New York City Comptroller-elect Alan Hevesi, who pushed during his election campaign for more competitive bidding on city bond deals, said he will not immediately move in that direction upon taking office in January.
"There's nothing that we're going to do that is dramatic before we've resolved the first budget," Hevesi said in a series of interviews with The Bond Buyer. New York City faces billions of dollars in projected budget gaps through the life of its financial plan.
The city's underwriting syndicate will probably be in place "for another year ... at least for the next half year," he said. "I have to recognize an office, recruit some new people, and meet some mandates and deadlines before we deal with some of the broader issues that I raised in the campaign."
Hevesi, who was electedc comptroller in November, ran against incumbent Elizabeth Holtzman on a platform that included calls for the city to sell much more of its bonds through a competitive bid. Under Holtzman and the administration of Mayor David N. Dinkins, the city issued the vast majority of its debt through negotiated sale, relying on a team of investment bankers to sell bonds to investors.
As the city's chief fiscal officer, Hevesi said he would have the authority to choose the method by which the city sells its debt, a role previously shared by Dinkins and Holtzman. Hevesi, a Democrat, said that he "intends to confer with the mayor and the commissioner of finance before making any final decision regarding a competitive bidding program."
Mayor-elect Rudolph Giuliani, a Republican, has said he does not favor competitive bidding. Instead, Giuliani, said he would delegate underwriter selections to a panel of financial experts to prevent conflicts of interest.
When asked if he had softened his stance on the use of competitive sales, Hevesi said: "Not at all. Any process of decision making by a comptroller that is cautious and prudent is the appropriate decision making process."
During the campaign, Hevesi, formerly a state assemblyman from Queens, sharply criticized the city's debt selling practices. The city's reliance on negotiated sales, Hevesi argued led to the appearance of conflicts of interest with bankers who also provided vast sums of money for Holtzman's reelection efforts.
In the summer, Hevesi introduced legislation that would have forced the city to issue bonds through competitive bids unless officials could prove that the selling process would increase costs and produce a "substantial loss" for the city. The bill passed the state Assembly, but failed in the Senate.
In several recent interviews, Hevesi said that some of the original impetus for selling more of the city's debt competitively is beginning to disappear. Recently, more than 40 firms in the municipal bond market agreed to ban campaign contributions to state and local officials that choose bond underwriters. In addition, the Municipal Securities Rulemaking Board, the municipal market selfc-regulatory agency, has proposed a rule that would restrict campaign contributions to state and local officials.
"One of the major motives for competitive bidding is being eliminated by a moratorium on campaign contributions, something that I called for," Hevesi said. During the campaign Hevesi said he would not accept more than $10,000 from firms that underwrite the city's municipal bonds.
For years, municipal market observers have been debating competitive versus negotiated sales for debt. Investment bankers claim that competitive sales sometimes cost issuers money, in part because underwriters cannot negotiate final sale prices with buy-side accounts.
Other analysts and investors, however, say negotiated sales often benefit underwriters, who demand huge fees from issuers.
Given the size and complexity of New York City's debt sales, most market observes say that the city would have a difficult time placing all of its bonds competitively.
Sources say, however, that the city's financial adviser, Public Resources Advisory Group, and several of its current senior bankers have called on the city to sell more bonds competitively. Executives from PRAG did not return telephone calls.
"If [Hevesi] never sells any bonds competitively, that would be a mistake," said Michael Shamosh, a municipal markets strategist for Cowen & Co. Shamosh said the city would save money with an occasional competitive deal because bond underwriters competing for city financings would feel obligated to bid aggressively on competitive sales.
