TAHOMA, Calif. – California Treasurer Bill Lockyer has added financial advisors and bond counsel firms to his request for a formal legal opinion about the roles underwriters play in school bond campaigns.
The treasurer’s March 25 letter to Attorney General Kamala Harris is almost identical to the one he sent March 18, except for a few tweaks that stretch his questions to include the other categories of municipal bond firms.
Lockyer, a former attorney general, said in the first letter that some school districts have been awarding exclusive bond sale business to underwriters in return for pre-bond election campaign services.
“We understand school district officials may have entered similar arrangements with financial advisors and bond counsel firms,” Lockyer said in the new letter.
The campaign services include conducted community outreach for the school bond election measures, voter opinion surveys, ballot arguments or providing campaign consultants to the bond election campaign committee, according to the treasurer.
“These arrangements raise substantive questions about whether school districts have violated state law by using public funds for campaign services related to advocating the passage of bond measures,” the letter said.
The National Association of Independent Public Finance Advisors, which has been critic of perceived pay-to-play in bond elections, praised Lockyer’s new action.
“We are pleased to see that this important issue is receiving attention from the California State Treasurer, and believe that his statements only further the view that such contributions may be regulated without fear of violating the First Amendment,” Nathan Howard, an attorney with Kodner, Watkins & Kloecker LC, and legal counsel to NAIPFA, said in a statement Tuesday.
In a recent letter to the Securities & Exchange Commission, the association said that all individuals registered with the Municipal Securities Rulemaking Board should be prohibited from providing, or limited in their ability to provide, contributions to bond ballot campaign committees.
In February, the Municipal Securities Rulemaking Board sent a proposal to the Securities and Exchange Commission to would increase the disclosure by underwriters about their contributions to bond ballot campaigns and their resulting roles in the following deals.
The proposal, which would amend the G-37 rule, would require underwriters to disclose the value and nature of “in kind” contributions, meaning goods and services “provided to, on behalf of, or in furtherance of” bond ballot campaigns, and the date the contributions were made.
That rule already requires underwriters to disclose contributions to bond ballot campaigns and to issuer officials.
It doesn’t apply to financial advisors or bond counsel.
A review by The Bond Buyer last year of campaign contributions found a near perfect correlation between underwriter donations to school bond election committees and their subsequent work on bond deals.
Another story by The Bond Buyer last year also highlighted the significant role many financial advisors, which typically help hire underwriters and bond counsel, play in school bond elections.
Bond counsel firms also have a track record of giving to school bond election committees.
They also are typically paid when the school bonds are issued. Some even advertise their ability to get school bond measures passed.
Lockyer’s letter goes to the attorney general’s opinion office where such requests typically take months to answer.
In California, an attorney general’s opinion on a subject does not have the same force of law that a court ruling would have, but is still considered influential.