Senate defers bill aimed at curbing 'tie-in' incentives in school bond pool

Senate lawmakers on Jan. 24 debated measures to bar financial "tie-ins" that have limited school districts— choice of bond counsel and underwriters and then set the bill aside for further review.

Senator Michael Stevenson, sponsor of the substitute for Senate Bill 9, told the Senate the bill responds to an audit of a school finance cooperative that had created a pooled fund through arbitrage and, in practice, conditioned access to that money on use of specified bond counsel and underwriters. "The purpose of this bill is to address that issue," Stevenson said, describing incentives that effectively required districts to use particular firms.

Proponents said the change would open procurement to competition and prevent arrangements that can raise long-term borrowing costs. "This simply requires that when they go to obtaining those kinds of people, they go through the public process," Stevenson said. Opponents warned the procurement requirement could reduce quality when a small number of specialized bond counsel exist and questioned whether altering existing arrangements could produce litigation.

Senator Reese asked whether the arrangements amounted to kickbacks or financial incentives. Stevenson replied: "I wouldn't call it kickbacks ... Just incentives to use specific people and companies instead of the open market to ensure the best rate for the taxpayers." Senators also asked whether the bill would reach beyond bond issuance and whether it would be retroactive to existing contractual arrangements.

After extended questioning, Stevenson offered to distribute the auditor general—s report before final passage and moved to "circle" (defer) the bill for further work. The motion to circle passed by voice vote.

The sponsor said he will provide the audit for members before the bill returns to the floor.