WASHINGTON - Rep. Jim Leach, R-Iowa, and Rep. Henry Gonzalez, D-Texas, introduced legislation yesterday that would repeal the so-called Tower amendment, the 1975 law that bars federal regulators from requiring disclosure from issuers of municipal bonds.
The legislation, aimed at stemming reported abuses involving political contributions, also would require underwriters, bond counsel, and broker-dealers to disclose political contributions.
Contributions would have to be disclosed if they are "made for the benefit of the issuer or any elected official or employee or political party associated with the issuer." according to a statement issued by Leach.
"Allegations of political abuse and favoritism have plagued the municipal securities market for some time," Leach said. "In too many instances, it appears that cities and states are awarding bond business to the securities firms or banks which have provided the most campaign contributions.
"This cozy relationship between politicians and securities underwriters costs taxpayers dearly as their elected representatives are allowed to direct business in uncompetitive ways because of a capricious right to ignore standard disclosure precepts."
The bill was jointly referred to the House Banking Committee, chaired by Gonzalez, and the House Energy and Commerce Committee, chaired by Rep. John Dingell, D-Mich., in a procedure that sent up red flags among Capitol Hill observers yesterday and raised questions about whether the bill would meet with much success. Leach is the ranking Republican on the banking panel.
"The introduction of the bill raises jurisdictional issues," said a Capitol Hill observer, who asked not to be identified. "Anyone who has been living through the government securities legislation" knows what that means, the source said, referring to months of haggling between the two committees over provisions in the bill.
"I hope that this is an issue that doesn't get mired down in jurisdictional disputes, because the integrity of this marketplace is very important to preserve," the source said.
It is jointly referred because it authorizes both securities and bank regulators to issue rules governing political contributions.
The bill would require "the itemization of any political contributions, expenditures, payments or the provision of other items or services of value that, either directly or indirectly, are extended by such person, to or for the benefit of the issuer, any elected official of the issuer, any employee of the issuer, any affiliate of such persons, or the political party of any elected official of the issuer."
Leach said the municipal bond scandal "is just the latest in a series of ethical lapses involving the securities industry. The junk bond scandal of the last decade and the fraud uncovered in the government securities market a couple of years ago underscore the need for greater disclosure and public oversight. When private greed blinds market participants to public trust, Congress has an obligation to protect the innocent.
"Despite the obvious public interest at stake." Leach observed, "municipal debt underwriting is subject to less oversight and disclosure requirements than obligations issued by private companies. "
"Market participants should welcome this legislation," Leach said. "This bill is designed to protect the public from the cost of political grease and ethical firms from the heavy-handed shakedown by political operatives."
Reaction to the legislation was mixed.
Betsy Dotson, assistant director for the Government Finance Officers' Association's federal liaison center, said she had not seen the bill but that the GFOA traditionally has opposed repeal of the Tower amendment.
But Micah Green, executive vice president of the Public Securities Association, said, "Putting Tower aside, I think that everyone would agree that the situation that exists in the municipal market, particularly as it relates to political contributions, has got to be resolved.
"All solutions shouldn't rest with putting additional regulation on the dealer community alone," Green said.