provided bond campaign services.

"In other words, Senator Wiggins hopes to limit conflicts of interest (or the appearance of such conflicts) when bond counsel, bond underwriters, or financial advisers on bond deals are also involved in the bond election process," according to a staff report provided by Wiggins spokesman David Miller.

The bill came amid increasing attention being paid to the role of public finance firms play in bond referendums.

The Municipal Securities Rulemaking Board limits broker-dealer firms or agents from contributing to the campaigns of individual candidates

In December, public finance executives at Citi, JPMorgan, and Morgan Stanley sent a joint letter to the MSRB asking it to consider extending those Rule G-37 limits to also restrict broker-dealer contributions to campaign committees for bond ballot measures.

In April, the board decided not to amend the rule, saying there is not enough evidence to show firms are being awarded bond business after helping to fund the initiatives, MSRB chairman Ron Stack told reporters.

Wiggins' bill would have an impact beyond broker-dealers, to attorneys and financial advisers.

According to the staff report from her office, it would have had a major impact on financial advisory firms that double as campaign consultants on ballot measures.

"Costs for managing the bond measure campaign are either deferred or waived in exchange for the opportunity to perform bond marketing services," the report said. "This approach can be viewed as utilizing bond proceeds to indirectly pay for bond election services. This approach also makes the cost of a bond campaign difficult to ascertain as such cost is often embedded in the financial advisory, legal or underwriting fee for the subsequent bond sale."

The bond election and sale practices of school districts have drawn the attention of the state Legislature in the past.

In 2006, lawmakers enacted a bill that requires school boards, before selling bonds, to adopt a resolution making an affirmative decision to approve the sale method, and after the sale to report actual issuance cost data to the California Debt and Investment Advisory Commission.

That final bill was heavily modified from its original version, which had been introduced the year before and originally sought to mandate the competitive sale method for almost all school bond issues.

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