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The Honolulu Advertiser
Posted on: Thursday, March 30, 2006

City urged to hire bond sales adviser

By Loren Moreno
Advertiser Staff Writer

The City and County of Hono-lulu may need its own financial adviser when conducting bond transactions, Councilwoman Ann Kobayashi said after a presentation by the city auditor's office.

City Council budget committee members were told yesterday by the city auditor that the 16-year-old practice of negotiating bond sales through financial firms "has left the city vulnerable to the interest of underwriters."

The audit report recommended that the city hire its own financial adviser instead of relying on financial firms for advice. The report also recommended that the city consider using a competitive, or auction, method of selling bonds.

"The city has relied on the same underwriters for the past three years of bond issuance using the negotiated sales method. Contrary to industry best practices, the city has continued to sell its bonds noncompetitively and has relied solely on its underwriters for financial advice," said Maria Torres-Kitamura, the auditor in charge of the report.

Mary Patricia Waterhouse, acting director of the city Department of Budget and Financial Services, told council members that there is no "industry best practice" and that the audit report failed to offer any evidence that the city would be better off using a competitive method of bond sales.

Kobayashi, the council's budget chairwoman, responded that the city should consider hiring its own financial adviser. However, no action was taken at yesterday's budget committee meeting.

"Many municipalities and many of the private companies have financial advisers," Koba-yashi said. "Maybe we should have one."

Kobayashi said the council could consider passing a resolution asking the mayor to hire a financial adviser or put money in the city budget to hire one.

But the council could not take action on the negotiated-versus- competitive bond issue because that is up to the administration to decide, she said.

Waterhouse said the administration prefers to use the negotiated method since it is overwhelmingly favored by state and city governments.

But many council members on the budget committee were not sold on the idea that the city should switch from using the negotiated method of bond sales to a competitive method.

Torres-Kitamura told council members that after "a review of academic studies spanning 20 years, we found that the competitive method results in significant savings over the negotiated method."

But when challenged by Councilwoman Barbara Marshall, staff from the city auditor's office backtracked. Marshall cited a study that showed that 100 percent of private firms use a negotiated method and 80 percent of state and city governments also use a negotiated method.

"There is no guarantee that any particular sales method will produce more savings over another," Susan Hall, audit manager, later told council members.

And when asked if the council should take any action in terms of a bill, ordinance or charter change Hall told council members that none was needed at this time.

Bloomberg News contributed to this report.

Reach Loren Moreno at lmoreno@honoluluadvertiser.com.