OVERLAND PARK, Kan. -- The vice chairman of the Municipal Securities Rulemaking Board said Saturday that a recently approved political contributions rule may put a burden on hiring practices for bond firms.
Greg Menne said that a provision that allows employees to make contributions of up to $250 in jurisdictions where they are eligible to vote has been a "sticky wicket" issue for the board.
"What if I hire an individual in Arizona who has a history of making donations beyond the $250 limit and I happen to be an underwriter of a variety of deals out there. Does that exclude us from that state?" Menne asked rhetorically.
"And the answer, I think, is yes," he said. The rule "puts a burden on hiring practices. It puts a burden on people moving around in the industry of giving a donation with one firm and [saying] now I've got relationship established and now I'll jump firms. It doesn't work."
Menne discussed the rule at a conference sponsored by the State Debt Management Network here, two days after the MSRB approved a political contribution rule that includes the $250 donation limit.
The rule, which will be sent the Securities and Exchange Commission by year's end, would also bar municipal bond dealers that make contributions from doing business for two years with cities and states that politicians serve.
In addition, the rule would require firms to keep some records of employee contributions, but drops a requirement in the board's original proposal that would have required all such contributions to be reported to the MSRB.
Menne said that although the rule did not state that contributions by other investment banking professionals outside the municipal arena would be affected, the rule was aimed at direct or indirect contributions by municipal professionals.
"If I'm not allowed to give a donation to a mayor, anything I do to circumvent the spirit of that to get somebody else to give, isn't going to work," Menne said. Firms would be required to record political contributions in chronological order, listing, the names of donors and recipients, he said.
Menne said that the MSRB did not address the impact of the rule on non-municipal employees, but added that "we're going to keep monitoring it."
Menne said that a voluntary moratorium by 17 bond firms to cease political contributions should have a stronger effect on the industry than the recently approved MSRB rule. He said that many regional firms are beginning to abide by the moratorium.
"Actually, the written word [in the moratorium] is much stronger than the MSRB rule," Menne said. "And I personally think that will stand to resolve the problem perceived in the industry. [The firms] are going to be morally judged by their peers."
The ban adopted by the 17 firms says that "each firm, employee, political action committee and each firm's municipal finance professionals, their supervisors and senior management will be prohibited from making political contributions at state and local levels." The ban says that all other employees are not barred from making personal contributions as long as they are not made to influence municipal business.
One investment banker at the conference said that the MSRB rule is just the "tip of the iceberg." He said that if the MSRB is going to take a stand on the political contributions issue, it should also restrict other kinds of influence peddling. These include firm-sponsored junkets for issuer's to sporting events and other functions,and contributions to an issuer's favorite, charity, the banker said.
