ALAMEDA, Calif. — A California Senate committee Friday voted down a bill that would have banned local agencies from hiring bond underwriters that provided campaign services for the election authorizing the debt.

SB 623, which had cleared the Assembly Aug. 16, was turned back by the Senate Local Government Committee on a 3-to-1 party line vote, with all three Democrats opposed.

The sponsor, Sen. Roy Ashburn, R-Bakersfield, authored a similar measure that died in the same committee in May.

His new bill was amended to remove limits on financial advisers and bond attorneys from the earlier proposal, and to carve out exceptions permitting underwriters to advise agencies on tax rate questions and to pay for polling before a measure is placed on a ballot.

Ashburn told the committee Friday the common-sense measure is designed to reinforce existing rules that prohibit public funds from being used in a campaign.

"The issue is, should a school district in California be allowed to enter into a negotiated arrangement with a bond underwriter in which the costs for explicit campaigning are included and, wink-wink, the taxpayers are going to wind up footing that bill over the course of that issuance," he said.

The bill's supporters include the California Association of County Treasurers and Tax Collectors.

Opponents include many school district administrators, the Community College League of California, and the underwriting firm of George K. Baum & Co.

"This bill takes away choice from local school districts," Baum's Lynn Paquin testified at Friday's hearing.

Testifying in support, Lori Raineri, president of financial advisory firm Government Financial Strategies, said there are two primary arguments for the bill.

"First is to clarify that this practice is an illegal use of public funds," she said. "Secondly, to prevent the corruption of a negotiation in which great funds are at stake."

The issue of municipal market involvement in bond elections has become more visible in recent months. Earlier this year, the Municipal Securities Rulemaking Board revised its Rule G-37 to require muni securities firms to disclose contributions over $250 made to political committees formed to campaign for bond ballot initiatives.

Issuers in California sold more than $72.3 billion of municipal bonds in 2009, according to Thomson Reuters, registering more than one-sixth of the nation's total volume.

The local government committee's staff analysis presented arguments both for and against the measure.

"When firms provide both bond campaign services and underwriting services under no-bid agreements with local agencies, it looks like public officials are spending public funds on bond campaigns," the argument for the bill said. "Taxpayers can't tell if a negotiated bond sale embeds campaign costs in the underwriter's spread or fees for other services."

The argument against the bill said that instead of restricting the discretion local officials enjoy when selecting bond underwriters, lawmakers "could have introduced legislation to clarify that existing prohibitions against using public funds on bond campaigns include indirect forms of compensation, like paying inflated rates and fees for other bond-related services."

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