Bond Firms Contributions Could Be Issue

In state after state, the sales of government bonds have been plagued by allegations that the firms that package bond deals have, in effect, purchased their business through campaign contributions and kickbacks to decision makers.

Although the full force of that controversy did not hit California, opponents of state Treasurer Kathleen Brown are hoping that the breadth of those scandals will taint her campaign to become governor.

At issue in California is Brown’s acceptance of campaign contributions from the investment bankers who are appointed by the treasurer to underwrite bond sales.

Although there is no evidence that Brown either demanded such payments from those seeking state business or that they affected her decisions, her campaign did accept checks from investment bankers as well as law firms that oversee billions of dollars in government bonds sold by the state.

Brown has slowly phased out the practice, but not before accepting more than $800,000 in contributions from the firms and their employees.

Brown’s supporters say she deserves credit as one of the first state treasurers in the country to recognize the problem and do something about it.

And so do regulators who are proposing a nationwide ban on such contributions in an effort to end the practice, referred to as “pay to play.”

“To her credit, I think she has been much more aware and much more sensitive to this whole thing than other treasurers and other politicians across the country,” said Christopher Taylor, executive director of the Municipal Securities Rulemaking Board in Washington.

The board, a self-regulating panel representing the industry, has drafted a rule that would bar firms that make such contributions to state and local politicians from taking part in bond deals awarded by those officials. The proposal is being considered by the Securities and Exchange Commission. More than 50 bond firms have announced that they will voluntarily stop making contributions to the decision makers.

What triggered the movement toward reform were allegations of impropriety in New Jersey, New York, Massachusetts and Louisiana.

The issue has been brewing for years, even in places like California that have not been touched directly by scandal.

As documented in The Times in 1986, former state Treasurer Jesse M. Unruh collected substantial contributions from investment bankers--in rough proportion to their business with the state.

In accepting the investment bankers’ money, Brown was following the example of Unruh and her immediate predecessor, Thomas W. Hayes. During the 1990 treasurer’s race, Hayes and Brown accepted substantial donations from the bond underwriters and legal firms that vie for state bond business, campaign records show.

Brown changed her policy to avoid any appearance of impropriety, said her campaign finance director, Ann Hollister, tightening it further as she prepared to launch her campaign for governor. Why did she wait until July to stop taking contributions from individual investment bankers?

“We’ve had an evolving policy,” Hollister said. “We were out front on it. . . . When you’re out front you have to look around and ask: ‘What is appropriate? What is right today?’ ”