National Association of Independent
Public Finance Advisors
P.O. Box 304
Montgomery, Illinois 60538.0304
630.896.1292 • 209.633.6265 Fax
www.naipfa.com
February 24, 2011
Mr. Ronald W. Smith
Corporate Secretary
Municipal Securities Rulemaking Board
1900 Duke Street, Suite 600
Alexandria, VA 22314
RE:
MSRB Notice 2011-04
Request for Comments on Pay to Play Rule (Rule G-42) for Municipal Advisors
Dear Mr. Smith:
The National Association of Independent Public Financial Advisors (NAIPFA) appreciates this
opportunity to provide comments to the Municipal Securities Rulemaking Board (MSRB) on the
proposed Pay to Play Rule (Rule G-42) for Municipal Advisors.
NAIPFA, founded 21 years ago, is a professional organization of independent public finance
advisory firms that provide public finance advice to municipal and non-profit entities. NAIPFA
comprises thirty-two member firms serving all fifty states from locations in twenty–six states.
Independent public finance advisors offer a wide variety of consulting services to issuers and
obligated persons. In 2009, NAIPFA members represented clients on over 2,800 separate bond
issues with approximately $75 billion in par amount.
Our association denounces political contributions that are intended to influence the awarding of
municipal finance business. In fact, NAIPFA’s professional standards of conduct include bans on
making political contributions at the state and local levels and on soliciting or coordinating political
contributions, provided that a municipal finance professional may contribute up to a $250 de
minimus amount to officials of an issuer for whom the contributor is entitled to vote.
Unlike Rule G-37 and the proposed Rule G-42 that allow contributions (both direct and in-kind) to
bond ballot campaigns, NAIPFA believes such contributions to be “political contributions” and
lead to the very same abuses attributable to political contributions to individuals. After all, the
governing board that approves the placement of a bond authorization on an election ballot is the
same governing board that later approves the financing team for the bonds issued under that
authorization should it be approved by voters. Thus, contributions to a bond ballot campaign can
directly affect the awarding of business by said governing board and should consequently be
banned.
Bond election campaigns are fundamentally intended to be grass roots campaigns at the local level.
An agency seeking voter approval of a bond measure typically needs to conduct fundraising
Comments on MSRB Rule G-42
NAIPFA
Page 2
activities to pay for election planning, political consultants, pollsters and campaign events and
materials. All too often, we see funds and/or campaign services being contributed to bond
campaigns by underwriters, financial advisors, and municipal bond attorneys who end up providing
services for the bond transaction work once the election is successful. In addition, we have seen
underwriters and/or financial advisors “bundle” campaign services with the campaign’s political
strategist and/or pollster at no charge to the municipal entity but are later compensated for such
services from a bond transaction once the election is successful. While these bond ballot
contributions may be an easy source of campaign financing to the agency, the motivation behind
the contributions has little if anything to do with the grass roots goals of the agency; rather, they
have everything to do with securing an advantage over non-contributors when the bond transaction
team is selected. They may also corrupt the public purchasing process and result in nontransparent fee arrangements.1 NAIPFA believes that the proposed Rule G-42 does not go far
enough in this regard. Instead, the proposed Rule G-42 should broaden the standards of ethical
behavior to include a ban on municipal advisory business in the event of abusive bond ballot
contributions.
NAIPFA also believes that non de minimus political contributions to an official of a municipal
entity by non-MAP executive officers should trigger a two-year ban on business. We believe that
allowance of such contributions provides large firms an opportunity to make significant “indirect”
contributions that directly benefit the municipal business of such firms. Specifically, an official of
a municipal entity who receives such a contribution may learn that the individual making the
contribution works as “Firm X” and thus be influenced to award business to the municipal unit of
Firm X that employs the non-MAP executive officer.
NAIPFA has the following specific comments on proposed Rule G-42 and the related changes to
Rules G-8 and G-9:
1. NAIPFA sees no benefit in allowing underwriters and financial advisors an “end run”
around the nominal “banning of influence peddling” intent of the proposed Rule G-42 by
permitting contributions to bond ballot campaigns. Therefore, we propose that de minimus
contributions to bond ballot campaigns by MAPs and non-MAP executive officers eligible
to vote on said campaign measure be permitted, but that all other contributions to bond
ballot campaigns trigger a two year ban on municipal advisory business with the associated
municipal entity. Rule G-37 should concurrently be conformed to contain the same bond
ballot campaign contribution provisions for MFPs and non-MFP executive officers that we
propose for Rule G-42 for MAPs and non-MAP executive officers.
1
The Legislative Counsel in California goes even further by concluding that contribution of campaign services by
underwriters is illegal in its opinion issued on June 28, 2010 that “…a school district or other local agency may not
condition the award of an agreement to provide bond underwriting services on the underwriter also providing campaign
services in support of that bond measure or another bond measure proposed by the school district or other local
agency.”
Comments on MSRB Rule G-42
NAIPFA
Page 3
2. NAIPFA sees no benefit in allowing underwriters and financial advisors an “end run”
around the nominal “banning of influence peddling” intent of the proposed Rule G-42 by
permitting non-MAPs to make non-de-minimus political contributions to an official of a
municipal entity. Therefore, we propose that de minimus contributions to an official of a
municipal entity by non-MAP executive officers eligible to vote for such official be
permitted but that all other political contributions trigger a two year ban on municipal
advisory business with the associated municipal entity. Rule G-37 should concurrently be
conformed to contain the same contribution provisions for non-MFP executive officers that
we propose for Rule G-42 for non-MAP executive officers.
3. NAIPFA is supportive of mandatory electronic filing of forms related to the proposed Rule
G-42.
4. With respect to the conforming changes to Rules G-8 and G-9 regarding recordkeeping
requirements, NAIPFA believes the proposed changes are reasonable.
Sincerely,
Colette Irwin-Knott, CIPFA
President
National Association of Independent Public Finance Advisors
cc
Martha Haines, S.E.C.
Michael Coe, S.E.C.