DALLAS - The Texas Public Finance Authority will ask underwriters bidding for a proposed negotiated issue to share the same information about political contributions that the firms have already been asked to voluntarily give the Securities and Exchange Commission.
The authority's board voted 4 to 2 on Monday to make the disclosure voluntary in what some board members believe is a first step toward a more formal disclosure requirement. Two members who voted for the measure are municipal investment bankers appointed by Gov. Ann Richards.
Board chairman Marc Stanley, who opposed the measure, said the availability of such information may only make the authority, the state's most prolific bond issuer, subject to charges that its selection process is politicized.
"This is not information I need to make decisions based on who to award a bond contract to," said Stanley, a Dallas lawyer. "None of us [on the board] are elected officials, and it just seems irrelevant to me.
But a majority of the board sided with outgoing member Harry Whittington, who made the motion to ask underwriters to make information available if they comply with the SEC'S request. Officials said the failure to provide the information will not affect the selection of underwriters for a possible $200 million state general obligation bond sale this summer.
"We have left it as voluntary, but it's a start so that we have more accountability from the underwriters," said Whittington, who last year failed in a similar effort to push for disclosure. "We are sort of following the lead of the SEC."
While the commission has not formally acknowledged it, an estimated 70 underwriters nationally have received a four-page letter sent June 4 that asks brokerages to detail political contributions to state and local officials.
Because many of the firms believed to have received the SEC letter will likely bid for Texas deals, the request is expected to affect virtually every firm responding to the state's request for proposal.
The Texas Public Finance Authority's decision to seek the information presents a dilemma for underwriters in that those who respond to the SEC'S request know that details of the firm's political activity will be kept secret under the agency's rules.
However, those filing the same information with the state authority would find their filing subject to public inspection under the Texas Open Records Act. And if the SEC eventually brings an enforcement action against one of the firms, the information could become part of the public record in legal documents.
Several underwriters surveyed yesterday said they were unaware of the authority's decision and that they were not sure how their firms would respond.
"I'm not sure that we wouldn't provide the same information to the state," said Robert Vanosky, executive vice president and co-manager of fixed income at Rauscher Pierce Refsnes Inc. in Dallas. "We haven't really had a chance to talk about it."
Still, Vanosky said the firm has not decided how to respond to the SEC request. "It's pretty broad and comprehensive," Vanosky said. "I'm not sure we're even capable of responding to the full request."
One investment banker whose firm received the SEC letter said he does not believe it will deter underwriters from bidding for the state's business. The Public Finance Authority is the first in the state and possibly the nation to piggyback the commission's request for voluntary disclosure.
For Whittington, long a maverick on the board and its controversial former chairman, the decision represents a last hurrah.
Whittington said yesterday that he was surprised last fall by underwriters' widespread use of outside lobbyists when the authority handed out underwriting assignments on a record $1 billion in refundings. Virtually every firm was put into a bond syndicate, though many were unhappy with the board's final decision.
"There was obviously some political activity to influence the board," Whittington said.
He said the recent publicity and subsequent investigations into whether political influence affected bond underwritings in New Jersey and the June 4 SEC letter have changed attitudes. On Monday, Whittington was able to win majority support for the voluntary disclosure requirement.
The move was backed by two board members who are municipal investment bankers, Erlinda Dimas, a vice president with Houston-based Apex Securities, and Robert Davis, president of Robert Davis & Co., an Austin financial advisory firm.
Dimas, whose firm underwrites bonds, could not be reached for comment yesterday. Davis yesterday said he does not believe the board's decisions have been politicized, but described the vote as a first step at a time when the Municipal Securities Rulemaking Board and others are considering regulatory reform.
"This is an area that we have some sensitivity to," Dimas said. "We thought it was best to begin to explore how we might address the issue appropriately. "
But Stanley and board member Peter Lewis, a Dallas lawyer who was not available for comment, voted against the measure. Stanley said he believes the disclosure could open the board to criticism for being political in its decisions. For instance, one firm could claim that it was excluded because it did not contribute enough to one candidate or gave money to another.
The authority board has always been made up of political appointees, some of whom have been active fund-raisers. For instance, Whittington is a Republican appointee who has been a contributor and treasurer for statewide candidates. Stanley is a Democratic fund-raiser for candidates ranging from former U.S. Sen. Lloyd Bentsen to Gov. Richards, who appointed him.
Both say their political affiliations have involved bond executives or bond lawyers who do business with the agency. Despite the presence of partisans on the board, the agency has been generally perceived as non-partisan in how it conducts business.
Stanley believes the disclosure request could change that tradition. "It brings the partisan atmosphere onto our board that heretofore has not been there," he said.
