BRADENTON, Fla. - When Palm Beach County, Fla., commissioner Mary McCarty was charged last month with using her influence to steer municipal bond business to her underwriter husband Kevin McCarty, the county's elected clerk and comptroller launched an investigation of bond issuance practices in the triple-A rated county.
McCarty resigned Jan. 8 and admitted that she failed to recuse herself on votes involving county bond issues benefitting companies employing her husband. He pleaded guilty Jan. 16 to withholding information about his wife's crime, which is a felony.
When officials in Delray Beach, a municipality in Palm Beach County, learned some city officials were mentioned in documents related to the McCarty's case, they hired an attorney to conduct a review of the case and the city's bond issuance procedures.
Palm Beach County and Delray Beach do not competitively select underwriting firms. The county commissioners typically appoint firms to their underwriting pool. Delray Beach city commissioners have traditionally used an underwriter with whom they've had a long relationship and tended to follow that person when he or she changed jobs.
The Government Finance Officers Association recommends that issuers use a request for proposals process to select underwriting firms for negotiated bond sales.
The state of Florida follows best practices recommended by GFOA, said Division of Bond Finance head Ben Watkins, who is a member of the organization's committee on governmental debt and fiscal policy.
"We adhere to the best practices to promote fairness, objectivity, and transparency," said Watkins, who declined to speak about practices used in Palm Beach County and Delray Beach. "We have rules that require us to do an RFP for the selection of service providers - bond counsel, underwriters, and financial advisers."
Best practices require a competitive selection process, Watkins said. The state issued an RFP late last year to select an underwriting pool for negotiated bond transactions.
"People need to have confidence in the decisions their leaders are making in all major decisions, and financings are always major decisions," Watkins said. "And it helps in identifying and selecting the most qualified firms.
The process revolves around ensuring that issuers get the best deal possible, he added.
Watkins' GFOA debt committee just last week reviewed its best practices for negotiated bond deals to include the recommendation that issuers have an independent financial adviser to get objective advice on bond sales.
Soon after the details about the McCarty case surfaced, Palm Beach County's clerk and comptroller, Sharon Bock, wrote to county commissioners and outlined her long-held concerns about procedures used for issuing debt and the need for a comprehensive debt policy. She then launched a comprehensive review and plans to release a report about her findings.
"We're reviewing the requirements for and the selection of bond counsel, underwriters, and other professionals involved in the debt issuance process, the merits of competitive versus negotiated underwriting, and the costs of issuance, among other areas," Bock said in an e-mail.
"Our report will provide a comprehensive set of recommendations that will help the board of county commissioners make clear and informed debt policy decisions," she wrote. "We will give them tools to make internal practices as strong as a county of our level of quality deserves."
Bock stressed that despite the economic challenges the nation is facing now, Palm Beach County remains fiscally strong.
"Our general obligation bonds have consistently received triple-A ratings from all of the major rating agencies - a reflection of overall strength and quality," she said. "Therefore, the review being undertaken by my office is in no way related to the soundness or safety of the bonds issued by Palm Beach County."
Because of the pending review, Bock asked county commissioners to delay action on a three-year contract with an optional two-year extension to Spectrum Municipal Services Inc., a local financial advisory firm that has worked for Palm Beach since 1995.
On Tuesday, commissioners approved the contract after staff noted that it can be terminated with 10-days notice, and that the county is in the midst of preparing a bond issue for sale.
"Spectrum is currently advising us on a bond issue for Florida Power & Light and we think that they should continue in that role," Palm Beach County debt manager John Long said in a recent interview.
The county will be a conduit issuer for approximately $75 million of debt and expects approval for a private-activity bond allocation from the state in the next 90 days, Long said. FPL will pay the debt service. Bond proceeds will be used for a reclaimed water project.
In Delray Beach Tuesday night, city commissioners moved forward with a comprehensive review of their own bond issuance procedures and unanimously voted to hire Usher Brown, the founding shareholder of Brown, Garganese, Weiss & D'Agresta PA in Orlando, for the task.
Brown is a civil trial lawyer with experience in transactional and litigation matters involving constitutional law, government law, construction, commercial transactions, trade regulation, and administrative law, according to the law firm's Web site. Brown also serves as attorney for the school boards of Osceola County and Indian River County, and special counsel for other school boards, cities, counties, and other Florida governments.
Mary and Kevin McCarty lived in Delray Beach, where she was a former city commissioner. Court documents imply that Mary McCarty also influenced the city's bond business by steering it to her husband's firms.
The allegations against Mary McCarty involve various bond issues between 1998 and 2007 while her husband was employed by Raymond James & Associates Inc. and Bear, Stearns & Co., according to the U.S. attorney's office.
Mary McCarty appeared in federal court Jan. 9 and pleaded not guilty to conspiracy. She faces up to five years in prison and her trial is scheduled to begin March 16. Kevin McCarty faces up to a year in prison if a plea agreement he entered is accepted by the court.
In a recent interview, Delray city manager David Harden said he believes some of the documentation in the McCarty case reflects a misunderstanding of bond issuance practices. He also released a detailed rebuttal of information contained in court documents.
The city is attempting to clear the air by hiring Brown to do an independent review of bond practices over the last decade, commissioner Fred Fetzer said yesterday. Fetzer also said he talked to the U.S. attorney's office and was told that no criminal charges are being pursued against any city official.
Brown's report is expected to be done before March 26 when four new commissioners are sworn into office. City elections are March 10.
Delray Beach's general obligation bonds are rated A1 by Moody's Investors Service and AA-minus by Standard & Poor's.