Assembly Bill Seeks Changes in Bond Sales

California, the largest issuer of public debt in the United States after the federal government, would be required to open more local underwriting to competitive bidding under a bill scheduled for a hearing before the Assembly Education Committee next week.

The bill by Assemblyman Joseph Canciamilla (D-Pittsburg) attacks a nationwide trend toward so-called negotiated bond sales, which Canciamilla says raises taxpayer costs. It would keep investment banks from exclusively setting the price of bonds sold by California school districts, the most frequent issuer of such debt in the state.

Canciamilla’s bill would require all school district bonds to be sold through competitive bidding rather than privately arranged negotiated deals. The legislator says that would reduce school borrowing expenses and end what he sees as the upper hand that Wall Street bankers have in setting interest rates and other terms in a negotiated sale.

“There’s not much of a level playing field,” said Canciamilla, a onetime school board member. “This is clearly a case where districts, in my experience, are unsophisticated in most methods of financing.”

The California Public Securities Assn., a trade group, opposes the bill, said Chairman James Cervantes, managing director of public finance at Stone & Youngberg, a San Francisco-based underwriter.

The legislation would not allow communities to choose their method of debt financing and would hamstring issuers in the $2-trillion municipal debt market that may need negotiated deals to market bonds with complex features, Cervantes says.

Of the $10.5 billion in bonds issued by California school districts in 2004, $7.8 billion, or 74%, were privately arranged without competitive bidding, according to Thomson Financial.