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ATTORNEY GENERAL OPINION JANUARY 26, 2016 - PRACTICES RE SCHOOL CONSTRUCTION BOND FINANCING
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ATTORNEY GENERAL OPINION JANUARY 26, 2016 - PRACTICES RE SCHOOL CONSTRUCTION BOND FINANCING
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2/17/2016
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ly®W <br />BEST BEST & KRIEGER <br />ATTORNEYS AT LAW <br />As the Opinion acknowledges, it is common within the municipal finance industry <br />for finance firms (including bond attorneys, financial consultants, and investment <br />bankers) to enter into contracts to provide pre -election services to school districts at no <br />cost or at a reduced cost in exchange for a commitment by the district to use that firm <br />for post -election bond services if the bond measure passes (the Opinion refers to these <br />agreements as "contingent -compensation arrangements"). According to the Opinion, <br />"the comparative value to the firm of the post -election earnings is manifest in the fact <br />that these firms risk losing the value of their pre -election services in exchange for an <br />opportunity to provide post -election services related to the bond sale." ,2016 Cal. AG <br />LEXIS 4, at *7. These arrangements have created concerns that districts use them to <br />bypass the restrictions on using public money to campaign. <br />With regard to these arrangements, the Opinion provides: <br />A contingent -compensation arrangement between a financial firm and a <br />district violates the laws prohibiting use of public money for campaign <br />activity if either "(a) the district enters into the agreement for the purpose <br />(sole or partial) of inducing the firm to support the contemplated bond - <br />election campaign or (b) the firm's fee for the bond -sale services is inflated <br />to account for the firm's campaign contributions and the district fails to <br />take reasonable steps to ensure the fee was not inflated." Id. at *3. <br />• Moreover, a financial firm that enters into a contingent -compensation <br />contract with a district for pre and post -election bond services must report <br />the cost of the pre -election services "as a contribution to the bond <br />measure campaign in accordance with state and local campaign <br />disclosure laws." Id. at *30. <br />From a pragmatic standpoint, the Opinion notes that "a district may prefer to give <br />post -election service contracts only to those municipal finance firms who did not <br />contribute to the bond -election campaign." Id. at *23 n.55. Alternatively, it suggests <br />"retain(ing] an independent financial advisor to assist in evaluating the fee charged by a <br />firm that secured a post -election services contract through" a contingent -compensation <br />contract. Id. <br />More broadly, with regard to arrangements between financial firms.and districts, <br />the Opinion provides: <br />Reimbursement by a district to a financial firm for pre -election services out <br />of money raised by the bond sale violates California law regarding <br />disposition of bond -sale proceeds, regardless of whether payment is on an <br />itemized, fee -for -service basis or in the form of inflated fees for post- <br />election services. See Gov. Code § 8314. The Opinion emphasizes that <br />-2- <br />93939.00002�24437112,5 <br />
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