New Jersey May Stop Using Advisers for Bond Sales, Christie's Office Says

By Dunstan McNichol - Jul 30, 2010 3:24 PM EDT Fri Jul 30 19:24:43 UTC 2010

Chris Christie, governor of New Jersey, speaks during an interview in New York. Photographer: Jin Lee/Bloomberg

New Jersey, the third-most indebted U.S. state, is considering handling future bond sales without financial advisers, Governor Chris Christie’s office said.
The proposal would put New Jersey in the minority of long- term municipal-bond issuers, based on statistics published by the Bond Buyer newspaper. Seventy-seven percent, or $314 billion, of the $406 billion of debt issued with maturities 13 months or longer had financial advisers, the data show.
Municipal borrowers use outside financial advisers to help determine the best structure and timing for sales and to help prepare presentations to credit-rating firms. Christie’s study of whether state Treasury Department staff should do that work comes four months after his administration questioned $1.2 million in payments the New Jersey Turnpike Authority made to its financial adviser, NW Financial Group LLC, last year.
NW Financial, of Jersey City, is paid 50 cents per $1,000 of bonds issued in which it acts as adviser, records of its contract obtained by Bloomberg show. At that rate, the firm would have been paid $600,000 if it had been the adviser for $1.2 billion of bonds sold by New Jersey’s Transportation Trust Fund Authority last year. That authority paid its adviser, First Southwest Co. of Dallas, $125,000, according to state records.
‘Breadth and Depth’
NW’s principal, Dennis Enright, is lobbying to stay on as the turnpike authority’s adviser, and has offered to cut his fee to $125,000, the same amount paid to First Southwest, according to a July 22 letter he wrote to Deborah Gramiccioni, director of Christie’s unit that oversees all state authorities.
“Although the state has experienced public finance professionals on its staff, they are not exposed to the breadth and depth of deal flow that an experienced financial advisory firm sees every week,” Enright said in the letter, a copy of which was obtained by Bloomberg News. “This additional insight into the market allows for tighter negotiation of rates and terms that translate into lower borrowing costs for the state.”
Kevin Roberts, a spokesman for Christie, confirmed the authenticity of Enright’s letter.
Robin Prunty, managing director at Standard & Poor’s in New York, said Florida and Ohio are among states that have issued debt without advisers. “There are many states that handle it internally,” she said in a telephone interview today.
Enright’s firm ranked 13th in the U.S. by volume among financial advisers on long-term issues last year, the Bond Buyer statistics show.
Since 2002
Enright didn’t return telephone messages left at his office and on his mobile phone July 29, and hung up when reached on his cell phone that day. Diane Scaccetti, executive director of the turnpike authority, declined to comment on a series of questions regarding Enright’s letter in a telephone interview July 29.
Enright, a Democratic campaign contributor, has been the turnpike authority’s financial adviser since 2002. The authority operates the 148-mile (238-kilometer) New Jersey Turnpike and the 173-mile Garden State Parkway that stretches from Cape May to the New York state line.
“This isn’t about Enright; this is more about the state trying to save money -- save millions of dollars -- wherever they can,” state Transportation Commissioner James Simpson, a member of the turnpike authority board, said in an interview today at a press conference in Pennsylvania. “I have all the confidence in the world in our treasurer.”
The turnpike authority plans to issue $2 billion in revenue bonds over the next 12 to 18 months, according to a request for proposals for underwriters the authority issued this month. That level of work would generate $1 million in fees for NW under the terms of its three-year contract that the authority approved in March 2009, when Democrat Jon Corzine was governor. Christie ousted Corzine in November’s election and took office Jan. 19.
State Costs
Enright and NW’s officers have contributed more than $250,000 to New Jersey political campaigns over the past four years, according to the firm’s filings with the New Jersey Election Law Enforcement Commission and the Alexandria, Virginia-based Municipal Securities Rulemaking Board, which regulates the state- and local-government bond industry.
Christie, 47, slashed state spending to close a record $10.7 billion deficit in his budget for the fiscal year that began July 1. He may encounter a $10.5 billion gap next year, according to a projection this month from the non-partisan Office of Legislative Services.
“The governor and his administration as a whole continue to examine every area of state spending where we can save money and find greater efficiency,” Roberts said in an e-mailed statement yesterday. “To that end, we are evaluating the feasibility of reducing or discontinuing the use of outside financial advisers who contract with the state.”
Enright collected $1.2 million in fees from the turnpike authority last year, for helping issue $2.5 billion in bonds, state records show. California paid its adviser, Public Resources Advisory Group, $205,558 on a $6.85 billion bond deal last year, according to Tom Dresslar, spokesman for California Treasurer Bill Lockyer.