"The rulemaking process is just a real important check on agency action," said Allen Matkins partner Keith Bishop.

LOS ANGELES — An attorney in California contends that the state treasurer erred by not allowing public comment prior to rolling out an anti-pay-to-play initiative.

California Treasurer John Chiang announced policies July 27 designed to limit what he called questionable municipal bond industry bankrolling of local bond election campaigns.

The treasurer has asked all financial and legal firms that wish to participate in the sale of state-issued bonds to sign certificates by the end of August pledging to not engage in what Chiang describes as pay-to-play practices related to campaign funding for local bond measures.

"I am arguing that you can't set those requirements when you are applying it to an entire pool, because it then becomes a regulation and you have to go through a notice of comment," said Keith Bishop, a partner with Allen Matkins Leck Gamble Mallory & Natsis LLP. "It isn't that they cannot do what they are doing, but they can't do it in the way they have done it."

Chiang's program asks that the 105 financial and law firms in the state's pools, made up of 13 advisory firms, 26 law firms, and 66 underwriters, take the pledge.

Officials in the state treasurer's office disagreed with Bishop's contention.

"We do not believe the terms and conditions and the minimum requirements associated with the procurement process, which this is, are governed by California's Administrative Procedures Act," said Mark Paxson, general counsel for the state treasurer.

The treasurer's office said the change to the qualifications required of bond pool participants is an action that falls under the procurement process, not the rulemaking procedures that govern enacting new regulations.

If it did fall under the regulatory process, it would require a 45-day public comment process and a review process that typically take a minimum of six months.

"I am a firm believer in — even though it is cumbersome and a bureaucratic pain in the neck, the rulemaking process is just a real important check on agency action, because it makes sure there is public notice and public opportunity to comment and that is just so important," Bishop said.

Prior to his work at the law firm, Bishop was California's commissioner for corporations and general counsel for California's Business Transportation and Housing Agency, so he has experience on the other side of the issue.

If the same rules were applied to the request for qualifications for selecting members of the pool, it would make working with state contractors too onerous, according to officials in the treasurer's office.

"I believe we are on solid footing," said Tim Schaefer, California's deputy treasurer for public finance. "I keep going back to the basic fact you can be an underwriter, financial advisor or law firm and choose to not be part of this pool. And as a layman: Isn't the purpose of law whether it is statutory or administrative law to guide behaviors for parts of the population who have no choice in the matter? The participants in the pool have a choice as to whether or not to contract with us."

No matter how good the requirement may be, or how beneficial, the treasurer's office needs to be open and transparent and comply with the law, Bishop said.

Bishop sent a letter to the treasurer's office expressing his concerns and received a response from Paxson outlined in Bishop's blog post.

The treasurer's office said the rulemaking process does not apply to the treasurer's pool, because the office is not a regulatory or rulemaking body.

Bishop said he believes Paxson's take on the issue is incorrect.

"There is no exception for RFPs in the [Administrative Procedures Act]," Bishop said. "Other agencies have tried to raise that argument — and that is just not an exception."

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