State Tightens Rules on Which Finance Companies May Handle Bond Sales

Bonds can help big public projects get built, and they can also generate big revenues for the finance companies that handle bond sales for local governments. Now the California Treasurer’s Office says some of those companies are going too far.

Often voter approval is required to issue bonds -- and Deputy Treasurer of Public Finance Tim Schaefer says a troubling pattern has emerged in bond elections.

That pattern consists of "financial service vendors contributing to bond campaigns to approve bonds from which they may benefit economically," Schaefer says.

California's attorney general has issued an opinion that allowing such political contributions could be a violation of state law.

The treasurer's office says the state will now use only financial vendors that certify they do not contribute to bond election campaigns. Schaefer says the office hopes its actions will persuade local governments to follow suit.

"By holding this up and saying we think this is a bad practice, we’re hoping that we can, (A) call attention to it with the local governments that may be doing it inadvertently," Schaefer says. "And, (B) those that may be doing it with a wink and a nod understand that we are paying attention."

The action could have a big effect on the industry. Schaefer says the treasurer's office issues more bonds than anyone in the state, and often the country.

California voters will consider a $9 billion state school bond in the November election.