By Larry Tramutola.
Jon Stewart’s parting advice to viewers when he retired from the Daily Show was, “If you smell something, say something!”
Several years ago I began speaking out about questionable practices in the school bond financing industry. Some municipal finance advisors were offering school districts political advice, polling services, and even campaign services in exchange for managing the bond issuance. These “political services” were paid from bond proceeds (taxpayer money) after the measure was approved.
Over the years few people said anything, and more firms adopted the practice. As a result, taxpayers throughout the state were paying for political campaigns that were disguised as “financial services.”
Although some joined me in speaking out, regrettably, most of the industry kept quiet as no one wanted to rock the boat, least of all the boat that carried cash. At every opportunity, I chose to “say something,” in blog posts, at conferences, and in meetings with legislators. I even found myself providing testimony alongside the taxpayers association in support of legislation to protect the public interest by supporting AB 621. Some financial advisors and bond counsels, many of whom benefitted from the bond sales, said that reforms would kill the Golden Goose.
Finally, Bill Lockyer, who was then State Treasurer, sought a legal opinion from the Attorney General to determine if these questionable practices were in fact violating state law. Last week, in response to a request from current State Treasurer John Chiang, Attorney General Kamala Harris released her opinion. The legal opinion confirms that certain practices and pricing strategies of municipal finance advisors may be in violation of the law. You can read her opinion here.
It is important to remember that the Attorney General’s opinion will not stop zealous financial advisors from providing political advice under the aegis of financial advice. Superintendents and governing boards must police themselves. It will not be easy. Many of the financial firms that sponsor Superintendent retreats, dinners at CSBA, ACSA and CASBO events will claim they are doing things correctly and ethically. Regrettably, some of these firms continue the questionable practices the Attorney General advises against in her well written opinion.
Here are five questions anyone involved in the hiring of municipal finance advisors should ask of the potential firm:
- What are your total costs in dollars, not percentages? (Ask for an itemization of what this covers)
- Do you do polling? (If so, sniff again, something smells)
- Do you do political consulting? (If so, sniff again, something smells)
- Have you read the Attorney General’s opinion? Does the opinion impact your firm? (If so, sniff again, something smells)
- Have you lobbied the Legislature or encouraged school districts to vote against reforms or restrictions on municipal finance advisors?
Protecting taxpayer interests is important. It’s worth taking the time to form a team of advisors who are independent of each other, and who will provide the district with independent analysis and assistance. Avoid “one stop shops.”
Will these questionable practices continue? Probably, but remember Jon Stewart’s advice. Change is more likely to happen only if we speak up.