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Selection of Municipal Finance Professionals

The selection of investment bankers, bond lawyers and other finance professionals should be merit-based, and not influenced by political contributions. Finance officers are concerned about any improper linkage, whether perceived or actual, between political contributions and the selection of municipal finance professionals. Even the appearance of such linkages erodes the confidence of the taxpayers and ratepayers of involved state and local governments.

In response to recent assertions of questionable practices in the municipal securities market, the Government Finance Officers Association (GFOA) supports municipal securities market reforms that are narrowly directed to specific abuses and are developed on a consensual basis by all affected market participants. To facilitate this process, the Securities and Exchange Commission (SEC) should make the results of its investigations into market practices available in order to better identify and substantiate the nature and extent of market problems.

Furthermore, the GFOA vigorously supports the use of an open, merit-based process for the selection of underwriters for those bond issues that are not sold by the competitive-bid process. Similarly, other municipal finance professionals also should be selected on merit.

The current proposal developed by the Municipal Securities Rulemaking Board (MSRB) relating to political contributions and prohibitions on municipal securities business (MSRB Rule G-37) addresses this concern in the wrong way by effectively banning legitimate political contributions. The proposed Rule presents numerous other problems, such as

  • the erroneous assumption that any linkage between a political contribution and the selection of underwriters is primarily an investor protection issue, rather than a taxpayer, ratepayer or voter concern;
  • the implication that a political contribution is in and of itself improper, regardless of the amount or frequency of such contributions;
  • the overly broad application of the Rule, which covers most contributions, regardless of size and type, and even those that would clearly not influence the selection process;
  • the way in which the Rule disadvantages small, regional, and women- and minority-owned firms;
  • the way in which the Rule disadvantages incumbent state and local officials running for a federal office;
  • the fact that the Rule only applies to broker/dealers and not to other municipal finance professionals; and
  • the possible violation of individuals' constitutional rights to participate in the political process and our system of democracy.


GFOA believes that the reporting of campaign contributions is one of the most effective ways to deal with perceived or actual improper linkages between campaign contributions and the awarding of municipal securities business. Furthermore, GFOA believes that the reporting of contributions made to elected officials and candidates for public office is best regulated at the state and local levels of government, but recognizes that improvements may be needed to ensure that sufficient information is conveniently available on a timely basis.

GFOA does not support the suggestion that political contributions should be reported through issuers' official statements, because this erroneously treats the problem as an investor-protection issue. If the municipal market regulatory agencies determine that new campaign contribution reporting requirements are necessary, then the burden of disclosing such contributions should be on the contributors, and the information collected should be made available through a central repository.

In the absence of any crisis of confidence in the market, GFOA urges the SEC to hold in abeyance proposed Rule G-37 to ban dealers from making contributions to certain officials, and to work with all market participants to propose workable and equitable reforms in the reporting of political contributions.

Adopted: June 7, 1994