Legislative impasse over New York City bonding spurs lobbying.

Representatives of several Wall Street investment firms this month mounted a quiet but persistent lobbying campaign for a bill that would extend New York City's authority to issue negotiated debt, legislative staffers and investment bankers said last week.

The full court press began after the authorization, which normally can expect routine approval each year, fell afoul of a tug of war between the Legislature's two chambers.

The Democratic-dominated Assembly approved the bill but rejected legislation to let financially troubled Nassau and Suffolk counties do deficit bonding. Senate Republicans, who favored giving the counties a free hand, retaliated earlier this month by voting down New York City's authorization bill.

The city comptroller's office says no request for help was sent out after stunned officials got word of the setback.

But others maintain that with the city's next negotiated bond sale slated for the fall, the city turned to its five-member co-senior manager bracket: Goldman Sachs & Co., First Boston Corp., Bear, Stearns & Co., Merrill Lynch & Co., and Lehman Brothers.

Now the tide appears to have turned. Two weeks ago, the Senate and Assembly reached an accord approving this and other issues, and they are expected to pass the measures during a special legislative session that should convene tomorrow in Albany.

The agreement followed numerous conversations between Senate staffers and lobbyists, investment bankers, and state assemblymen who favor the New York authorization.

New York City, the country's largest issuer of municipal bonds, sells the great majority of its debt through negotiated sale. The city has had authority to issue negotiated debt since 1978, but must obtain separate legislative approval on a yearly basis.

The city sells tax anticipation notes and revenue anticipation notes competitively, but it has not completed a competitive general obligation bond sale since February 1990.

City officials and municipal market observers maintain that it would be foolish for the city to sell all its debt competitively, due to the size and complexity of the deals.

The conventional wisdom is that competitive deals become risky when an issuer sells more than $300 million in debt or if an issuer is considered "a story bond" - one that requires a lot of explaining.

Although the city's financial health may be on the upswing, many credit analysts say its long-term financial condition is still troubled.

Last week, for example, the city comptroller's office issued a report that says the city would experience budget gaps of more than $1 billion in each fiscal year beginning in fiscal 1994 through 1996.

But supporters of the competitive bidding process counter with the argument that the city can at least sell some of its long-term debt competitively.

They also say that Wall Street firms are the largest beneficiaries of the negotiated sale process because of the fees the firms earn through such sales.

Without the Senate's approval, these sources say, the city would have been forced to sell all its notes and bonds competitively for this year, robbing many Wall Street firms, and particularly those that serve as senior co-managers, of a lucrative portion of their municipal bond business.

One investment banking source said the lobbying effort was initiated by city finance officials, particularly those in the city comptroller's office.

City Comptroller Elizabeth Holtzman two weeks ago had issued a press release and wrote New York Gov. Mario M. Cuomo, Senate Majority Leader Ralph J. Marino, R-Muttontown, and Assembly speaker Saul Weprin, D-Queens, calling on lawmakers to pass the city's negotiated debt legislation and other measures that needed legislative approval.

Steve Cohen, a spokesman for the comptroller's office, said officials there informed the city's underwriters that negotiated sales authority was not renewed, but said no formal request was made to have underwriters lobby lawmakers or the legislative staff.

Mr. Cohen termed the conversations between the comptroller's office and the underwriters "part of our efforts of keeping them informed about the decision in Albany and what impact it might have." Officials from the city's Office of Management and Budget did not return repeated telephone calls.

Senate staffers and investment bankers with knowledge of the lobbying effort said telephone calls to legislators and aides were made around the time of a July 16 meeting between Mr. Lackman and city representatives; Darcy Bradbury, the city's deputy comptroller for finance; and Mark Page, deputy director and general counsel for the city's Office of Management Budget.

One Senate source said lobbyists representing Bear, Stearns & Co., a co-senior manager, and another lobbyist representing a smaller firm that is not among the city's co-senior manager group, had made telephone calls directly to the Senate staff regarding the legislation.

In both cases, the lobbyists approached the issue by asking questions and giving data, the source said, adding they "were not necessarily advocating a particular position."

In the case of Bear Stearns, the lobbyists asked the Senate source what "were his concerns" about the negotiated debt legislation, the source said, noting that the other firm asked similar questions.

William Hayden, a senior managing director and co-head of the public finance department at Bear Stearns, said a lobbyist representing the firm called the Senate staff and "made an inquiry regarding the state of the legislation." Mr. Hayden said the lobbyist called merely to "be helpful."

An investment banker, who asked not to be identified, also contacted Senate staffers. Such lobbying is commonplace in Albany, the banker said, and usually involves providing staffers with information, rather than advocating a position.

Most of these conversations occur between bankers and staffers who have a developed a rapport through frequent discussions on legislative issues.

Overtly arguing for a position is uncommon, the Senate staffer said. "It's just not done that way," the aide said.

But, the staffer added, "the lobbyists were indicating that competitive bidding would not be more cost-effective" than negotiated sales.

Another method Wall Street representatives and others employ is to find an advocate in either the Senate or the Assembly to act as a conduit.

One Senate staffer, for example, was contacted by an Assemblyman who asked the staffer if a deal could be worked out where the Senate would approve the city's negotiated sale authority, if the Assembly passes the Nassau and Suffolk bailout bills.

Before the end of the legislative session, the city's negotiated sale authority passed the Assembly, while the Long Island bailout legislation passed the Senate. The legislative accord was reached with the Senate approving the New York City bill, and the Assembly agreeing to allow the deficit bond bailouts for Nassau and Suffolk Counties.

Steve Faigen, a spokesman for the investment banking firm Lehman Brothers, said a representative of the firm had made telephone calls to staffers in the Assembly, asking about the status of the legislation, and nothing more. Lehman Brothers will be the senior co-manager in the city planned $1 billion bond sale in October.

Officials from First Boston, Goldman Sachs, and Merrill Lynch refused to comment on their lobbying activities.

Sale $ Amount Gross

Date Senior Manager of Issue Spread

2/14/90 Competitive sale (*)$250.000 (+)$14.00

3/29/90 Goldman Sachs 659.260 8.11

6/15/90 Merrill Lynch 708.490 8.10

9/14/90 Bear Sterns 850.000 8.43

12/14/90 First Boston 950.000 8.21

First Boston 352.925 8.21

2/14/91 Lehman Brothers 800.000 9.17

Lehman Brothers 200.000 8.95

3/22/91 Lehman Brothers 65.000 2.69

6/7/91 Goldman Sachs 115.000 8.87

Goldman Sachs 560.000 8.87

8/7/91 Merrill Lynch 705.878 8.76

Merrill Lynch 43.641 8.76

11/21/91 J.P. Morgan 1,269.100 8.14

12/20/91 Bear and Sterns 781.900 7.52

3/6/92 First Boston 106.611 6.88

3/9/92 First Boston 649.515 8.63

First Boston 202.505 8.63

First Boston 99.000 12.71

5/21/92 Goldman Sachs 289.197 8.24

Goldman Sachs 750.000 8.24

(*) Amount of issuance lists dollars in millions.

(+) Per thousand par value.

Source: Securities Data Co.

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