Public finance executives are both irritated and amused now that New York City has introduced ethnic cleansing and neo-Nazi street violence into its search process for underwriters.

A recently mailed request for proposals asks Wall Street firms to describe how they are battling discrimination and bigotry, given the conflict in Yugoslavia and rising extremism in Germany.

The 24-page document will be reviewed by city finance officials who must select a number of firms to serve in the key underwriting positions the city and its Municipal Water Finance Authority.

The RFP's Wall Street reviews haven't been all bad. Executives interviewed on a not-for-attribution basis said that, on the whole, the request focuses on legitimate financial and social concerns raised by the staffs of Mayor David N. Dinkins and city Comptroller Elizabeth Holtzman, the elected officials responsible for filling the lucrative underwriting slots.

For example, the RFP asks underwriters how they can help the city improve its credit rating, save money using derivative products, and issue more short-term debt. The document also see)is information on the firm's affirmative action policy, commitment to remaining in the city, and business connections with the white-minority government of South Africa.

But what touched a nerve with many members of the municipal bond community was a question labeled Social Action." Asking investment banks to describe their antidiscrimination efforts, the document invokes the "program of ~ethnic cleansing' in the former Yugoslavia, a rise in neo-Nazism and xenophobia in Germany, and the passage of laws discriminating against homosexuals in Colorado."

Mitchell Moss, director of New York University's Urban Research Center, termed the question "a reflection of the times" during an era when "everybody must be fighting against evil. "

The question is an attempt by the city to show the nation "who's the greatest force against evil," Moss said. The city "wants to show that they only want to do business with people who are ideologically pure."

In a series of interviews, several public finance executives expressed anger at what they described as a politically correct question designed to enhance the images of Dinkins and Holtzman during an election year. Both officials have said they are seeking reelection next fall.

"I've responded to hundreds of RFPs and I've never seen anything as foolish as that question," said one Wall Street source. "The affirmative action question was legitimate, but ethnic cleansing? It's a joke. "

Others said firms that want to deal with the city should expect questions about issues outside the city's normal financing agenda. But these sources said they were amused by the question's reference to "ethnic cleansing" as an obvious attempt to appear politically virtuous in a document largely designed to help the city save money on its bond sales. These officials also said they would provide answers that emphasize their firm's commitment to charities both at home and abroad.

"We live in politically correct times," said another Wall Street source. "I'm sure if you take a poll of firms on the Street, you'll find that they are against ethnic cleansing."

The city, which mailed the documents on Dec. 22., will choose two separate teams to serve as senior and co-managing underwriters to float the city's general obligation debt and the water authority's revenue bonds. City officials say no decision has been made on the size of the underwriting teams, or how much debt they will sell.

New York City, the nation's largest municipal bond issuer, has scheduled its next GO bond deal for February or March. The request document states that the city may use the information to select "a particular firm or firms" to finance the sale of securities other than fixed-rate, tax-exempt debt.

Darcy Bradbury, the city's deputy comptroller for finance, said the social action question was included "specifically at the comptroller's personal request." Holtzman and city Finance Commissioner Carol O'Cleireacain recently wrote German Chancellor Helmut Kohl stating they were concerned about the city's $265 million in pension fund investments in Germany, given the rise of neo-Nazism.

Bradbury said the question is appropriate because the Wall Street investment community is a leader in charitable efforts. "We didn't ask the question because we think Wall Street is evil," Bradbury said. "But we view this as a consciousness-raising effort. The comptroller believes securities firms are important to the community, and she will be looking at the answers."

Bradbury also rebuffed charges that similar questions do not appear on other city RFPs, such as those for city contracts. She said firms that obtain city contracts must sign a statement that, they comply with the MacBride Principles. These rules prevent firms that also do business in Northern Ireland from discriminating based on religion.

Still, one former high-ranking city finance official, who asked not to be identified, said the social action question add a new dimension to the city's RFP process because it appears to be asking about opinion as well as the firm's policy.

"I think the way the question is worded, it puts people in an awkward position." the former official said. "I'm not sure what it is they are asking."

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