New Jersey's bond-issuing authorities are drawing up plans to comply with a new executive order by Gov. Christine Todd Whitman that will give them more room to sell bonds through negotiated sales.
Whitman's Executive Order 26, signed in October and due to go into effect on Jan. 1, authorizes negotiated deals if they are large or complex.
For now, the state and its authorities continue to issue bonds under former Gov. Jim Florio's Executive Order 92, signed in May 1993. Florio's order was an attempt to weed political influence from the state bond-selling process by forcing the state to sell more debt competitively.
The order, which came on the heels of a federal investigation of a negotiated state bond deal, said the state must bid most of its bond deals. Negotiated deals are permitted only "under extraordinary circumstances" and must be approved by the state treasurer.
Florio's order substantially reduced the number of negotiated financings in New Jersey.
In 1992, the state issued 79.2% of its bonds on a negotiated basis, compared with 54.4% in 1993, the first year the ban took effect. In 1994, New Jersey's negotiated deals represent less than half, or 43.4%, of all issuance by the state and its agencies, according to Securities Data Co.
But under Whitman's order, state agencies will no longer need the treasurer's approval to sell negotiated debt. As a result, agencies are now preparing for less oversight and more negotiated deals in 1995.
At the moment, the New Jersey Health Care Facilities Financing Authority is structuring its own policy to comply with the new financing climate.
The agency plans to solicit bonding ideas from municipal market firms, and compile lists of firms that will serve in various deal-related roles, such as senior manager, comanager, financial adviser, or placement agent, said Edith Behr, the agency's executive director.
"For negotiated sales, we would anticipate hiring senior managing underwriter and comanagers from the qualified list," Behr said. "For competitive sales, we would anticipate hiring financial advisers from the qualified list of financial advisers."
Jerry Ostow, a partner in the public finance department at the Roseland, N.J., law firm of Wolff & Samson said the health care authority is not alone in drawing up plans to implement the Whitman order.
Authorities around the state will take the next six months to digest the order and shape policies of their own, he said.
"I would suspect that there's going to be discussion with the Treasury and the attorney general's office as this goes on so issuers have a comfort level that they're within the intent of Executive Order 26," Ostow said. "I think we'll know more in six months."
The treasurer's office and the attorney general's office did not return phone calls for comment.
Even though agencies will have greater latitude in choosing selling techniques, the Florio order has left its mark.
Several market participants said agencies may feel pressure to sell bonds competitively because the Whitman order is somewhat ambiguous. A New Jersey municipal finance executive said "there is nothing but nothing in Whitman's executive order that provides anything more than Florio's executive order did" in terms of negotiated deals.
In addition, the health care authority, which traditionally issued most of its debt through negotiated sales, will continue to use competitive bidding when possible, Behr said.
"We will first look at each of the potential transactions to see if they can be sold at competitive sale under the criteria set forth in [Whitman's] Executive Order 26," Behr said.
