ASSEMBLY, No. 586
STATE OF NEW JERSEY
Introduced Pending Technical Review by Legislative Counsel
PRE-FILED FOR INTRODUCTION IN THE 1996 SESSION
By Assemblymen LUSTBADER and RUSSO
An Act concerning the procedures for the issuance of State bonds and the selection of bond underwriters, financial advisors and counsel, and supplementing Title 52 of the Revised Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. The Legislature finds and declares that:
a. There is substantial cost to the State in the issuance of bonds and the selection of bond underwriters, financial advisors and counsel; and
b. Because of that cost, there need to be established procedures which ensure the lowest cost to the State and the integrity of the selection process; and
c. It has been shown that competitive bidding protects the public's interest by obtaining the lowest possible interest cost and avoids allegations of unfairness and impropriety.
2. As used in this act:
a. "Bond counsel" means a person, firm or corporation of attorneys engaged by an issuer to advise and assist the issuer in legal, financial and tax matters relating to a bond transaction.
b. "Bond transaction" means any financial transaction by an issuer with respect to State bonds, notes, certificates or other instruments of debt.
c. "Financial advisor" means a person, firm or corporation engaged by an issuer to perform origination tasks for any bond transaction such as structuring the maturity schedule, preparing the official statement, obtaining a rating, obtaining credit enhancement, timing a sale or such other financial advice and assistance to an issuer.
d. "Issuer" means the State or any body corporate and politic, district, agency, authority or instrumentality thereof.
e. "Underwriter" means a person, firm or corporation to which an issuer sells or proposes to sell bonds.
3. Notwithstanding the provisions of P.L.1954, c.48 (C.52:34-6 et seq.), each sale of bonds by an issuer shall be awarded to the lowest responsible bidder after public advertisement for bids and full and free competition as provided in this act. The State Treasurer shall adopt procedures which set forth the manner of public notice, the specifications and invitation to bid, the time and place when and where sealed proposals shall be received and publicly opened, the method of award and such other procedures as will ensure openness and competition and quality services at the lowest possible cost. The procedures shall also ensure that appropriate consideration will be given to New Jersey-based vendors and vendors with significant minority or women ownership.
4. For any bond transaction, the issuer shall request in writing to the State Treasurer and Attorney General that bond counsel be appointed. A selection committee consisting of a representative of the issuer, the State Treasurer and the Attorney General shall select not more than five firms from a qualified list as provided for in this act. The committee shall request each of the five firms to submit its fees for the bond issue in the form of hourly charges for each level of attorney assigned, and as a maximum charge for the anticipated work. The committee may set other conditions or request other information. The committee shall prepare a written report on the reasons for selection of the firm assigned the work. The report shall be made available to the public.
5. The Attorney General, from time to time, shall issue a request for qualifications of prospective bond counsel. The request shall not be specific to a bond transaction and shall apply to bond transactions anticipated to be undertaken by issuers over a two-year period. The request shall elicit descriptive information on the bond counsel, its knowledge and experience in finance law, tax law and specifically the law regarding tax-exempt bonds, any special area of expertise and proposed fees for financial transactions involving bonds. The Attorney General shall maintain a qualified list of bond counsel for each type of bond transaction.
6. Notwithstanding any contrary provisions of section 3 of this act, an issuer may sell bonds by negotiation if it is more beneficial to the State to do so and if the issuer sets forth extraordinary circumstances for such a sale in writing. Extraordinary circumstances shall be specific to the bond sale and are a. the novelty of the financing issues and b. the complexity of the issuance. The statement shall be made available to the public.
If the issuer is an issuer other than the State, its governing body shall adopt the statement by resolution and submit it to the State Treasurer. The State Treasurer shall accept or reject the resolution. If the State Treasurer rejects the resolution, the bonds shall be sold in accordance with section 3 of this act. The State Treasurer shall report his findings, in writing, to the issuer and set forth the reasons for acceptance or rejection. The statement shall be made available to the public.
7. The State Treasurer, from time to time, shall issue a request for qualifications of potential underwriters and financial advisors for bond transactions. The request shall not be specific to a bond transaction and shall apply to bond transactions anticipated to be undertaken by issuers over a two-year period. The request shall elicit an underwriter's or financial advisor's experience in marketing bonds and notes with reference to various types of bonds; its financial responsibility, with specific reference to capital allocated to underwriting government bonds; proposed fees for financial transactions involving bonds; the degree of corporate investment or presence in this State, including the location of corporate offices, brokerage offices, back-office operations and the like; the proportion of minority or women ownership of the underwriter or financial advisor; and such other information deemed necessary by the State Treasurer.
The State Treasurer shall maintain a list of qualified underwriters and financial advisors on the basis of the information provided in the request for qualifications. The State Treasurer shall determine the list on the basis of the qualifications set forth in the request, with appropriate consideration given to underwriters and financial advisors who are minority owned, reside in this State and have corporate investment in this State.
8. The State Treasurer shall issue to each underwriter or financial advisor on the qualified list a request for proposals on each bond transaction. The underwriter or financial advisor shall provide in the proposal specific information on financial strategies for the proposed transaction; a recommended strategy for identifying and targeting purchasers of the bonds; proposed fees for the bond sale in question; and case examples of similar bond transactions on which the underwriter or financial advisor has worked.
The selection shall be made on the basis of the skills required for each transaction, the underwriter's or financial advisor's past performance on bond transactions, a rotation designed to give each underwriter or financial advisor a fair opportunity to participate in bond transactions, and such other factors based on the request for qualifications and as the State Treasurer deems appropriate. The State Treasurer shall issue a report to the issuer on the selection, stating the
reasons for the selection, and the report shall be made available to the public.
9. Each contract of sale between an issuer and an underwriter shall include a provision that the underwriter agrees to use its best efforts to assure that the State meets its objectives in the fair and reasonable allocation of bonds to members of the underwriting syndicate; and that the allocation of bonds and fees received by each member of the underwriting syndicate shall be reported to the State Treasurer within 30 days of closing of the bond issue. The State Treasurer shall make the report available to the public and shall set such terms and conditions as are necessary to implement the reporting requirement. Failure of the underwriter to comply with the reporting requirement shall not void the bond transaction, but shall constitute a basis for removal of the underwriter from the qualified list.
10. No issuer shall select or direct the selection of any person, firm or corporation to provide professional services to an underwriter, financial advisor or bond counsel.
11. The provisions of this act shall not apply to bond transactions issued solely by the New Jersey Economic Development Authority.
12. This act shall take effect immediately and shall apply to bond transactions commenced after its effective date.
STATEMENT
This bill provides for the establishment in statutory law of rules to govern the selection of financial advisors, bond counsel, and bond underwriters in connection with the issuance of bonds or other debt instruments by the State or any agency or instrumentality of the State. The selection of persons to provide these services is presently exempt, under a "professional services" exception (N.J.S.A.52:34-9), from the statute (P.L.1954, c.48; N.J.S.A.52:34-6 et seq.) that requires advertisement of and public bidding for State public contracts.
Selection of a financial advisor. "Financial advisor" under the legislation refers to "a person, firm or corporation engaged by an issuer to perform origination tasks for any bond transaction such as structuring the maturity schedule, preparing the official statement, obtaining a rating, obtaining credit enhancement, timing a sale or such other financial advice and assistance to an issuer." A "bond transaction", in turn, is defined as "any financial transaction by an issuer with respect to State bonds, notes certificates or other instruments of debt".
The bill provides that, periodically, the State Treasurer is to issue a request for qualifications of potential financial advisors. The requests are not to be specific to a particular bond transaction, but rather are to apply to transactions anticipated over a two-year period. The information requested is to cover a prospective advisor's experience in marketing bonds, financial responsibility, proposed fees, degree of its corporate investment or presence in New Jersey, the proportion of minority or women ownership of the advisor, and such other information as deemed necessary by the State Treasurer. On the basis of the information provided in response to the request for qualifications, the Treasurer is to maintain a list of qualified financial advisors, with appropriate consideration being given to financial advisors who are minority owned and who reside and have corporate investment in the State.
When an issuer undertakes a bond transaction, the State Treasurer is to issue to each financial advisor on the qualified list a request for proposals on the transaction. The financial advisor is to provide in the proposal "specific information on financial strategies for the proposed transaction; a recommended strategy for identifying and targeting purchasers of the bonds; proposed fees . . .; and case examples of similar bond transactions" with which the financial advisor has been involved.
The selection of a financial advisor is to be made "on the basis of the skills required for each transaction, the . . . financial advisor's past performance on bond transactions, a rotation designed to give each financial advisor a fair opportunity to participate in bond transactions, and such other factors based on the request for qualifications and as the State Treasurer deems appropriate." The Treasurer is to report to the issuer the reasons for the selection; this report is to be available to the public.
Selection of bond counsel. The bill provides that the Attorney General shall periodically request prospective bond counsel to submit qualifications, including information on firm experience, expertise and fees. As in the case of financial advisors, the requests for qualifications are not to be specific to a particular bond transaction, but rather are to apply to transactions anticipated over a two-year period. On the basis of the qualifications so submitted, the Attorney General is to maintain a qualified list of bond counsel for each type of bond transaction. For any proposed bond transaction, bond counsel is to be appointed upon the issuer's request by a selection committee consisting of a representative of the issuer and the State Treasurer and Attorney General. This selection committee is to select not more than five firms from the qualified list and ask those firms to submit information on charges and on such other matters as it sees fit. The committee shall report in writing the reasons for its selection of the firm assigned the work and make that report available to the public.
Selection of an underwriter. Under the bill, each bond sale by a State issuer "shall be awarded to the lowest responsible bidder after public advertisement for bids and full and free competition as provided in this act." The State Treasurer is to adopt procedures which set forth the manner of public notice, the specifications for and the solicitation and review of bids, the awarding of contracts, "and such other procedures as will ensure openness and competition and quality services at the lowest possible cost." The procedures are also to ensure that apppropriate consideration is given to "New Jersey-based vendors and vendors with significant minority or women ownership."
The bill provides that the the State Treasurer is to establish and maintain a qualified list for potential underwriters on the basis of the same information and using the same procedures as provided for financial advisors. The Treasurer shall, based on the response to a request for proposals circulated among firms appearing on the qualified list, select an underwriter from among those listed firms in the same manner and applying the same factors as in the selection of a financial advisor.
Notwithstanding the provisions for competitive bidding on the awarding of a contract for the sale of bonds, an issuer may sell bonds by negotiation "if it is more beneficial to the State to do so and if the issuer sets forth extraordinary circumstances for such a sale in writing. Extraordinary circumstances shall be specific to the bond sale and are a. the novelty of the financing issues[,]and b. the complexity of the issuance." The statement of extraordinary circumstances is to be made available to the public. Negotiated sales by issuers other than the State are to be allowed only with the approval of the State Treasurer.
Sets forth procedures for the selection of bond underwriters, financial advisors and counsel on State bond transactions.