Delaware County, Pa., recently hired as a budget consultant a key official at the Pennsylvania Intergovernmental Cooperation Authority following the recommendation of an investment banker who has worked on recent agency bond issues.
Several weeks ago, the county appointed Ron Henry, PICA's coordinator of special projects and a past executive director, as its budget adviser. For the $125-an-hour position, Henry received the unanimous approval of the county's five-member county council, which includes Wallace Nunn, a senior managing director and head of public finance at Smith Barney Inc.'s Philadelphia office.
The relationship between Henry, an attorney and a former public finance executive at Smith Barney, and Nunn, may raise serious ethical questions because Smith Barney had played a major role in PICA financings, some watchdog groups say.
Henry says he has never played a role in the selection of underwriters for the authority and that no conflict of interest exists.
In an interview, Robert Lovejoy, the county's director of public relations, said it is his understanding that Nunn recommended Henry for the consulting job. Nunn said he introduced Henry to county officials who were looking for ways to cut the county's budget. Henry, for his part, also said Nunn recommended him for the post.
Smith Barney's Philadelphia office has served as either senior manager or co-senior manager on all three of PICA's bond sales, and will be the senior manager for the authority's planned sale next month of $100 million of bonds. PICA was created in 1991 to sell bonds on behalf of Philadelphia.
Barry Kauffman, executive director of Common Cause for Pennsylvania, said the relationship between Henry and Nunn "is troubling" because Henry may have helped Smith Barney obtain PICA bond business. Although Henry doesn't directly select bond underwriters, he may have had some influence on their selection, Kauffman said.
"There is potential for conflicts of interests between Wally Nunn and Ron Henry," Kauffman said. "I think it's the responsibility of the rest of the commissioners to make sure there are no conflicts that could jeopardize the. public interest."
Henry and Nunn say no conflict of interests exist. Henry said his role at the authority has never involved selecting underwriters or other members of a bond financial team. PICA board members do that, Henry said.
PICA insiders also say that Henry played no role in the selection of underwriters. They and Henry said that state legislators recommend to PICA board members which firms should underwrite agency bonds.
"The way the underwriting selections have worked is that the authority received a list of underwriters from the legislature," Henry said. "There has never been a deletion or an addition to that list because of an action the staff has taken."
Nunn, who last year was elected to a four-year term on the county council, said Henty's experience working with PICA, which was formed to help Philadelphia resolve its budget problems, was impressive and led to his endorsement for the consulting position.
In addition to how Henry obtained his post, government watchdogs question Nunn's and Henry's influence on Delaware County's bonding programs.
The county sold its last bond issue in July 1992, when it issued $85 million of general obligation bonds in a negotiated underwriting. Smith Barney served as the issue's senior manager, according to Securities Data Co.
Nunn said he was not on the council at the time and played no role from the county's standpoint.
The county is also gathering information for a possible upcoming bond issue that could be included in the budget for fiscal 1995, which begins Jan. 1. While a dollar amount has not been determined, the issue would finance renovations and other capital projects relating to the county's corrections system and solid waste system.
Nunn said he removes himself from any deliberations and votes involving selection of bond underwriters. However, Nunn said, he is actively involved in the budget and decisions on capital projects.
"I have absolutely nothing do with choosing any members of a financial team," Nunn said.
Delaware County officials say Henry's job will be to focus solely on developing ways for the county to save money, and will not be in the loop on county debt issues.
But watchdogs say the potential for trouble exists.
"There's a potential for a serious conflict of interest here," Kauffman of Common Cause said. "If [Henry] has financial relationships with any brokerage firm that is currently doing business with the county or has potential for a business relationship -- at the very least that must be disclosed."
Pennsylvania law requires that public officials disclose their financial relationships with businesses once a year to the state ethics commission. The law also says that "public officials can't use the authority of public office to obtain a primary pecuniary benefit for himself, a member of his family, or a business with which he is associated," said Vincent P. Dopko, chief counsel of the ethics commission.
If an official has a conflict, he has to recuse himself from the decisionmaking process. The official must state the recusal, and the reason for it, in writing, Dopko said.
Henry said he has filed all necessary disclosure forms with the state. He said he has no financial relationship with Smith Barney.
Henry became acquainted with Delaware County through Nunn, a longtime friend and Henry's supervisor when Henry served as a vice president in public finance at Smith Barney from 1985 to 1990.
Earlier this year, Nunn introduced Henry to Thomas Killion, another Delaware County council member. After a lengthy conversation on county budget matters, Killion suggested that the county could use Henry's help in streamlining county services, Henry said.
Following a meeting' with the county's executive director, Edwin B. Erickson, Henry submitted a proposal to the council, outlining a time frame for identifying possible savings in County services and implementing them, Henry said.
At a public meeting on Oct. 4, the council unanimously voted to approve Henry's contract as consultant to the county at an hourly rate of $125, capped for the 1994 calendar year at $25,000.
Currently, Henry is working with Erickson on budget matters relating to the county court system and the department of human services.
Henry was appointed executive director of PICA when the agency was created in 1991 to help Philadelphia recover from a budget crisis.
Smith Barney led the underwriting team for PICA's first bond issue in June 1992, which totaled about $474 million. The firm was a co-senior manager on a $178 refunding PICA sold in August of last year, as well as a $643 million issue the agency sold in July of that year.