Palm Beach has been using a non-competitive process to issue municipal bonds over the last 16 years, a practice condoned by most finance experts and one that has cost taxpayers an estimated $800,000 per year.
From the Bloomberg article:
"Selling bonds through negotiation cost Palm Beach, Florida, taxpayers $880,000 in excess bankers’ charges and as much as $1.3 million in “unnecessary” interest costs annually over the last five years, according to a report issued today by clerk and comptroller Sharon Bock."
Palm Beach County is one of the few counties in the country that has a AAA rating from all major rating agencies. Usually in these cases, the county uses competitive bidding. This competition forces down the banking costs and provides the most money for the lowest fees. But Palm Beach went with a negotiated offering, in which the bank was chosen beforehand. This information emerged from a corruption case against 18-year commissioner Mary who was charged in part for steering bond underwriting business to firms that employed her husband.
What's troubling about the article is that is states that no-bid offerings made up 80% of municipal bond offerings in 2008. They benefit the banks who are able to charge higher fees but take money from the taxpayer. Competition in markets is what generates price transparency and the mosst efficient clearing price.
I fear this is another case of where financial firms, aided by paid-off beaurocrats, are redistributing money from the general public into their mansions, private planes, and golf courses. Redistribution goes both ways, after all.
If your municipality is doing a bond offering, find out if it's a competitive one or a negotiated deal. If negotiated, find out why. The answer could make a difference to you, your community, and your tax bill.
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