WASHINGTON - President-elect Barack Obama's transition teams are considering financial market participants, lawyers, state and local government leaders, and former federal officials as candidates to lead agencies whose actions affect the municipal bond mark, sources said last week.

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The agencies include the Securities and Exchange Commission, the Department of Transportation, and the Department of Housing and Urban and Development.

Gary Gensler, a former Treasury Department official and partner at Goldman Sachs Group Inc., is the primary transition team member in charge of the effort to find a replacement for SEC chairman Christopher Cox and could make a recommendation within the next couple of weeks, according to securities industry sources.

Other transition team members include Roel Campos, a former SEC commissioner who is now a partner at Cooley Godward Kronish LLP here, and William Donaldson, who was SEC chairman from 2003 to 2005.

Though his term does not expire until June, Cox has said that he plans to step down at the end of the Bush administration next month.

Typically in past administrations the president has not nominated an SEC chairman until several months after the inauguration and after a new Treasury secretary has been confirmed by Congress. Arthur Levitt, the chairman of the SEC during the Clinton administration, was not nominated to the post until April 28, 1993, and President Bush did not nominate Harvey Pitt until July 10, 2001.

Sources say this year's faster-paced search reflects ongoing efforts by the Obama team to project stability amid the financial turmoil and a recognition that the SEC faces a series of daunting issues, the largest of which is its very existence and its role, if any, in financial services regulatory reform.

Obama has agreed that financial services regulatory reform is critical but has not weighed in on proposals to merge the SEC with another regulator, such as the Commodities Futures Trading Commission, or scrap it entirely in favor of a single "super" market regulator. The SEC also is faced with controversial policy issues that have arisen from the financial crisis, including whether to suspend, scrap, or modify mark-to-market accounting rules, and whether to tighten the so-called net capital rules that set leveraging levels for broker-dealers. Cox has been criticized for being too slow to react to the current crisis.

At least two sources said it would not be surprising if Gensler or Campos is under consideration for the post. Neither could be reached for comment. Other potential nominees are William Brodsky, chairman and chief executive officer of the Chicago Board Options Exchange, and Robert Pozen, a former Fidelity Investments vice chairman who is now chairman of MFS Investment Management in Boston.

To take the job, Brodsky would likely have to walk away from a potentially lucrative initial public offering that the now-private CBOE plans to launch in the coming year or two, sources noted. Also Brodsky, former head of the Chicago Mercantile Exchange, which trades derivatives products, would be "an unsettling choice" for many securities dealers that do not want the commission to regulate derivatives, said one securities lawyer.

Pozen, a highly accomplished attorney and fund manager, is reportedly lobbying for the position. He has an extensive background in the private sector and academia, and has been a public servant, including a stint early in his career as an associate general counsel at the SEC from 1978 to 1980. He declined to comment through a spokesman.

Though sources who know Pozen praise his keen intellect, they question whether he has the right personality for the job, especially considering the controversial policies the commission is likely to consider next year.

"Bob is not a bridge builder," said one source who has known Pozen for more than 30 years. "He doesn't bring groups together."

Harvey Goldschmid, who previously served as an SEC commissioner from 2002 to 2005 and as general counsel from 1998 to 1999, and is currently a Columbia University law professor, also is under consideration. He has been aggressively pushed by Levitt.

Both Goldschmid and Levitt declined to comment. One source speculated that Goldschmid may be seen as too aggressive in his legal thinking, coming down on the side of investors in this year's landmark Supreme Court case, Stoneridge Investment Partners v. Scientific-Atlanta. The court ruled the plaintiffs, Stoneridge Investment, could not bring fraud claims against third parties that did not directly mislead them but were business partners with those who did.

SEC commissioner Elisse Walter also may be under consideration, but has had suffered health problems. It's more likely that if Cox leaves before his replacement is confirmed, she could be appointed acting chairman, sources said. Walter, a former senior executive vice president of the Financial Industry Regulatory Authority, joined the SEC in July.

The transition team also may be considering Damon Silvers, associate general counsel for the AFL-CIO and a member of the Public Company Accounting Oversight Board's standing advisory group, as well as such major contributors to the Obama campaign such as Orin Kramer, a partner at Boston Provident LP. Several sources said Annette Nazareth, a partner at Davis Polk & Wardwell here, who stepped down from the commission in February, would make an excellent chairman. Silvers, Kramer, and Nazarath either could not be reached or declined to comment.


One agency head who is expected to remain in place in the Obama administration is Internal Revenue Service commissioner Douglas Shulman. When Shulman took over the IRS in March after serving as vice chairman of FINRA, he obtained an agreement to be allowed to stay on the job for five years, protecting him from any election-driven turnover, according to sources.

But the new administration will have to find someone to replace Eric Solomon as the Treasury Department's assistant secretary for tax policy. Solomon has served as the Treasury's top tax expert since the end of 2006.

While no official candidates have been announced, those said to be under consideration or actively seeking the position include Edward Kleinbard, currently chief of staff for the congressional Joint Tax Committee, and Russ Sullivan, who once served as chief tax counsel for the Senate Finance Committee and is now the Democratic staff director for the panel.

It is unlikely the nominee for the post will have significant experience in public finance. "If I were a betting man, I'd put the chances of that happening around zero," said one bond attorney.


The next secretary of the Department of Transportation will take office during what is expected to be a protracted battle in Congress to revamp the federal funding system for transportation infrastructure. Republicans and Democrats are likely to spar over whether and how much to encourage private investment in the highway program, with tolling, congestion pricing and user fees, increased gasoline taxes, and public-private partnerships framing the dialogue and possibly dividing the Senate at a time when GOP opposition could stymie the legislation.

Additionally, some market participants believe the highway trust fund that provides grants to states for road and bridge projects will be depleted before Congress hammers out the next long-term transportation bill, which could present a crisis for the incoming secretary.

The leaders of Obama's DOT transition team are: Jane Garvey, a former head of the Federal Aviation Administration and acting administrator and ex-deputy administrator of the Federal Highway Administration who is now head of U.S. public-private partnerships at JPMorgan; Mortimer Downey, deputy transportation secretary from 1993 to 2001 under the Clinton administration; and Michael Huerta of ACS Transportation Solutions, a former DOT senior staffer.

Garvey and Downey are in the running for the top DOT post, as well as Steve Heminger, executive director of the San Francisco Bay Area's Metropolitan Transportation Commission, sources said. The transition team also has considered Rep. James L. Oberstar, D-Minn., chairman of the House Transportation Committee, and Rep. Peter A. DeFazio, D-Ore., chairman of its highways and transit subcommittee.

Garvey could bring brand-new bonding tools for states to use for financing of transportation projects and raise the status of local airports as part of a national network, according to sources.

"We say we have a national air transportation system, but the airports are sort of left on their own to fight these battles at the local level," an aviation lobbyist said.

During her tenure in the FHWA, Garvey oversaw the creation of three major transportation financing tools. After setting up an "innovative finance team" in 1994, she helped create the state infrastructure bank program and Transportation Infrastructure Finance and Innovation Act program, both of which provide low-interest loans for transportation projects.

The state infrastructure banks are funded by federal and state grants, and sometimes by debt issuance. Garvey also helped launch - and is the quasi-namesake of - grant anticipation revenue vehicles. Garvee bonds have allowed tax-exempt borrowers to use federal grants since 1995 to finance transportation projects by pledging future grant revenue as repayment on the debt.

Garvey pushed Congress in 1998 to allow airports to set up revolving loan funds, or pools funded by state and federal grants that could be used to provide low-interest loans for projects, similar to the state revolving funds that help pay for water and sewer projects and are often leveraged by bonds.

She has said technology upgrades are not as efficient as runway construction in supporting airport capacity growth and, as a result, may be friendlier to bond-related federal funding that helps pay for airport construction.

Garvey was hired in May to head JPMorgan's transportation public-private partnerships business. Before that, she was executive vice president and chairman of the transportation practice at APCO Worldwide. Her background in municipal finance came from prior stints as director of Boston's Logan International Airport and commissioner of the Massachusetts Department of Public Works.

Heminger may support a gasoline tax hike. In 2006, he said he believed a "healthy increase" would generate needed revenue for transportation projects. He believes tolling has a serious and possibly fatal lack of public support.

At DOT, Downy helped expand the state infrastructure bank program from a 10-state pilot to a mainstream program for states pay for infrastructure projects, along with an appropriation of $150 million of federal general funds for SIB capitalization. He now chairs PB Consult Inc. and previously was executive director and chief financial officer New York's Metropolitan Transportation Authority.

While sources have said Oberstar and DeFazio are attractive candidates for the DOT post, lobbyists are unsure if they would leave their committee because of the battle expected in Congress next year over reauthorization of the current transportation bill, which expires Sept. 30.

Oberstar spokesman Jim Berard said the congressman would accept the nomination only "under very narrow circumstances," such as if Obama "calls and says, 'You're my guy, and I'll give you free reign, more than any other cabinet member.' " Otherwise Oberstar is likely to prefer his current powerful position in shaping surface transportation legislation next year. He did not serve "in any official capacity" as an adviser during Obama's presidential campaign, Berard added.

Oberstar has adamantly opposed moving toward more private investment in infrastructure, even calling the advocacy of P3s and tolling, as put forward by the current secretary, "narrow, myopic, uninspired, and presentational." He has supported an increase in the gasoline tax to help generate revenue for federal transportation grants.

Oberstar co-authored a bill that did not pass but would have authorized states and interstate compacts to issue $12 billion of tax-exempt debt and $12 billion of tax-credit bonds for high-speed rail corridors over the next 10 years, as well as providing $14.4 billion of grants to Amtrak over next five years.

DeFazio also has sharply rebuked the Bush administration's push for more privatization of infrastructure finance and has opposed tolling that would disproportionately burden the poor.


Obama's choice for Housing and Urban Development would likely revitalize the department, according to sources who contend it has lost its focus on helping communities with affordable housing initiatives in favor of home ownership under the Bush administration.

"The first way to start making things better is stop making them worse," said Anthony Freedman, a tax lawyer with Holland & Knight LLP here.

During the past eight years, the White House has tried to severely cut funding for, or kill, several HUD programs that provide funds used in conjunction with bonds, claiming the programs are inefficient. The administration has tried to downsize the community development block grant program, which provides grants to state and local governments to fund economic development projects financed by muni bonds. It has tried to abolish the HOPE VI program, which provides grants to public housing authorities to demolish severely distressed public housing units and replace them with mixed-use, mixed-income developments. The grants are often used as leverage for projects that are financed with tax-exempt bonds.

Freedman contends an Obama administration would fully fund the CDBG program and "provide a sufficient budget for the department to function."

Obama and Democratic lawmakers could put HUD in a better position to work on new affordable housing initiatives, he said.

"Those two factors would lend to a significantly increased role for HUD and really a serious effort to rebuild the department's capacity," Freedman said. "I think there are a lot of department alumni who have hopes for a resurrected Department of Housing and Urban Development. You can only imagine what a reinvigorated HUD could do."

Another housing advocate agreed. "Regardless of who it is - and we're not pushing anyone - we won't have to play defense as we've had to do the past eight years," he said.

Miami Mayor Manuel Diaz and Atlanta Mayor Shirley Franklin are among the leading candidates for the top HUD [pst, with Diaz currently thought to be the favorite for the position, according to housing sources.

Diaz, a Cuban native who immigrated to the United States when he was seven years old, has served as Miami's mayor since 2001. During his tenure, he oversaw the city's bond rating upgraded from junk to single-A by all three rating agencies. Since 2008, he also has served as the president of the U.S. Conference of Mayors. Due to term limits, Diaz's tenure as Miami mayor will end in 2009.

Franklin has served as Atlanta's mayor since 2001, and has been praised for reining in the city's budget deficit and repairing its ailing sewer system.

Other names mentioned for the post include Los Angeles Mayor Antonio Villaraigosa, Saul Ramirez Jr., a former deputy HUD secretary and executive director of the National Association of Housing and Redevelopment Officials, Bronx borough president Adolfo Carrion Jr., and Nelson Diaz, a former judge and HUD general counsel.

Vallaraigosa told reporters last week that while he spoke with Obama about positions in the new administration, he will not accept any because he wants to stay on as mayor.

Shaun Donovan - who left his position as chairman of the New York City Housing Development Corp. and commissioner of the city's Department of Housing Preservation and Development to work on the Obama campaign - has been mentioned for a "high post" in HUD, though sources have indicated he would not get the top spot.




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