New Jersey, which last year outlawed most negotiated bond sales, may be having a change of heart.

An advisory panel appointed by Gov. Christine Todd Whitman yesterday recommended that the state adopt a debt-issuing policy that lays out guidelines for when to use negotiated sales and when competitive issues are appropriate.

In a 21-page report, the panel said the state should use negotiated bond sales when they are "in the best interests of the state."

For their part, New Jersey state officials said the panel's recommendations do not represent a substantive change from executive order No. 92, issued in May 1993 by former Gov. Jim Florio. The order generally requires the state to sell competitively issued debt, except for offerings that are complex or have poor credit ratings.

New Jersey officials say the panel's suggestions continue to support the use of competitive bond issues. "Competitive bond sales should be required for the state, state-backed issues, and state entities," the report said.

Lisa Kruse, a spokeswoman for the state treasurer's office, said the report merely "clarifies and defines what is meant by a complex sale."

But the report specifically states that New Jersey should have the flexibility to use negotiated sales. Competitive sales should be used "except in those circumstances in which a negotiated sale is in the best interests of the state,"the report said.

The specific reference to the use of negotiated issues, and an expanded list of circumstances for when the state should use them, has supporters of negotiated bidding applauding.

"We are pleased to see New Jersey has reinstituted a policy that provides New Jersey with the choice of doing competitive or negotiated sales," said Pen Pendleton, a spokesman for the Public Securities Association.

Bond dealers often prefer negotiated sales to competitive bidding. In negotiated sales, issuers appoint firms to sell bonds following interviews and questionnaires. In competitive bidding, dealers compete to obtain bonds by offering issuers like New Jersey the lowest price for the debt. The competitive method reduces the amount of fees earned by the underwriter, but Wall Street firms counter that competitive deals cost issuers money in other ways.

As a result, the PSA has actively lobbied against the Florio ban, arguing that recent restrictions on campaign contributions by municipal bond dealers adequately address conflict-of-interest concerns.

In 1993, Florio banned most negotiated sales following a federal investigation into a number of New Jersey bend deals and dealers. One of the dealers under scrutiny, Armacon Securities, was partly owned by Florio's chief of staff, Joseph Salema, who later resigned.

Shortly after taking office, Whitman appointed a panel of top state officials, Treasurer Brian Clymer, Attorney General Deborah T. Poritz, and chief counsel Peter Verniero, to study the ban against negotiated sales, and to make recommendations on whether it should be changed.

A Whitman spokesman said the governor, who defeated Florio in last November's election, is still reviewing the panel's recommendations, but is "inclined" to accept them.

"It's a complex report. She needs time to digest it," said spokesman Bob McHugh. "But [Whitman] is inclined to accept their advice."

The report said that the state should use negotiated issues for "complex or poor credits," which was the policy under the Florio Administration.

The state should also negotiate the sale of debt when markets are volatile, when the size of the issue exceeds $300 million, when bonding programs are new to investors, and when financing techniques are also new to investors, the report said.

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