Campaign Contributions and Municipal Bonds
Esser, Jeffrey L., Government Finance Review
Lately there has been discussion in the press and proposals by members of Congress to regulate campaign contributions to state and local elected officials. In early June the U.S. Securities and Exchange Commission sent a letter to roughly 70 broker/dealers nationwide seeking detailed voluntary information on their political contributions. Other municipal bond topics also are heating up and these issues are discussed in a related Federal Focus article "Federal Regulation of the Municipal Bond Market".
For many years the Government Finance Officers Association has been a strong supporter of disclosure in the municipal bond market. We began developing the Disclosure Guidelines for State and Local Government Securities in 1974, published them in 1977, and have updated and expanded this industry standard several times. In addition, through our Certificate of Achievement in Financial Reporting program and other efforts we are encouraging the reporting of information in the secondary market.
The issue at hand, however, relates to the giving of political contributions to elected officials involved in the underwriter selection process and the effect, if any, on the issuance of municipal bonds. The Government Finance Officers Association does not have a public policy position on the issue of campaign reporting; however, it has longstanding support for ethics in government, including the promulgation of the GFOA "Code of Professional Ethics," which includes a conflict-of-interest clause.
Various federal officials have concluded that political contributions to state and local elected officials are influencing the issuance of municipal bonds, especially in connection with negotiated sales. GFOA is interested in hearing from its members and learning if this is a problem in your jurisdiction, and, if it is, how you propose solving it.
Campaign contribution reporting is regulated by laws in all the states, the District of Columbia and in individual cities. We expect that GFOA members are strong supporters of state laws which require campaign contribution reporting and promote the integrity of our electoral system. But, is there a need for the federal government to duplicate the campaign contribution reporting laws that already exist? The information is already made public, and we should carefully weigh the costs of another federal mandate on state and local governments to collect and produce information that political candidates already provide to election commissions and similar agencies. Even if you conclude that duplicate reporting is needed, the question then becomes who should do the reporting: the contributor, the elected official or the governmental body?
Recently the Municipal Securities Rulemaking Board has announced that it will be proposing a rule directed at underwriter and broker/dealer reporting of campaign contributions. GFOA's review of the proposed rule will focus on the desirability and usefulness of potentially duplicative campaign contribution reporting, the costs of reporting and whether these costs will be passed on to state and local governments.
A particular concern we have is a serious misunderstanding about the purpose of disclosure in the municipal market and its relation to the reporting of political contributions. Last month, the chairman and the ranking minority member of the U.S. House Banking, Finance and Urban Affairs Committee, Representatives Gonzalez and Leach, introduced H.R. 2464. This bill would require underwriters and others to report political contributions to the Securities and Exchange Commission and it would repeal outright the so-called Tower Amendment. …