Will Evans, California Watch
Sunday, May 6, 2012

Leading financial firms donated $1.8 million to successful school bond measures in California over the past five years, and in almost every instance, school district officials hired those same underwriters to sell the bonds for a profit, a California Watch review has found.

The practice is especially pronounced in California, where underwriters gave 155 political contributions since 2007 to successful bond campaigns for school construction and repairs. One major underwriter, Piper Jaffray, has said it gets more requests for campaign contributions in California than in any other state where it does business.

The success rate of these underwriters is extremely high. In only five cases since 2007 has a campaign donor failed to receive a bond-selling contract from the school district.

School districts say they choose bond underwriters for their expertise and competitive rates and because they’ve served them well in the past. Underwriting firms say their practice is to contribute only after they’ve been hired to sell the bonds, avoiding any undue influence.

But critics say that no matter when the agreement is made, the campaign donations influence school districts’ business decisions. They argue that prearranged underwriting contracts bypass a truly competitive sale, leaving in doubt whether districts got the best possible deal.
‘Proof of pay to play’

“If this isn’t clear proof of pay to play, then pay to play doesn’t exist,” said Glenn Byers, Los Angeles County’s assistant treasurer, who oversees some school bond sales but doesn’t control the hiring of underwriters. “The timing of the payment is irrelevant. You paid, and you got the job. That’s pay to play.”

Some states have banned the practice. Missouri, for one, outlaws donations to bond campaigns from companies with a financial interest in the bond sale.

In the past five years in California, five major underwriters donated $1.8 million to help pass 111 ballot measures, authorizing $15.5 billion in debt. A couple dozen other measures received underwriter contributions but failed at the ballot box.

Overwhelmingly, bond underwriters who donated to these campaigns were granted contracts by school districts.

In nearly all cases, the only underwriters that donated to a successful school bond campaign ended up working on the bond sale. Bond Buyer, a trade publication, found the same pattern in an earlier review of 2010 campaign contributions.

In Alameda County last year, underwriter De La Rosa & Co. gave $20,000 to a $63 million bond measure for the Newark Unified School District, while Piper Jaffray gave $25,000 to a 2010 bond measure for the Ohlone Community College District. The districts hired the donating firms for their bond sales.
Success rate is high

At times, multiple underwriting firms will donate to a single bond campaign. But even there, the success rate is high. In almost all cases in which multiple bond underwriters donated to the same campaign, they all were given contracts by the school district to market those bonds.

For donors, failure is rare. In only five cases out of 111 did an underwriter make a donation and fail to receive a contract to sell the bonds. In four of those, however, more than one underwriter made donations and the contract went to the firm that had contributed a larger amount to the campaign.

One example of that was in Contra Costa County, where Stone & Youngberg gave $10,000 to a 2010 bond measure for the West Contra Costa Unified School District but the contract for lead underwriter went to Piper Jaffray, which contributed $25,000.

Former Assemblyman Joe Canciamilla, a Democrat from Pittsburg, tried and failed to pass a law in 2005 requiring competitive bidding of bond sales. In a competitive sale, which takes place after the election, the underwriter with the lowest bid wins the bonds.

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