Use of political consultants is the next big problem the municipal bond community must reform.

If political contributions are bad for the market, political consultants are bad for it, too. If it's against the rules to make campaign gifts to get business, it must also be against the rules to hire consultants as a quid pro quo to get business. Setting effective consultant rules, however, will be even more difficult than devising the rule banning contributions.

The problem with political contributions and political consultants is that they build distrust and, over the longer term, make it more difficult and more expensive for states and cities to raise capital to finance their needs. The industry must continue to work to convince investors and taxpayers that the municipal bond market is an efficient and low-cost market, a place where bond brilliance is paramount.

Regulators clearly are concerned. The Securities and Exchange Commission wants large municipal bond firms to describe in detail their relationships with consultants and to name employees who had served in government. Christopher Taylor, executive director of the Municipal Securities Rulemaking Board, said recently that the MSRB would soon examine how securities firms use consultants to win bond business.

Until now, most municipal bond firms have been using political consultants, and they see nothing illegal or unethical about it. But the practice detracts from the market's reputation and makes it difficult to say it is driven only by economics. What do these consultants bring to the table that makes them worth fees of thousands of dollars a month?

Morgan Stanley & Co. does not use political consultants and is to be commended for its policy. "We believe business should be awarded based on good ideas, service, and the lowest cost of capital," a spokeswoman told Charles Gasparino, who reported extensively on consultants in The Bond Buyer last Tuesday. "If a consultant is needed to win business, then one may question the basis of the award."

Perhaps consultants should be required to register as bond lobbyists and underwriters should be required to disclose in official statements the names of consultants used to obtain bond issues. Perhaps they should be banned altogether. Rules that make sense, that are effective and fair, and that cannot be evaded must be written soon to ensure the municipal market's long-term viability.

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