WASHINGTON - A coalition of eight state and local groups this week asked the Securities and Exchange Commission to delay enacting a proposal to curb political contributions until a host of concerns surrounding the standard are resolved.
The rule developed by the Municipal Securities Rulemaking Board raises a "myriad of legal, market, process and political issues" that demand the joint efforts of the SEC and issuer groups to resolve, the coalition said in a two-page letter Monday to SEC chairman Arthur Levitt Jr.
The eight groups said that any rule aimed at restricting contributions should cover not only candidates for state and local offices, but those running for federal seats as well.
"Therefore, we request that any regulatory actions be deferred while we take the time required to reach consensus," the coalition said.
The groups that signed the letter are the National League of Cities, National Governors' Association, National Association of Counties, Government Finance Officers Association, American Association of Port Authorities, National Association of State Treasurers, National Conference of State Legislatures, and the Education Finance Council.
The letter does not say how long groups want the board and the SEC to delay implementing the MSRB's political contributions rule, which would bar dealers who make political contributions from doing business for two years with the cities and states that the politicians serve.
In a separate letter Monday, the League of Cities requested that regulators defer action until after next November's elections "so as not to interfere unfairly with the chances of any candidate seeking federal office."
We concerned about any federal action which could intrude upon our access to public capital markets or unfairly interfere with the democratic process," said Donald J. Borut, executive director of the league.
The MSRB plans to send the proposal to the SEC for review in mid-January. The rule is scheduled to take effect April 1. On Oct. 28, the SEC's Levitt asked 11 trade groups representing issuers, bond lawyers, dealers, and financial advisers to join 19 Wall Street firms that in mid-October voluntarily agreed to a massive cut-back of political contributions to issuers.
Levitt said in the Oct. 28 letter that he would appreciate the help of each group "as a leader of a significant group of municipal securities market participants" in developing a "process by which members ... can establish or endorse principles such as those outlined in the [firms'] voluntary initiative."
In its letter, the league said that proposals for restricting contributions to state and local, but not federal, officials raise "profound constitutional and federalism questions."
For instance, the MSRB's proposed Rule G-37 "would impose severe and discriminatory hardships on any state or local official who sought to run for federal office against an incumbent," the league said. "The proposal has also raised serious questions about the access of women and minorities to the market."
Robert Peck, legislative counsel to the American Civil Liberties Union. said in a telephone interview yesterday that the board's rule "clearly" raises First Amendment questions.
"The Supreme Court has said that political contributions are a form of free speech," Peck said, pointing to the high court's landmark 1976 ruling in Buckley v. Valeo. "Congress can limit the size of contributions [that citizens can make] in order to protect against corrupting influence. But citizens have to retain a certain right to participate in [the political process] through contributions.
Under the MSRB rule "you forfeit your basic political rights, which are considered the most protected rights under the Constitution, simply because of your occupation," Peck said. "That is unconstitutional. It's a condition that would never be approved in court."
Peck said, however, that he was not aware of any lawsuit his group may be preparing to challenge the board's rule. In preparing the standard this fall, the MSRB hired former SE general counsel Harvey Pitt to analyze the legal problems the board might run into if it attempted to ban contributions.
"When serious lawyers look at this, they will see there is no constitutional problem," said David C. Clapp, chairman of the MSRB. "We have very good legal advise on this."
But Arthur Eisenberg, legal director of the New York Civil Liberties Union, cited another Supreme Court ruling that "suggests that it would be unconstitutional for the MSRB and the SEC to proceed with this rule." The case, Oregon v. Mitchell, involved a challege to a provision in the Voting Rights Act of 1970 that lowered the voting age from 21 to 18 for federal, state, and local elections. The high court held that while Congress can enact laws that deal with federal elections, it has no authority to regulate the conduct of state and local elections, Eisenberg said.