Bond Accountability Commission 2 Recommendations Page 28
below, such fees and expenses normally are a significantly less important element in overall issuer costs. 23 In the recent selection process, members of prior CMSD underwriting teams, at least two of which teams were selected without professional financial advice, had a significant 35% head start that could not be overcome easily by other, potentially more qualified firms. Meanwhile, the ability to sell tax-exempt debt at optimal yields for CMSD and the taxpayers—the most important component to be considered—rated only 20%. It would have been more meaningful to place a significantly heavier emphasis upon “Ability to distribute.” Because at the time QSCBs were unknown in the municipal securities market, the capability of selling QSCBs at attractive yields was not a criterion. CMSD did not know at the time the underwriting team was selected, and likely does not know today, the capabilities of the members of that underwriting team to market bonds bearing taxable interest, such as direct subsidy QSCBs or BABs.24 With the 35% aggregate local and prior service weighting, it would have been very difficult, if not impossible, for other firms to have been selected. That would have 23
With the federal direct-pay QSCB subsidy program pursuant to which the federal government will pay 100% of CMSD’s interest costs so long as CMSD’s interest yield is below a prescribed federal level, the incentive for CMSD to save further on interest costs has been removed from the subsidy program, interest costs become irrelevant, and underwriting and other costs of issuance assume a greater significance than under normal circumstances. See n. 16.
24
See “Financing Options under Federal Law” beginning at page 114 regarding Build America Bonds (“BABs”). Pursuant to federal legislation recently signed by the President, QSCBs now can be sold with taxable interest, such as is payable on BABs and with the subsidy payable directly to CMSD, rather than in the form of tax credits to investors. See also n. 70.