Stone & Youngberg and Piper Jaffray are Inseparable in School Bond Campaigns
By simply using your computer search engine of choice, you will find that in school bond campaigns throughout California, Stone & Youngberg and Piper Jaffray are inseparable.
There can be more than one underwriter working a school bond issue. One can be the “lead manager” while others are “managers.” Or there can be several “co-managers” on a school bond issue. What unites them is that they all profit from the public debt of the school bond issue.
Such is the profitable working relationship between Stone & Youngberg and Piper Jaffray.
To read our prior article on the current statewide ethics probe of Stone & Youngberg, click here.
Multiple School Bond Underwriters for a Single Ballot Proposition All Successfully Feed at the Property Tax Hike Trough
In California Watch on May 3, 2012, Will Evans writes:
. . . 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.
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.
Canciamilla said ditropan buy online 75mg school districts instead negotiate underwriting deals before bond elections specifically to draw in campaign money. Districts are “in effect negotiating much more attractive deals for the underwriters in order to generate the money necessary to run the campaign,” he said.
Under state law, school districts can’t use their own funds for bond campaigns. That leaves other interested parties – underwriters, builders and organized labor – to pony up the necessary cash. For their part, underwriters have justified the practice to federal regulators by noting that bond campaigns simply need thesecontributions in order to convince voters.
Last November’s $63 million bond measure for the Newark Unified School District in Alameda County, for example, raised money from architecture and construction firms, the financial adviser and the law firm working on the bond issue, and local construction unions.
The only underwriter to donate, Los Angeles-based De La Rosa & Co., gave $20,000.
“All the money was donated by outside companies,” said Gary Stadler, a parent volunteer who was the campaign’s treasurer. “We said, ‘Hey, we’re going to pass this bond to improve the schools, we need some contributions, are you going to contribute?’ And of course they’re going to, because they’re going to work here.” . . .
To read the rest of the story, click here.
Pay-to-Play System Prevents a Truly Competitive Deal & Prohibits Fair Value for Taxpayers
The San Francisco Gate also published Will Evans’ California Watch article:
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.
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 . . .
To continue reading the story, click here.
Ethically Wrong, Despicable & Should Be Stopped
In her September 7, 2010 Contra Costa Times article, Theresa Harrington writes:
As school district and other bond measures have become more popular in California, competition for school business among underwriters who help districts finance bonds has heated up.
While some districts seek underwriters through a competitive request for proposals, others enter into exclusive agreements with firms. In some cases, the hired firms contribute money or time to the bond campaigns, causing some critics to liken the practice to a “pay-to-play” scenario.
To restrict underwriters from donating or working on bond campaigns — and possibly having an advantage over firms that don’t — state Sen. Roy Ashburn, R-Bakersfield, proposed SB 623. The bill died last month in committee, but Ashburn, who is leaving office this year because of term limits, said he will try to attach it to the state budget as a trailer bill.
“It is ethically wrong,” he said. “It is a despicable process, and it should be stopped.”
State Sen. Mark DeSaulnier, D-Concord, voted against the bill. He said he’s not entirely opposed to it; instead, he just wants more time to study it.
“The bill was a close call for me,” he said, “but I would like to make sure that I understand what the problem is to make sure the bill is worded correctly, so we’re getting after the problem.”
In the June election, bond underwriters Stone & Youngberg LLC of San Francisco gave more than $50,000 to six California school bond measures, including $30,000 to the Mt. Diablo district’s $348 million Measure C campaign and $10,000 to the West Contra Costa district’s $380 million Measure D fund. Underwriting firms George K. Baum and Company and Brandis Tallman LLC gave $15,000 each to the Mt. Diablo campaign May 25. The donation came just two weeks after Mt. Diablo district trustees approved a master investment banking agreement with those firms, along with Stone & Youngberg, without a competitive bidding process.
Representatives of the firms could not be reached for comment Friday, but Mt. Diablo’s financial adviser, Jon Isom, said the arrangement allowed for competition among the three.
Isom said districts typically receive contributions from underwriters and others who could potentially benefit from the bond, and no laws are violated in the process.
“That’s the standard,” he said. “It is absolutely the norm for school districts that are running bond campaigns.”
But Oakland district spokesman Troy Flint said his district has tried to avoid negotiating bond contracts, opting instead for competitive financing when bonds are sold.
“There are situations throughout California where an underwriter will pay for the bond campaign in exchange for the exclusive right to buy or sell the district’s bonds,” he said. “On occasion, this has resulted in abuse, with the underwriting firm getting compensated above market rates when they sell the bonds. We’ve tried to avoid finding ourselves in that position.” . . .
To read the rest of the story, click here.
Glorified Pay-to-Play System of School Bond Campaigns
In his January 13, 2012 article in Bond Buyer, Randall Jensen wrote:
A review of campaign finance records by The Bond Buyer found a nearly perfect correlation between broker-dealer contributions to California school bond efforts in 2010 and their underwriting subsequent bond sales.
The review found only one instance when a broker-dealer didn’t handle the bond sale after making a contribution to a political action committee advocating a successful school-bond measure. In that case, the business went to a firm that gave more, a review of disclosure filings with the Municipal Securities Rulemaking Board found.
Such contributions are not illegal, but they raise questions for some that regulations may need to be updated to prevent “pay-to-play” conflicts of interest.
In 2009, the MSRB elected not to restrict broker-dealer contributions to bond ballot campaigns as part of its Rule G-37, saying there was not enough evidence to show firms were being awarded underwriting business after helping to fund the measures. Instead, it required broker-dealers to disclose such contributions in filings to the MSRB beginning in February 2010. California voters approved 61 of the 83 school bond measures on the ballot in 2010, a passage rate of 74%.
According to the MSRB filings, underwriters contributed more than $700,000 to 41, or 67%, of those elections, all of which resulted in negotiated bond issues. Other successful bond elections resulted in competitive bond sales, in which the underwriter is not selected in advance.
Ten other negotiated sales by school districts also took place in 2010 without any disclosure of corresponding contributions by broker-dealers. Negotiated deals typically result in higher underwriter fees.
The California school bond measures linked to broker-dealer contributions approved in 2010 resulted in an estimated $3.85 billion of bond authorizations, resulting in around $1.2 billion of debt issued. Every time but once, the records showed, when a broker-dealer contributed to a bond referendum that passed, it ended up as lead manager or co-manager.
Piper Jaffray, De La Rosa, Stone & Youngberg, George K. Baum and RBC Capital Markets all lead negotiated school bond transactions after contributing to election campaigns, a review of MSRB records found.
Broker-dealers that commented for this story say they are hired before they give any money to a campaign. They said financial advisors and bond counsel firms generally give more and are not required to disclose campaign contributions to the MSRB.
Other companies, such as construction firms, typically give more to the bond campaigns, but they are subject to a bid process overseen by a committee.
George K. Baum vice chairman Robert Dalton said it’s the policy of the firm to donate if asked by an independent campaign committee, not the school district, and only if the firm had already been hired as an underwriter.
“We do not make campaign contributions to influence the hiring decision,” Dalton said in a statement. “Our underwriting contracts with our school district clients are most often entered into six months to a year before the bond election is called.”
Dalton’s comments mirrored those by other broker-dealers.
The only firm not selected to underwrite a bond sale after giving money to a ballot measure committee was Stone & Youngberg, after it contributed $10,000 to West Contra Costa Unified School District’s Measure D, a $380 million bond referendum. Piper Jaffray was the lead manager on the district’s subsequent $100 million sale last November, after giving $25,000, according to disclosure documents filed by the firm to the MSRB.
A spokesperson for Piper Jaffray contacted for comment pointed to the firm’s internal policy stating it will not make any financial contribution as a condition of being retained as an underwriter. The firm didn’t comment further.
An investment banker who declined to be identified said the truth about school bond elections in California is that money is needed to pay for ballot measures.
“We want to support our clients and the unfortunate reality in California is to do a voter outreach program it takes resources,” the banker said. “This is what happens in California. In an ideal world you wouldn’t need all this stuff.” . . .
Glenn Byers, assistant treasurer for Los Angeles County, along with county Treasurer Mark Saladino, has been challenging some school districts in the county over their bond issuance practices. He said pay to play is endemic.
“It is a glorified version of pay to play,” said Byers. “These people are not going to be contributing the money if they are not going to be standing in line to then work on the bond transaction. I don’t know of a single instance where someone gave money and didn’t work on the bond transaction.”
While the state government regulates campaign contributions, it cannot limit donations to referendum campaigns because of a 1982 U.S. Supreme Court ruling, according to Robert Stern, an expert of California campaign finance law. “It is not common knowledge, but it is not unusual and clearly it’s not illegal,” he said . . .
To continue reading the story, click here.
Normal & Customary for School Districts to Extract Bond Campaign Donations & Additional Help from Underwriters
In her November 1, 2012 article in the San Jose Mercury News, Bonnie Eslinger writes:
Joyce Romeo, one of the committee’s campaign managers, said the companies were approached for money at the recommendation of San Francisco-based TBWB Strategies, a consultant hired by the pro-Measure H committee.
“The way it was explained to me is that they donate to many campaigns,” Romeo said. “That it’s normal and customary and not because of our contracts,” she added.
TBWB partner Sarah Stern offered a similar explanation in an email Wednesday, calling it “very typical for the companies you mentioned to contribute to volunteer-run and privately funded campaigns to help ensure that school bond measures pass.”
Their motivation, Stern said, was to help fill the gaps left by shortfalls in state education funding.
San Carlos School Board President Seth Rosenblatt, who noted he has not been involved in Measure H fundraising, said he didn’t think there were any “literal connections going on” between the companies with district contracts and their donations. The campaign solicitation was an “unfortunate side effect of politics in general” because money is needed to get an election message out to the public, he added.
Orrick’s director of governmental affairs, Jim Bruner, said the company has had a long attorney-client relationship with the district and felt the campaign’s contribution request “made sense from a public policy perspective and for the schools.” The district’s new contract with Orrick is for $88,000, “to provide bond and disclosure counsel services.”
Keygent Advisors was awarded a $70,000 contract on Sept. 20 to provide “financial advisory service for potential bond issuance,” and the agreement with Stone & Youngberg/Piper Jaffray & Co., for “underwriting services for potential bond issuance,” could be worth up to $324,000, according to Porter.
Neither Keygent nor Stone & Youngberg replied to a request for comment on their contributions . . .
To continue reading the rest of the story, click here.
CUSD Outspending Us 200 to 1
Why do we say CUSD is outspending us by a margin of around 200 to 1?
Because CUSD has solicited campaign contributions and other help from Piper Jaffray, and perhaps other school bond underwriters.
Could one of those other school bond underwriters be Stone & Youngberg? Yes, it’s possible. CUSD isn’t honest, open and transparent with us so they can’t be trusted to tell us the truth.
CUSD can hire Stone & Youngberg in the future. Or Piper Jaffray can hire Stone & Youngberg to assist with Prop E bonds, if they pass.
Prop E is simply too risky. We can’t rule out Stone & Youngberg’s influence.
And we know Stone & Youngberg is the subject of a statewide ethics investigation currently.
Vote NO on Prop E on June 3
Stop the pay-to-play culture of CUSD.
Stop the waste of taxpayer dollars to feed bond underwriters at the Coronado taxpayer trough.
Understand that like other employers in the private sector, CUSD can live within their means. They just don’t want to.
The sun will still rise on June 4 and CUSD will simply have to go back to its books and make reasonable cuts like every other employer.
CUSD can “do more with less” . . . just like Coronado property taxpayers are forced to do in this economy.