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California Treasurer Restricts Bond Financers from Participating in Bond Election Campaigns

California State Treasurer John Chiang announced a new policy on July 27, prohibiting bond finance firms, bond counsel, underwriters, and financial advisers from engaging in state-issued bond sales unless they stay out of bond election campaigns in California.

Seeking to curb the practice of bond financers providing election-related services and supporting bond campaigns in exchange for contracts to sell the bonds once approved by voters, Treasure Chiang will now require bond professionals—including “any officer, director, partner, co-partner, shareholder, owner, or employee of the firm”—to certify that they do not engage in such practices by August 31, 2016.  They must also certify that they will not make any contributions to support a bond measure, whether it be a cash contribution or a contribution of goods or services. According to the Treasurer’s press release, firms that do not make the required affirmations “will be removed from the state’s official list of acceptable vendors and barred from participating in state-issued bonds.”

Treasurer Chiang identified the policy change as a “proactive measure,” spurred by a legal opinion issued by Attorney General Kamala Harris in January 2016.  Attorney General Harris concluded campaign arrangements between bond firms and local jurisdictions—mostly school districts—could violate California laws prohibiting the use of public funds to influence an election “under circumstances where (a) the [public agency] enters into the agreement for the purpose (sole or partial) of inducing the firm to support the contemplated bond-election campaign or (b) the firm’s fee for the bond-sale services is inflated to account for the firm’s campaign contributions and the [public agency] fails to take reasonable steps to ensure the fee was not inflated.”

While the Attorney General’s opinion is not binding on the courts, it relies heavily on an interpretation of the California Supreme Court’s 1976 decision in Stanson v. Mott that the use of public funds to mount an election campaign presents a “serious threat to the integrity of the electoral process.”  However, according to the Stanson court, public funds may be expended for “informational purposes” that provide the electorate with a “fair presentation” of relevant information relating to a bond measure.

The election law attorneys at Nielsen Merksamer continue to monitor the evolving rules around ballot measure campaigns, so do not hesitate to contact us if you have any questions.