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Bond issue bid-rigging claims cleared

A two-month investigation of an anonymous allegation of bid-rigging involving a Hillsborough County bond issue has produced no evidence of criminal wrongdoing but a series of recommended changes in procedures.

"It is our observation that . . . the citizens of Hillsborough County can feel quite confident that their public servants are acting in the best interest with regard to the bond finance issues," wrote State Attorney Harry Lee Coe III in a letter Monday announcing the end of his investigation.

Still, a consultant hired by Coe raised questions about the ranking of investment banking firms competing to refinance millions of dollars in county debt.

And Coe recommended a series of changes aimed at tightening the procedures the county follows in awarding bond issues.

Among the recommended changes are written policies for awarding underwriting contracts, written records of all Finance Committee meetings, a more independent financial adviser and restricted access of investment bankers to Finance Committee members.

Coe said the procedures the county now has in place "contribute greatly to establishing a foundation of credibility in the process."

County Administrator Fred Karl, who asked for the investigation, said he was pleased with the outcome and Coe's kind words. The procedures the county follows are more thorough than those of many other counties, he said.

The County Commission delayed action on the refinancing until the investigation was completed. Karl said he hasn't decided what to do about renewing the bond issue. He was concerned at the time that rising interest rates could lessen the county's savings.

"I hope it hasn't cost us anything," Karl said. "If the market hasn't changed much, it won't be significant. I'm just holding my breath till I can process it."

The anonymous allegation that touched off the investigation was faxed to county commissioners just hours before they were to consider awarding a bond issue to Morgan Stanley.

The anonymous letter writer claimed the county's debt manager, Mike Merrill, had juggled numbers to ensure Morgan Stanley won the bid.

Merrill had recommended two proposals be re-evaluated _ one by Morgan Stanley and another by Smith Barney. The re-evaluations resulted in Smith Barney being eliminated and Morgan Stanley moving from 10th to first in preliminary rankings. The Finance Committee ultimately recommended Morgan Stanley as lead underwriter for the issue, a lucrative contract.

J. B. Kurdish, a consultant with the Government Finance Officers Association who was hired by Coe to assist in the investigation, said there is nothing wrong with re-evaluating a proposal if no new information or analyses are submitted. The re-evaluation was essentially a recalculation and no new information or analyses were used, he said.

Both companies had included things in their proposals that the county had not requested. While that eliminated Smith Barney, Morgan Stanley moved to first place in the rankings.

"It is understandable that the county would need clarification" of Morgan Stanley's proposal. But Kurdish suggested that rewarding the firm with a first-place ranking may have been too generous.

"There are a number of ways to reward a firm that provides a good idea or enhancement to an issuer without naming the firm book-running senior manager," Kurdish wrote.

Government officials have to "ensure a level playing field," Kurdish wrote, while also being "open to financing techniques that may save the public money."

"This conflict between following a defined procedure and having the flexibility to respond to new ideas is at the heart of the controversy surrounding the rankings . . . ," he wrote.

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