SANTA FE, N.M. -- Participation by minorities and women in the municipal securities industry will be restrained by a regulation on political contributions enacted last April, Western state treasurers were told this week.

Rule G-37, promulgated by the Municipal Securities Rulemaking Board, "was specifically designed to roll back the gains that women and minorities have made in the field of municipal finance," Oregon Treasurer Jim Hill said here on Monday at the opening session of the Western State Treasurers Association's annual meeting.

Hill said he would not be surprised if the Congressional Black Caucus looks into "the lightning speed" with which the rule was enacted. The rule was first circulated in draft form by the MSRB last August.

"Because of the fledgling nature of women and people of color in the business, there was not the political sophistication and mechanisms to address this issue as it arose," Hill said. The Congressional Black Caucus "did not have time to react."

"Now that the rule is in place, I understand that Mr. Levitt is going around and talking to women and people in the business -- but it is too late," Hill said, referring to SEC chairman Arthur Levitt Jr., spearhead of the contributions reform effort.

In a rebuttal, Micah Green, executive vice president of the Public Securities Association, said he disagreed with Hill that "the derivation of these changes was to turn back the hands of time, and the role that minority- and woman-owned firms play" in the business.

The MSRB's Rule G-37 prohibits a municipal dealer who makes a contribution to a state treasurer -- or certain other elected officials with bond issuance oversight -- from engaging in business with the official's government for a two-year period after the contribution is made. The drafters of the rule, which was adopted by the SEC last April, say it is supposed to eliminate "pay-to-play" relationships among issuers and underwriters.

PSA's Green said he has misgivings about one component of Rule G-37 as it applies to minority and woman candidates running for office.

To sustain "serious and viable" campaigns, such candidates "have to raise the money," Green said. "If a source of that campaign capital is people who are like-minded or have. a like background -- and that source is lost -- it could have serious consequences on the ability to elect more minority and woman candidates."

The only solution is "comprehensive campaign finance reform" at the federal, state, and local level, Green said.

Hill said that women and minorities whose firms are affected by Rule G-37 "tend to contribute to candidates that will afford equal opportunity. Personally, as a black man, I find it incredible that other black people cannot contribute to my campaign."

Hill. said he finds the situation "just beyond deplorable."

"I consider economics to be the last frontier of the civil rights movement," Hill said. "Our attempts to break into these areas is a matter of equal opportunity for all citizens.

"It is a common practice that once women and people of color understand the rules of the game, learn how to play the game, and start doing it successfully, then suddenly it is time for the rules of the game to be changed," Hill said.

The Oregon treasurer said he is not opposed to Rule G-37 "because I am trying to protect sources of my campaign contributions." In fact, he said. he has the advantage of incumbency and his campaign staff "will be able to raise the money we need."

However, newcomers to the election process "who are trying to run for office where municipal finance happens to be part of their duties will have a difficult time," Hill said.

"People don't like to use the term affirmative action any more, but it is an affirmative process," Hill said. "The loser in all this will be equal opportunity."

In a related campaign finance issue, the MSRB is proposing that the SEC amend Rule G-37 to narrow the scope of the definition of "municipal finance professional" to exclude some securities sales representatives, Green said.

"Sales representatives who happen to sell municipal bonds, along with pension funds, mutual funds, stocks, and other bonds, are not necessarily a part of the chain for the solicitation of municipal finance business," Green said. "It is our belief that they should net be cut off from the electoral process."

Rule G-37 forbids "indirect contributions," Green said, meaning that if dozens of checks were "coming from the same firm" -- although not from the municipal finance department it would provide regulatory agencies "an avenue for investigating whether" the firm is trying to circumvent the role.

"There is no question that if someone sought to go around the role, they could go around the role," Green said.

Another panel member, Steve Juarez, executive director of the California Debt Advisory Commission, engaged in a give-and-take discussion with a member of the audience over whether Rule G-37 violates the First Amendment.

The audience member said "the MSRB is telling me as a citizen I cannot make a contribution to the campaign of someone who I believe personally is a good candidate .... I'm really offended."

Juarez Said the MSRB "will tell you they are not restricting your fight to give a contribution to that person. You can do that. You just cannot do business with that person after the fact."

The audience member replied: "I think they're playing with words. I think it is an abridgement of the First Amendment."

Rule G-37 allows municipal finance professionals to make a $250 contribution to an elected official, per election, if the professional is entitled to vote for that official, Juarez said.

The MSRB is the industry's self-regulatory and rule-making body whose rules must be approved by the SEC. Enforcement of MSRB rules is carried out by the SEC and other securities and bank regulatory authorities.

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