The new mayor of Boston said Wednesday night that the city will open its underwriting syndicate to competitive bids before selling its next bond issue.
Acting Mayor Thomas M. Menino said the practice of relying on one firm to handle the city's senior underwriting responsibilities will be changed and all of the underwriting jobs will be up for grabs.
For four years, Lazard Freres & Co. served as the senior manager for city bond deals. But when former Lazard partner Mark S. Ferber and most of his staff moved to First Albany Corp. earlier this year, the lucrative senior underwriting role went with them.
Ferber, who was a close political ally and contributor to former Mayor Raymond L. Flynn, is now co-chief executive officer and part-owner of First Albany.
Over the last five years, the two firms have served as senior manager on a total of more than $500 million of city debt.
The relationships between politicians and bond underwriters is under unprecedented scrutiny across the country, amid several federal and state probes of alleged influence peddling. Several issuers, most notably New Jersey, have responded by attempting to open more underwriting slots to competitive bidding.
Ferber and Raymond Dooley, a senior vice president at First Albany, said they expect Menino to implement his own bond selection practices.
"Whether the city is New York, Chicago, Philadelphia, or Boston, it is standard practice following a change in mayoral administrations for underwriting syndicates and selection processes to be re-evaluated," Dooley said in a statement. "Given the fact that we have secured more than $16 million in savings for Boston taxpayers on the city's last two financings, we look forward to continuing to openly compete to provide underwriting services to the city."
Dooley served as a top adviser to Flynn before joining Ferber at Lazard in 1991. He currently oversees First Albany's account with the city.
Lee Jackson, city treasurer, said he was also not surprised by Menino's decision. He said Menino has not voiced any concerns about the way city bonds are sold.
Menino previously served as city counsel president and has announced that he will be a candidate to succeed Flynn on a permanent basis.
Flynn was confirmed this month as President Clinton's ambassador to the Vatican.
"I don't think there's anything odd in what the mayor has said about the underwriters." said Howard Leibowitz, a spokesman for Menino. "The mayor plans to meet with the city's financial adviser over the next couple of weeks and then make a decision."
Government Finance Associates Inc. is the city's financial adviser.
"This is not really that odd an event for a city like Boston," said J. Chester Johnson, president of Government Finance Associates. "The city's underwriter choices have been reviewed at least twice while Mayor Flynn was in office."
Government Finance Associates was awarded a multi-year contract to serve as the city's financial adviser in 1991. The firm was awarded the contract through competitive bidding.
Boston has more than $455 million of outstanding general obligation debt and is rated A by Moody's Investor's Corp. and Standard & Poor's Corp.
Since Flynn took office in 1983, the city has received five straight rating upgrades.
Several candidates have already emerged in the race for mayor against Menino. State Rep. James Brett, city councilor Rosaria Salerno, journalist Christopher Lydon, and Suffolk County sheriff Robert Rufo are expected to contend for the Democratic nomination.