Bloomberg News

SEC Backs Forcing Bank Disclosures on Muni-Bond Campaigns

April 01, 2013

SEC Backs Rule to Force Bank Disclosures on Muni Bond Campaigns

A man walks past the Securities and Exchange Commission building in Washington, D.C.. Photographer: Andrew Harrer/Bloomberg

The U.S. Securities and Exchange Commission will force state and local government bond underwriters to disclose more information about donations to election campaigns supporting new debt sales.

Banks will be required to report the timing of their contributions to such campaigns, any work done on behalf of the effort and whether they won underwriting work on resulting bond issues passed by voters. On March 28, the SEC approved the mandates, proposed by the Municipal Securities Rulemaking Board last year.

The requirements for the $3.7 trillion municipal-bond market are aimed at assessing whether public officials are steering underwriting work to banks that support campaigns to win voter approval of debt sales. That may cost taxpayers if banks recover such donations by charging higher fees.

“Even the appearance of pay-to-play in the municipal-bond market can undermine public confidence,” Lynnette Kelly, the executive director of the Alexandria, Virginia-based rulemaking board, said in a statement released today. The MSRB is the municipal-bond industry’s self-regulatory organization.

“Requiring more disclosure about dealers’ bond-ballot contributions will shine light on potential connections between dealers’ financial contributions and the awarding of bond business,” Kelly said.

Not Banned

While underwriters are barred from giving to local officials who award them work, there is no such ban on donating to campaigns backing debt sales, such as capital-raising issues proposed by school boards to finance new buildings.

Banks are currently required to report contributions to election campaigns. Regulators have said that without information on the timing of the donations and whether banks were later hired, it’s difficult to assess how large a role such donations play.

The practice has drawn scrutiny in California, the most- populous U.S. state.

Some California school districts in recent years have agreed to award underwriting work to firms that agree to conduct opinion polls, run community meetings and perform other work to persuade voters to pass new bond issues, according to California Treasurer Bill Lockyer. Some contracts specify that the underwriters will be paid back with fees from the bond sale, an arrangement that he said may run afoul of state law against using public funds for bond campaigns.

To contact the reporter on this story: William Selway in Washington at

To contact the editor responsible for this story: Stephen Merelman at

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