The New York City comptroller's office has taken the unusual step of asking municipal market groups for advice on how the city can develop a new debt issuance policy.
City officials and industry sources confirmed that the comptroller's office has met with a variety of municipal market groups concerning the issuance of city debt, including the controversial matter of selling more bonds through competitive bids.
In a telephone interview, Leah Johnson, a spokeswoman for city comptroller Alan Hevesi, confirmed that first deputy controller Michael Geffard has asked market groups for input on issues relating to the city's debt policy and competitive bidding.
Geffard, for example, has recently approached the Public Securities Association on the matter. The comptroller's office has also solicited information from the National Association of Securities Professionals, a trade organization that represents municipal bond firms owned by minorities and women, Johnson said.
In recent years, the city has issued most of its debt through negotiated sales with a chosen team of underwriters. These same underwriters have made large campaign contributions to city officials, creating what some market watchers perceive as a conflict of interest.
At issue is a plan by Hevesi to make good on a campaign pledge and force the city to sell more debt competitively, and at the same time direct significant municipal bond business to firms owned by women and minorities.
Hevesi has blamed recent municipal market scandals on the overwhelming use of negotiated sales. Still, one of the major problems he has encountered in pressing for more competitive sales is opposition from firms owned by women and minorities.
In recent years, minority- and women-owned firms have thrived under issuers like New York City, which issue most of their debt through negotiated deals with a hand-picked group of underwriters. Many minority- and women-owned companies have much less capital than major Wall Street firms, and find it difficult to directly bid on bonds.
As comptroller, Heveis has said the city charter gives him authority to determine how the city sells its debt, even though appointments to the city's negotiated underwriting team result from negotiations between the comptroller's office and the mayor's office.
Upon taking office in January, Hevesi said his staff would spend the next year developing a plan where the city can sell debt competitively and include minority firms in the process. "[Geffard] has met with a lot of different groups about this plan," Johnson said.
Industry officials said the comptroller's outreach may mark the first time a major issuer of debt has asked industry trade groups for advice on its debt management policy.
Heather Ruth, president of the PSA, said the comptroller's office has yet to make a detailed request for help in formulating city debt policies. She said that at Tuesday's executive committee meeting, members were told that the comptroller's office wants the organization's help on the city's debt issuance policy, and will probably ask about minority firms' involvement in competitive bidding.
At the moment, many major underwriters are preparing their responses to a request for proposal document for the city's general obligation bond and water authority syndicates, and are barred from meeting with city officials. And market participants worry that trade groups should not provide financial advice in place of their members.
