ATLANTA -- Citing the need to sever any perceived link between campaign contributions and the selection of bond syndicates, the chairwoman of Orange County, Fla., yesterday called for a rule banning negotiated bond sales in the county except in limited circumstances.
"My recommendation is partly in response to all the national scrutiny directed right now at the municipal market. and partly in response to our own experience here." Linda Chapin, the county's chairwoman, said in an interview. "But at bottom, the idea is that we must clear up any misperception that political campaign contributions direct our decisions about bond deals."
Chapin's recommendation follows an order by New Jersey Gov. Jim Florio in May to ban most state-level negotiated deals. Florio's order came shortly after the state's Turnpike Authority became the subject of a federal probe its underwriting practices.
Also this year, Hillsborough County, Fla., opted to forgo two negotiated sales followinq controversies over charges of impropriety in the selection of underwriters.
In 1991, at the urging of Gov. Lawton Chiles, Florida's Division of Bond Finance adopted rules limiting political contributions from underwriters. The rules ban dealers that have contributed to state-level candidates from vying for negotiated underwriting slots on state deals.
A pall has been cast on the municipal bond industry since allegations of influence peddling to get campaign contributions or land a slot on an underwriting team have
In Kentucky, a federal court is hearing evidence on charges of extortion by a former governor's husband. who sought campaign contributions from securities firms seeking underwriting work in the state. In New York City, a city investigation last week reported that city Comptroller Elizabeth Holtzman showed "gross negligence" in not being aware that a bank doing business with her office and that also loaned her failed U.S. Senate campaign $450,000 also had a corporate affiliate that her office recommended to the city bond syndicate.
Issuers across the country are examining their policies about selling debt. Some state legislators and political watchdog groups have called for more competitive bonds sales.
Chapin said she asked her staff to draft new administration regulations requiring competitive sales by Oct. 15, "unless there are compelling reasons to do otherwise."
She said she hoped the county's seven-member board of commissioners could discuss the proposal by the end of the month, and that a rule could be approved by the end of the year.
In a memo sent last week to county commissioners, Chapin wrote that such a recommendation would "require all bond issues to be sold to the low bidder except in limited circumstances." She wrote that the proposal would also "establish a process by which staff would bring forth the necessary findings and recommendation before the Board could approve deviating from the policy of using competitive bids."
Chapin said yesterday that one circumstance that might justify a negotiated sale is a deal involving a new revenue stream. She also said that the county might opt to have a negotiated sale as part of an affirmative action initiative to guarantee that a woman-owned or minority-owned firm is chosen lead underwriter.
"But my feeling is that we are sufficiently strong and well known that negotiated deals need only be done very rarely," she said. "I don't buy the contention that we need to go the negotiated route to tell our story. Our story is already known."
Chapin said that she is "not sure at this point" how her recommendations about negotiated sales would affect the choice of underwriting syndicates for three upcoming sales of bond issues for which negotiated teams have been chosen but for which the debt has not yet been sold.
"This is something we have to review, but at this point my feeling is that it would be unfair to pull the bond syndicates," she said.
Those deals are: A $26 million issue to be sold to fund purchase of so-called environmentally sensitive land, with the lead manager a woman-owned firm, Artemis Capital Group Inc.; a $30 million certificates of participation financing to fund a new radio system for the county's police and fire department. managed by Prudential Securities Inc.; and a $23 million issue that will refund tourist-development tax bonds, with Goldman, Sachs & Co. as the lead manager.
A fourth issue for which commissioners chose an underwriting syndicate. a $179.9 million sales tax backed bond issue for which Smith Barney Shearson is the lead manager, has already been sold.
Chapin said that she decided to make her recommendation about negotiated deals after "soul searching" prompted this summer by the intense competition among prospective underwriters.
"The intensity of lobbying by the firms really made me uncomfortable." she said. "I wish I had come out with the recommendation [to limit negotiated sales] two years ago, but then again I didn't have the experience then with this issue that I have now."
But a number of bankers in Florida yesterday questioned Chapin's motivation in calling now for curbs on negotiated sales.
"Doesn't the timing seem a little strange here." said a senior municipal investment banker in Florida. who declined to be identified. "I find it unbelievable that she is pushing for these rules now, after all the syndicates were chosen last summer."
But Orange County Comptroller Martha O. Haynie. a strong advocate of competitive awards of bond deals since taking office in 1989, hailed Chapin's recommendation.
"I'm pleased she is making this recommendation." Haynie said yesterday. "Although [the recommendation] will raise questions about the timing. it is better late than never."
Speaking of the upcoming deals, for which bankers were chosen in July, Haynie said that she doubted the county's board of commissioners would undo its decisions as it considers Chapin's recommendations.
