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Bond Accountability Commission 2 Recommendations Page 9

Advisor to CMSD states that in negotiated securities offerings “the District will prohibit a firm from serving as both financial advisor and underwriter.” 6 It makes no statement about whether CMSD’s Financial Advisors could change their role and bid as an underwriter in competitive sales. The Agreements between CMSD and its respective Financial Advisors (the “Financial Advisor Agreements”), however, are silent on the question of whether the Advisors could be permitted to underwrite CMSD’s securities. In addition, the Financial Advisor Agreements contemplate that the Financial Advisors are to perform services focused entirely upon securities offerings, including development of Plans of Finance. With that sole transactional focus, and with the fee schedule stated in the Financial Advisor Agreements as discussed below, CMSD is depriving itself of the continuing service of experienced Financial Advisors with respect to a range of other significant financial planning and financial management issues, some of which are discussed in this Report. Recognizing that CMSD has its own internal finance personnel, financial advisory services nevertheless can extend beneficially well beyond the conduct of specific securities issues.                                                             6

Under Municipal Securities Rulemaking Board Rule G-23, a dealer is permitted to resign from a financial advisory role in order to serve as underwriter to a municipal securities issuer in a negotiated sale. In that event, Rule G-23 permits financial advisors to resign by informing issuers that a conflict of interest “may” exist, and on that basis to obtain the issuers’ consents to the change in roles. Dealer firms may follow the practice of asking issuer employees to sign the consents, rather than seeking governing board approval of such a fundamental change from a fiduciary to an adversarial role. The Rule is controversial due to the inherent conflicts of interest between the fiduciary duties of financial advisors and the adverse interests that underwriters have with issuers. CMSD’s stated preference in its Memorandum to Potential Proposers is consistent with Best Practices of the Government Finance Officers Association (GFOA). GFOA states that it intends “to set a higher standard than is required under MSRB Rule G-23, because disclosure and consent are not sufficient to cure the inherent conflict of interest.”

BAC2 Recomendations Final 04062010  
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