Driven by increasing concerns about the ethics of public officials, the Rhode Island Housing and Mortgage Finance Corp. has decided to require bond underwriters and law firms to declare contributions to politicians in the state.
This week, the corporation will kick off a selection process, soliciting proposals from firms that want to serve as lead manager and co-manager on morthgage revenue bond deals over the next two years, as well as from bond law firms interested in serving as counsel for the same period.
The disclosure policy is part of a larger focus on ethics statewide. Still smarting from a credit union debacle touched off by fraud. Rhode Island is moving toward tougher ethical standards. Gov. Bruce G. Sundlun, who began picking up the pieces of the credit union mess just hours after being sworn in Jan. 1, has launched a campaign to avoid conflicts of interest and even set up a task force to study ethics.
Campaign finance has become an ethical issue in other states, too. On Oct. 22, Gov. Lawton Chiles of Florida and six cabinet members approved rules to bar underwriters and lawyers on state level bond deals from contributing to the political war chests of the governor and cabinet members.
Rhode Island's Housing and Mortgage Finance Corp. does not go quite so far with its new policy, which merely requires prospective underwriters and bond counsel firms to show their donations for the previous two years -- with dates, amounts, the people or entities making the contributions, and the names of recipients.
Contributions made by the firm, its officers, partners, owners, directors, political action committees, and related parties will all have to be declared. A spokesman said "related parties" would include family members of the firm's employees.
Nicolas P. Retsinas, the executive director of the corporation, said last week that the data would not weigh against or in favor of any of the firms.
"They have to make their own judgment," Mr. Retsinass said. "These are the rules we're playing by we don't force people to bid." Mr. Retsinas would not say what would happen to a firm found not to have completely disclosed its political donations.
"It is consistent with other trends that are happening in the state. We have a governor who has made ethics the cornerstone of his plans," Mr. Retsinas said. "It was done in that spirit, to create that environment, and also to send a message."
While the Rhode Island agency's policy does not go as far as Florida's, it has awakened visions of a day when constraints on political giving by underwriters are commonplace.
"I sure hope this is not a forerunner of things to come," said one Northeastern municipal bond underwriter who spoke on condition that he not be named. "It's the first time I've seen anything like this. This may start to change the public finance business drastically."
The Public Securities Association, in response to the increasing scrutiny of financial relationships between elected officials and bond lawyers and underwriters, recently pointed out that states already require disclosure of political giving and that new measures are not necessary.
At an April 10 meeting, the association's municipal securities division declared that "discussion of this issue should not be confined solely to underwriters but should be expanded in scope to include any entity providing services to issuers of municipal securities."
In addition, the industry association said existing requirements for campaign contribution disclosure "provide any interested party with a comprehensive and accurate source of information on political contributions."
But with questions of ethics gaining importance in political circles, current disclosure requirements -- such as having campaign contribution data on file in a state elections office -- need to be taken a step further, according to Mr. Retsinas.
The form asks firms to discuss how they deal with "professional ethics in connectioin with public finance engagements," and, "When do potential ethical problems arise in the marketing and execution of your public finance business?"
"We are in an era where the subject of ethics is critical," Mr. Retsinas said. "One of the best ways to ensure an ethical environment is to have the sun shine in -- that is, to have full disclosure."
Or, as the request for proposals from bond law firms says, "The public has a right to know that decisions relative to the issuance of bonds or to the review and selection of bond counsel are not based upon political considerations."
The state's campaign finance laws require candidates to disclose contributions of $200 and above, but they do not require that the donor's employer be named.
Since firms routinely contribute through their employees, the corporation's policy will, perhaps for the first time, provide comprehensive documentation of Wall Street's contributions to public officials in a state. The corporation expects as many as 20 firms will vie for underwriting jobs.
In 1990, the Rhode Island Housing and Mortgage Finance Corp. sold six issues of mortgage revenue bonds to raise a total of $364 million, according to Securities Data Co./Bond Buyer. That put the corporation in the top ten issuers of housing bonds for the year. The authority sells about $200 million of single family mortgage revenue bonds and $25 million in multifamily project bonds in an average year, a spokesman said.