A Helping Handout

To win underwriting contracts, bond houses provide campaigns with free political pros--but taxpayers wind up carrying the load.

Longmont's Main Street still reflects its farm-town roots, with mom-and-pop diners serving homemade pie and realtors posting notices for "horse property" in storefront windows. But like so much of Colorado, Longmont is changing.

An influx of high-tech firms has sparked an economic boom. Subdivisions are going up on all sides of the old neighborhoods that ring downtown, and a flood of new students has the St. Vrain Valley School District bulging at the seams. Following the lead of other fast-growing communities, Longmont's civic leaders decided they needed to float a bond issue to pay for new schools.

They organized a group of parents and teachers into the Committee for Kids First and began pushing for a $98.7 million bond issue on the November 1997 ballot. The committee contacted local PTAs and businesses, hosted community forums and organized the sort of grassroots campaign required for a successful bond election.

But this small-town campaign soon had a big-time presence. Rick Reiter, the high-profile Denver political consultant who's worked on many local ballot measures, showed up to help. Reiter and his troops gave the committee strategic advice based on other successful bond campaigns around Colorado and helped compile lists of likely voters to target with the message that Longmont's schools needed help. They worked closely with the campaign committee all the way up until election day.

And the campaign never paid Reiter a cent.
He was hardly volunteering his time, though. Reiter was working under contract with George K. Baum & Company, an influential 17th Street bond house that does millions of dollars in business with cities and school districts all over the state. Like other securities firms, Baum arranges the sale of bonds on the market and collects an underwriting fee. On a bond issue as large as the one for St. Vrain schools, Baum stood to make hundreds of thousands of dollars.

Not surprisingly, both Baum and the school district desperately wanted the bond issue to succeed.

In 1996, when the St. Vrain school district started looking for a firm to underwrite the proposed bond issue, the district made it clear to interested bond houses that it expected the winning firm to provide a campaign consultant. The "solicitation for services" put out by the district asked for the bond firm's experience in "structuring an election campaign" and requested a "timeline of pre-election activities, campaign assistance and post-election services." It also demanded a list of political consultants utilized by the firm.

"If we had said we want Joe Shmoe to work with us as our political consultant, they would have hired him," says Kathy Hall, president of the St. Vrain Valley school board.

Baum got the job. St. Vrain got its bonds.
Longmont isn't alone in making such demands. Cities and school districts across Colorado have come to expect that they'll be provided paid political consultants by the bond firms they hire to underwrite potential bond issues. It's now standard practice for public contracts with securities firms to include a provision requiring that the firm hire a political pro to manage the upcoming election campaign for the bond issue. Many of these firms, which include some of the best-known names on 17th Street, now have in-house political consultants who can be shuttled around the state at a moment's notice.

The consultants' services aren't entirely free, of course: Taxpayers wind up paying the underwriting fees that follow a successful bond election. And so a growing number of critics, including some within the securities industry, are claiming that the bond houses' involvement in elections is really an indirect public subsidy of political campaigns.

"The use of political consultants is undermining the political process," says Russell Caldwell, senior vice president of Bigelow & Company, a Denver-based bond firm. "I'm hoping this blows up in all of our faces."

Caldwell dropped his own bomb during last fall's RTD Guide the Ride campaign, when he publicly criticized bond firms getting involved in political campaigns in the hopes of making big commissions. In an attempt to end the practice known as "pay to play," Caldwell tried to get the Colorado Municipal Bond Dealers Association to officially discourage its members from hiring political consultants and pollsters to work on election campaigns.

When the bond dealers' association refused, Caldwell's company quit the group.

"I've been having a dispute with the entire industry over pay-to-play practices," says Caldwell. "I just differ with them over whether we should have any ethics in this industry."

A North Carolina native who's lived in Colorado over twenty years, Caldwell is now one of the financial world's most controversial inhabitants. His denunciations of local bond houses rankle others in the industry, who accuse him of hypocrisy and self-promotion. And in fact, Caldwell not only recognizes the lure of spending thousands of dollars on a political consultant in order to win millions in underwriting fees, he admits that his firm may be forced to resort to the same tactics in order to compete.

"A lot of people want to believe we're all a bunch of whores anyway," says Caldwell. "One guy in a blue dress and one in a red dress."

Today Colorado's top political consultants are all linked with one bond firm or another. Reiter and lobbyist Frank "Pancho" Hays work with Baum, Maria Garcia Berry is allied with Dain Rauscher Inc., and Steve Welchert works with Hanifen Imhoff Inc. A host of other consultants, pollsters and professional tea-leaf readers are winning contracts from bond houses to work on elections all over the state.

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