Pay To Play

This week in New Orleans, an obscure self-regulating board called the Municipal Securities Rulemaking Board (it's made up mostly of bond industry pros, but was created by Congress and is overseen by the SEC) is meeting to discuss how to deal with a persistent problem in state and local bond measures. Bond underwriters across the country (and particularly in California) often contribute to the political committees that support the campaigns for bond measures. When the measure passes, the bond underwriters who make contributions often end up handling the bond work.

There's growing concern about this sort of "pay to play"  among big underwriters such as Citi, JP Morgan and Morgan Stanley. Already, underwriters are barred from giving to public officials who oversee bond issues. The proposal being discussed that week would extend the ban to donations to ballot measure committees. More details via The Bond Buyer.  This seems wise. It's crucial that the ban have no loopholes. It should cover any firm or lender of any kind who might be involved in the bond business.

Winners:

Political reform. In California, the big longshot -- redistricting reform, which has a near perfect record of losing at the ballot -- came in. Prop 11, which strips the legislature of the right to draw state legislative districts (Congressional districts were exempted) -- passed. It's a stunning win (and one your blogger predicted would not happen). This redistricting measure is a modest reform, but the victory suggests that political reform on the ballot may be possible -- at least if there isn't much of a campaign against it. Look for future measures on open primary and perhaps other reforms. And in Colorado, Prop 54 -- which had little money and faced a huge, expensive, labor campaign againts it -- also appears to have scored a triumph. The measure is a tight ban on "pay to play." If a company or union has a contract with the government, it can't give money. Labor leaders here in Denver last night say they will challenge it in court.

The initiative process. Voters turned down the greatest in the country to the initiative process, Arizona's "majority rules" measure, which would have established a near impossible standard for passing an initiative: a majority of all the state's registered voters (not just the voters who show up on election day). Measure O, a legislative referendum to make it more difficult to qualify an initiative to change the state constitution, also went down.

A Jersey City councilman and other local government advocates had spent the past year seeking to qualify a municipal ballot initiative to end "pay to play" -- the practice of government contractors donating to local political campaigns -- in the city. They got enough signatures to put the measure on the November ballot. Last week, the political establishment caved, and the council adopted the initiative directly as a new law. So there's no need for an election. The new law prevents anyone who has donated more than $300 to a candidate or $500 to a local political party from receiving a city contract.