ASSEMBLY, No. 600
STATE OF NEW JERSEY
Introduced Pending Technical Review by Legislative Counsel
PRE-FILED FOR INTRODUCTION IN THE 1996 SESSION
By Assemblymen LUSTBADER and LANCE
An Act concerning the procedures for the issuance of bonds and the awarding of certain professional services contracts by the State and supplementing Title 52 of the Revised Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. As used in sections 1 through 5 of this act:
"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;
"bond transaction" means any financial transaction by an issuer with respect to bonds;
"bond" means any bond, certificate of obligation, certificate of participation, or other instrument evidencing a proportionate interest in payments due to be paid by an issuer, or other obligation that is incurred by an issuer in the exercise of its borrowing power, which is represented by an instrument issued in bearer or registered form or the transfer of which is registered on books maintained for that purpose by, or on behalf of, the issuer, as well as a refunding of an existing bond issued by the issuer;
"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;
"issuer" means the State or any body corporate and politic, district, agency, authority or instrumentality thereof, but does not include any county, municipality, school district or local government agency, district or authority; and
"underwriter" means a person, firm or corporation to which an issuer sells or proposes to sell bonds, including a senior manager or co-manager participating in a bond transaction.
2. a. Notwithstanding the provisions of any other law to the contrary, the sale of bonds by an issuer shall be to the lowest qualified bidder. Bids shall be publicly solicited prior to the selection and shall be communicated to the issuer in a sealed or otherwise confidential manner.
An issuer may, however, negotiate the sale of bonds without publicly soliciting bids upon making a written determination that the bond transaction involves complex or poor credits; a complex financing structure, including the simultaneous sale of more than one series of bond with each series structured differently; volatile marketing conditions; large issue size; a program or financial technique which is new to investors; or variable rate transactions. The written determination shall set forth, in specific terms, the reasons for negotiating the sale. A copy thereof shall be filed with the State Treasurer and shall be a public record pursuant to P.L.1963, c.73 (C.47:1A-1 et seq.).
b. An issuer which engages in similar types of bond transactions on a regular basis may make a written determination with respect to the method of sale, consistent with subsection a. of this section, to be used for two or more transactions which are part of a larger bonding program of similarly secured financings. The written determination shall set forth, in specific terms, the reasons for adopting a particular method of sale. A copy thereof shall be filed with the State Treasurer and shall be a public record pursuant to P.L.1963, c.73 (C.47:1A-1 et seq.).
3. a. The selection of an underwriter or a financial advisor in connection with a bond transaction shall be made through the use of the competitive procedures established by this section.
b. When a bond is to be secured by an appropriation from the State's general fund, the full faith and credit of the State, or otherwise by State revenues, the issuer, in conjunction with the State Treasurer, shall develop a request for proposals and criteria for selection for each contract to engage the services of an underwriter or a financial advisor. The criteria for selection shall include, but not be limited to, the quality of response regarding the proposed bond structure, credit, or marketing strategy; sophisticated cash-flow capabilities as required by a particular financing; development of new ideas; demonstrated ability to distribute New Jersey securities; quality of relevant service to the State in previous transactions; experience with similar financings in which the firm and its proposed financing team participated; proposed fees for the particular bond transaction; and sufficient capital to participate in underwriting the issue. The underwriters or financial advisors for a particular bond transaction shall be selected by the issuer and the State Treasurer. The criteria for selection developed by the issuer and the State Treasurer, as well as information concerning the identity of each underwriter or financial advisor solicited or selected, shall be a public record pursuant to P.L.1963, c.73, (C.47:1A-1 et seq.).
However, an underwriter or a financial advisor may be selected on a noncompetitive basis when all of the following factors are present: an innovative idea has been brought to an issuer, a request for proposals cannot be constructed without communicating the new idea and the issue would not benefit from a competitive selection process.
Underwriters or financial advisors may be selected for two or more transactions from a pool of qualified individuals or firms without soliciting separate proposals when the transactions are part of a larger bonding program of similarly secured financings. Pool participants shall be chosen in a manner consistent with this act.
c. When a bond issue is not to be secured by an appropriation from the State's general fund, the full faith and credit of the State, or otherwise by State revenues, the issuer shall formulate procedures for the selection of an underwriter or financial advisor which are consistent with the provisions of subsection b. of this section and which provide for an open and competitive process. This information and information about particular selections shall be a public record pursuant to P.L.1963, c.73 (C.47:1A-1 et seq.).
d. In selecting underwriters and financial advisors an issuer shall give particular consideration to firms with a presence in New Jersey and to minority- and women-owned firms.
e. Within 30 days of completion of a bond transaction, an issuer shall provide a written report to the State Treasurer which sets forth the allocation of bonds and fees received by each member of the underwriting syndicate and a breakdown of the costs of issuance paid by the issuer.
4. a. The Attorney General shall establish procedures for the selection of bond counsel pursuant to section 13 of P.L.1944, c.20 (C.52:17A-13) which provide for the appointment of bond counsel on a competitive basis and under criteria based upon the common themes of quality, economy and accountability and which place great weight on the bond counsel's qualifications and suitability for a particular bond transaction, as well as the fee proposal. Such criteria shall include, but not be limited to, the bond counsel's experience with similar transactions; familiarity with State laws relevant to the proposed bond transaction; proficiency with securities laws, tax laws, and other laws relevant to the transaction; quality of the proposed legal strategy with respect to specific questions posed in the request for proposal; quality of past legal services rendered to the State and its authorities; and fees. However, an appointment may be made on a noncompetitive basis when necessitated by unusual circumstances, such as the unique prior experience of a bond counsel with respect to a particular type of bond transaction.
b. Issuers other than those for which the Attorney General must appoint a bond counsel pursuant to section 13 of P.L.1944, c.20 (C.52:17A-13) shall establish competitive appointment processes based on the criteria set forth in subsection a. of this section. The Attorney General shall develop guidelines for the use of such issuers when selecting bond counsel.
c. In selecting bond counsel an issuer shall give particular consideration to firms with a presence in New Jersey and to minority- and women-owned firms.
d. Policies and procedures established pursuant to this section shall be a public record pursuant to P.L.1963, c.73 (C.47:1A-1 et seq.).
e. The Attorney General or the issuer, as appropriate, may establish a procedure, consistent with the provisions of this act, whereby a firm is appointed for a series of transactions which are part of a larger bonding program or for specific time periods and may establish a competitive procedure whereby a group of bond counsel firms are appointed to serve as counsel to frequent bond issuers for a specific term not to exceed two years. In the latter case, an issuer may select from the competitively established group without soliciting separate proposals for each bond issue. A fee schedule for such transaction shall be established at the beginning of a term.
f. In selecting a bond counsel, the Attorney General or the issuer, as appropriate, shall consider the interests of others who may be affected by the bond transaction. In appropriate cases, other parties to the transaction, such as borrowers, may be consulted concerning the choice of bond counsel.
g. The Attorney General or the issuer, as appropriate, shall prepare a written report containing information relative to the selection of bond counsel for each bond transaction. The Attorney General shall maintain such reports on file. A report shall be a public record pursuant to P.L.1963, c.73 (C.47:1A-1 et seq.).
5. On or before January 31 of each calendar year, each issuer shall submit to the State Treasurer a debt management plan describing its bond financing programs. The plan shall include information on the outstanding debt and debt service costs for the prior one-year period and the next one-year period. It shall describe each proposed bond issue including: the size and purpose of each transaction; the anticipated sale date of each issue; the security and anticipated rating for each transaction; the anticipated method of sale; and the anticipated method of selecting underwriters, financial advisors and bond counsel to be used in connection with each transaction.
6. Notwithstanding the provisions of section 4 of P.L.1954, c.48 (C.52:34-9) or any other law to the contrary, a contract for the services of an architect, engineer or accountant the cost or contract price of which is to be paid with or out of State funds shall, to the fullest extent practicable, be awarded according to competitive procedures established by each contracting agency. The procedures shall be developed with the purpose of ensuring that each agency will receive the best possible services at the lowest cost.
In selecting an architect, engineer or accountant, a contracting agency shall give particular consideration to firms with a presence in New Jersey and to minority- and women-owned firms.
Procedures established pursuant to this section shall be a public record pursuant to P.L.1963, c.73 (C.47:1A-1 et seq.).
7. This act shall take effect immediately.
STATEMENT
This bill would implement certain procedures for the issuance of bonds by the State and State authorities, and the selection of underwriters, financial advisors and bond counsel in connection therewith, contained in Executive Order No. 26 (Whitman), issued October 25, 1994. The Executive Order adopts recommendations made in the "Report of the Advisory Panel on Government Contracting Procedures," issued on July 29, 1994.
The procedures which previously governed the sale of bonds were established by Executive Order No. 92 (Florio), issued May 4, 1993, and the report of the State Treasurer to the Governor, dated May 3, 1993, which that Executive Order incorporated by reference. These provided that bonds shall be issued on the basis of competitive bidding (i.e., on the basis of price alone) except in extraordinary circumstances. Similarly, professionals who rendered services in connection with bond transactions were primarily selected on the basis of price.
The bill recognizes that while competitive bond sales generally provide an effective method of sale at low cost in most cases, there are circumstances under which a negotiated sale is likely to provide higher quality services at a lower price. It permits a negotiated sale in cases involving complex or poor credits; complex financing structures; volatile market conditions; large issue sizes; programs or financial techniques which are new to investors; or variable rates.
The bill also provides that competitive procedures be established for the selection of underwriters and financial advisors. It allows an issuer to choose financial professionals, based upon such factors, in addition to price, as the quality of response regarding the proposed bond structure, credit, or marketing strategy; sophisticated cash flow capabilities; development of new ideas; demonstrated ability to market New Jersey securities; quality of relevant service to the State in past transactions and experience with similar financings; proposed fees; and sufficient capital.
Under the bill's provisions, bond counsel would be selected on a competitive basis using, in addition to proposed fees, criteria such as experience with similar transactions; familiarity with State laws relevant to the proposed bond transaction; proficiency with securities laws, tax law, and other laws relevant to the transaction; proposed legal strategy with respect to specific questions posed in the request for proposals, and past legal services rendered to the State and its authorities.
The bill provides that the basis for choosing a negotiated sale as well as the criteria used in each case to select financial professionals shall be in writing and accessible to the public. In addition, particular consideration would be given to minority- and women-owned firms when selecting underwriters, financial advisors and bond counsel.
The bill requires issuers to annually submit to the State Treasurer a debt management plan describing its bond financing programs.
The bill also provides that State contracts for the services of architects, engineers and accountants shall, to the fullest extent practicable, be awarded according to competitive procedures.
Establishes procedures for issuance of State bonds including selection of underwriters, financial advisors and bond counsel; provides for competitive selection of architects, engineers and accountants in connection with State contracts.