WASHINGTON -- The Municipal Securities Rulemaking Board is expected to issue a statement to underwriters this week addressing the increasingly controversial issue of political contributions in the municipal finance arena, sources said yesterday.

But the sources would not comment on the contents of the statement, which is believed to have been developed at a meeting of the 15-member MSRB held here last Friday.

"They are working on a press release," said one MSRB member who asked not to be identified and who would not elaborate on the contents of the statement.

Other MSRB members, including chairman Charles Fish, either could not be reached or would not comment on the expected statement.

The board in 1991 warned underwriters about the propriety of making contributions to officials who select underwriters. It had debated taking stronger steps, such as calling for the creation of a voluntary system for underwriters to use to disclose contributions in official statements.

Whatever the move, it would come amid widening investigations by federal and local officials into possible political influence peddling involving bond deals in New Jersey and New York.

The U.S. Attorney for the Southern District of New York, the Securities and Exchange Commission, and the New Jersey Bureau of Securities are investigating events related to the New Jersey Turnpike Authority's massive $2.9 billion refunding in 1991 and 1992.

Investigators are focusing in part on the relationship between Merrill Lunch & Co. and a Clementon, N.J., brokerage, Armacon Securities, which is half-owned through a blind trust by New Jersey Gov. James Florio's chief of staff, Joseph Salema.

In the New York City probe, the city's Department of Investigation is investigating Comptroller Elizabeth Holtzman, her office's selection of a bond firm for a city bond syndicate, and a loan made to her U.S. Senate campaign by the bond firm's corporate affiliate.

Meanwhile, Maine Treasurer Sam Shapiro said on May 13 he planned to ask the MSRB to institute a nationwide ban on contributions to election campaigns from municipal bond firms.

But such a move may raise constitutional questions, since a political contribution is often interpreted by courts as freedom of speech, according to observers in the field. Under federal law, candidates for federal office must report the contributions they receive from political action committees and individual firms to the Federal Election Commission in Washington. The information can then be reviewed in a public reference room. However. state and local laws on reporting campaign contributions vary greatly, and there is no central system to review contributions.

MSRB officials said in August 1991 that the regulatory board simply was not in a position to do much in the area, short of preempting federal or state laws. "We floated every issue possible and this is our consensus," then chairman Hartley said. "We are not about the business of trying to undertake any additional jurisdiction over this matter."

Instead, the MSRB issued a two-paragraph statement cautioning bond underwriters that political contributions to issuers can create the appearance of bribery and erode investor confidence.

The board, headed then by Stone & Youngberg managing partner David Hartley, had contemplated bolder moves, including publishing voluntary guidelines for disclosing political contributions to municipal officials, possibly in official statements.

The board's 1991 policy says: "In the municipal securities market, the payment of political contributions by an underwriter -- or any other party connected with the underwriting process -- to officials involved in the choice of the underwriting team may create at least the appearance that the contribution has influenced the selection of that team."

It warns that underwriters and other participants in bond deals should be particularly vigilant, given the hard times for state and local governments.

"Many municipal securities issuers are facing tremendous economic challenges. It is critical that the municipal market engender the highest degree of public confidence so that investors will provide much needed capital to these state and local governments," the statement says.

"In this regard, the board encourages underwriters and state and local governments to maintain the integrity of the process of selecting the parties involved in the underwriting of municipal securities," the policy says.

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