Crime & Police

Should Palm Beach County Change Bonding Process at Taxpayer Expense?

Now that we know former County Commissioner Mary McCarty managed to steer lucrative bond deals to her husband's bond underwriting firm, it would seem high time that the county reform the way it chooses a firm for financing the bonds issued to fund major public projects. Currently, Palm Beach and...
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Now that we know former County Commissioner Mary McCarty managed to steer lucrative bond deals to her husband’s bond underwriting firm, it would seem high time that the county reform the way it chooses a firm for financing the bonds issued to fund major public projects. Currently, Palm Beach and 85 percent of state and local governments nationwide pick their bond underwriters through a no-bid process in which the terms of the deal are negotiated between the firm and government staffers.

The other option, however, is far from perfect. A request for proposal process would be a more transparent way of handling these deals, but according to experts consulted in this Bloomberg News article, it’s also a more expensive proposition:

Banks have promoted
the no-bid method, saying it allows them to get the best prices
for issuers by tailoring the debt to specific types of
investors.

Bid sales saved issuers 17 to 48 basis points, “on average
and all else equal,” according to a study published in the
Winter 2008 issue of the Municipal Finance Journal. A basis
point is 0.01 percentage point.

On $100 million of debt, the savings mean $1.7 million to
$4.8 million less interest over the life of a 10-year bond. The
research by Mark Robbins and Bill Simonsen of the University of
Connecticut in West Hartford cited “almost all studies on this
issue.”

So what it boils down to is whether we trust our elected officials and government staff enough to let them negotiate deals with bond underwriters? Or are we willing to pay a little more to make sure our leaders are being honest? A third option, which may not even be on the table, is for the State Attorney’s Office to be more aggressive about monitoring the conflicts of interest among its elected officials.

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