BRADENTON, Fla. - Current debt management practices in Palm Beach County, Fla., have cost taxpayers as much as $5.38 million in extra interest and other expenses because of the way underwriters have been selected, the use of negotiation to sell bonds, and the purchasing of unnecessary bond insurance, according to Sharon Bock, the county's elected clerk and comptroller.
In issuing bonds, the wealthy gilt-edged county lacked "oversight, internal controls, and transparency necessary to best serve the interests of the taxpayers of Palm Beach County," Bock said in a 132-page document released Monday.
While critical of practices used to issue debt, Bock said her review of bonds issued over the past five years "in no way related to the soundness or safety" of the debt itself. Palm Beach County has nearly $2 billion of outstanding debt.
"Had the county corrected many of its deficiencies in the past, opportunities for manipulation may have been reduced," Bock said in a statement accompanying the report. "I urge the board and staff to review the recommendations and work together to eliminate problems and begin restoring the public's trust."
The clerk began a comprehensive review of debt practices in January at the request of county commissioners following a scandal that forced the resignation of former county commissioner Mary McCarty and sent her husband, an investment banker, to jail.
Mary McCarty, who will be sentenced in federal court June 4, has pleaded guilty to conspiring to deprive constituents of her honest services, which included using her influence to steer bond business to her husband, Kevin McCarty, while he worked at Bear, Stearns & Co. and Raymond James & Associates Inc.
Last month, Kevin McCarty was sentenced to eight months in federal prison for not reporting his wife's illegal acts. No charges have been brought against the investment banks, which were mentioned in court documents.
County commissioners yesterday accepted Bock's report and agreed to discuss it at a future meeting.
"I have asked our financial management staff and our financial adviser, Clark Bennett, to review the report and to seek further information to substantiate or contradict various recommendations that the clerk made that we have questions about," county administrator Bob Weisman said yesterday. "We are in agreement on some documentation issues as well as the overall need to go to competitive selection processes for underwriters and [bond] counsel. We have questions or disagree with other recommendations."
Bennett is an owner of Spectrum Municipal Services Inc., a local financial advisory firm that has worked for Palm Beach County since at least 1995.
Bock's review, which analyzed 31 bond issues between 2003 and 2008, took three months to complete.
"The overarching theme that emerged during the course of this review is that for almost 20 years, debt issuance in Palm Beach County has substantially benefited all parties related to the process, directly or indirectly, at taxpayers' expense," Bock concluded. "The consistent disregard of internal controls and the continuous lack of transparency and oversight in the debt issuance process also failed those who should be the primary beneficiaries of government activity - the taxpayers."
One of the main issues is the process by which the county selects underwriters. Individual commissioners for many years have appointed investment banking firms to a pool.
The county should eliminate the "patronage" system of appointing underwriters and adopt best practices recommended by the Government Finance Officers Association, Bock's report said, including using a competitive process to choose underwriters, legal counsel, and financial advisers.
A debt oversight committee should be formed to conduct the selection process for the county's finance team, Bock said, adding that the panel also would be involved in the approval process of a written policy governing debt-management practices.
Bock also was critical of the traditional use of bond insurance and purchase of surety bonds given the Palm Beach County's high credit ratings. She said many bond issues reviewed lacked written analysis as to why the credit enhancement was necessary.
Bock said the county's finance team failed to adequately document key financing decisions for all but one bond issue.