Westchester County, N.Y., in Pilot Program to Take Electronic Bids

Westchester County, N.Y., plans to take electronic bids for its next competitive bond sale in a pilot program that could become a model for the rest of the state. Last week New York Gov. David Paterson signed into law a bill that authorized the county to start a three-year pilot program to sell its bonds competitively by accepting only electronic bids.

"We are looking to get a lower cost of issuance and a savings for our taxpayers," said Westchester commissioner of finance Kathy Thorsberg. "We're hoping we can prove that we had savings and it's just a better method than the paper method we've been using."

The law authorized the county to do both open auctions and closed auctions. In an open auction, bids are ranked as they come in. Although bidders can't see the top bid, they have the opportunity to submit new bids to try to beat out other bidders.

Thorsberg said she was optimistic that the county will "get a lot bigger pool of bidders" on its bond sales using the electronic bidding format. They received 14 bids on their last sale.

New York has entered the 21st century slowly. Currently municipalities are required to use paper bidding on bond sales under state laws governing local finance. Nassau County uses electronic bidding now, but must accept paper bids as well.

"I don't know whether [lawmakers] were just being super-conservative," she said. "It's taken a long time to get this done."

Westchester expects to put out a request for proposals for electronic bidding services in the coming months so that a system will be in place when it next goes to market with a bond deal in January or February.

State Assemblywoman Amy Paulin, D-Westchester, wrote and sponsored the bill, A4617/S5393, after county officials approached her with the idea.

"We looked into and agreed it would be a step in the right direction," Paulin said. The bill initially faced some questions from Assembly Ways and Means committee staff about whether the bidding format would exclude smaller firms since they would have to pay fees to access an electronic bidding system.

Paulin concluded in a memo that fees for an electronic system such as Ipreo's BiDCOMP/Parity system, which charges bidders an up-front fee against which separate bid fees in the first year would be subtracted, was not "prohibitive, even for a small capitalized firm."

"As with any change, it takes time and there's resistance," she said.

"Electronic bidding is widely accepted nationally," said Public Financial Management Inc. managing director Nancy Winkler. The open bidding process "for a triple-A county like Westchester that could potentially have value," she said.

Nassau, which is a client of PFM, uses electronic open bidding on its note sales and has seen as many as 31 bids on a deal as individual banks submitted multiple bids, she said.

According to Ipreo, 58% of competitive deals nationally in 2009 so far were sold with electronic bid submission.

Westchester debt manager John Waltman said that the old practice has been to accept the paper bids either by hand delivery or fax, make copies to distribute to bond counsel, input by hand the different bids into the computer, and then print them out to make a comparison.

"It took quite a while for us to go through and verify all those bids," Waltman said. "With these platforms, you can normally get them within less than a minute."

After three years the county has to submit to the state comptroller's office a summary of how well the program worked, including whether they achieved savings and increased the number of bidders.

Westchester has sold $872 million of bonds since 2000, including $168 million this year, according to Thomson Reuters.

"We hope it works out," said Herman Charbonneau, senior vice president at Roosevelt & Cross Inc. "It would be a large improvement in the bidding process in New York."

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