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The Journal of the National Association of Bond LawyersVolume 19, No. 3 September 1, 1998

CONTENTS

President's Column (William H. Conner) 1

Washington Saga (Amy K. Dunbar) 2

Actions by the Board of Directors on July 9 and 10, 1998 (Howard Zucker) 6

SEC Provides Y2K Guidance for Issuers 9

Web Pages 12

Shared Tax Observations (Sharon Stanton White) 12

Qualified Zone Academy Bonds (Linda B. Schakel) 16

Issuer's Role in Selection of Underwriter's Counsel(GFOA Recommended Practice, 1998) 20

Legal Assistants' Corner (Susan M. Parker) 21

Voice from the Past (Manly W. Mumford) 22

Bond Dogs 23

Employment Opportunities 29

Letter to the Editor (Robert L. Steed) 29

Book Reviews 30

Editor's Notes 31

Quarterly Limericks 36

The Bond Lawyer: The Journal of the National Association of Bond Lawyers ("NABL") (formerly The Quarterly Newsletter of the National Association of Bond Lawyers)is published on or about March 1, June 1, September 1 and December 1 of each year, for distribution by special standard rate mail solely to members and associate members ofthe Association. Membership information may be obtained by writing to Patricia F. Appelhans, Executive Director, NABL, 1761 S. Naperville Road, Suite 105, Wheaton, IL60187, or by calling 630/690-1135. ©1998, NABL. Copyright is not claimed for any portion hereof prepared by any official or employee of the United States of America inthe course of his or her official duties.

The Bond Lawyer September 1, 1998

Because opinions with respect to the interpretation of state and federal laws relating to municipal obligations frequentlydiffer, the National Association of Bond Lawyers ("NABL") has given the authors who contribute to The Bond Lawyer, andits editor, the opportunity to express their individual legal interpretations, opinions, and positions. These interpretations,opinions, and positions, whether explicit or implicit, are not intended to reflect any position of NABL or the law firms,branches of government, or organizations with which the authors and editor are associated, unless they have been specifi-cally adopted by such organizations. For educational purposes, the authors and editor may employ hyperbole or offersuggested interpretations for the purpose of stimulating discussion. Neither the authors, the editor, nor NABL can takeresponsibility as to the completeness and accuracy of the materials contained herein; accordingly, readers are encouragedto conduct independent research of original sources of authority. The Bond Lawyer is not intended to provide legal adviceor counsel as to any particular situation. Errors or omissions should be called to the editor's attention: mail to 1095Nimitzview Drive, Suite 103, Cincinnati, Ohio 45230, or e-mail to [email protected].

National Association of Bond LawyersOfficers and Directors

William H. Conner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PresidentSquire, Sanders & Dempsey L.L.P.Cleveland, OhioFloyd C. Newton III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . President-ElectKing & SpaldingAtlanta, GeorgiaHoward Zucker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SecretaryHawkins, Delafield & WoodNew York, New YorkJeannette M. Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TreasurerLeBoeuf, Lamb, Greene & MacRae, L.L.P.Newark, New JerseyRobert W. Buck . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DirectorNewton, MassachusettsJ. Hobson Presley, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DirectorMaynard, Cooper & Gale, P.C.Birmingham, AlabamaPamela S. Robertson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DirectorEdwards & AngellPalm Beach, FloridaLisa P. Soeder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DirectorNixon, Hargrave, Devans & Doyle LLPHartford, ConnecticutCarolyn Truesdell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DirectorVinson & Elkins L.L.P.Houston, TexasDavid A. Walton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DirectorJones HallSan Francisco, CaliforniaMary Jo White . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DirectorLong Aldridge & Norman, LLPWashington, D.C.Julianna Ebert . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DirectorQuarles & Brady Immediate Past PresidentMilwaukee, WisconsinFrederick O. Kiel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Honorary DirectorCincinnati, Ohio Editor of The Bond Lawyer

N NPatricia F. Appelhans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive DirectorWheaton, Illinois Publisher of The Bond Lawyer


PRESIDENT’S COLUMN

The curtain has now fallen on yet another act in the continuing saga of pay to play. On August4, the House of Delegates of the American Bar Association (“ABA”) passed Resolution 301-A atits annual meeting in Toronto. The first clause of Resolution 301-A urges the following actions(hereafter, the “four ABA recommendations”):

(1) state, territorial and local bar associations should “unequivocally condemn”arrangements under which the selection or retention of lawyers for government legalengagements depends, to any extent, on whether the lawyers have made or solicited campaigncontributions;

(2) state, territorial and local government entities should create and maintain “full andeffective systems for reporting and disclosure of campaign contributions” or, in their absence,bar and disciplinary authorities should adopt rules requiring disclosure by lawyers and lawfirms of political contributions to government officials in a position to influence the award oflegal engagements to the contributor;

(3) merit procurement processes should be adopted for the selection of lawyers toperform legal services for government entities; and

(4) the ABA’s Standing Committee on Ethics and Professional Responsibility is“directed” to draft and report to the House of Delegates at its 1999 annual meeting a ModelRule that declares that a lawyer or law firm “shall not make a political contribution orsolicitation for the purpose of obtaining or being considered for a legal engagement”.

The second clause of Resolution 301-A (hereafter, the “local option clause”) provides that,“where local circumstances warrant,” a rule should be “considered for adoption that would limit orprevent a lawyer from accepting a legal engagement” after making or soliciting a politicalcontribution to a public official “for the purpose of being retained, or being considered eligible forretention, by public agencies if the official is involved in selecting the lawyer to be retained.”

Note that not a single word in Resolution 301-A refers to public finance lawyers. That is asignificant achievement. Until now, the focus of the pay to play juggernaut in the legal communityhas been public finance lawyers, as if they alone among the entire legal community make politicalcontributions for an “evil” purpose. This narrow focus began in 1993 when SEC Chairman ArthurLevitt, Jr., began his well-orchestrated campaign to subject public finance lawyers to a G-37-typerule effectively banning their political contributions. A year ago, the ABA adopted a resolution, interalia, calling on the President of the ABA to appoint a task force to study political contributionsamong lawyers seeking government legal engagements, “including municipal finance engagements.”Former NABL President Julianna Ebert was one of twelve lawyers appointed to the task forcecreated by the ABA's then-President Jerome Shestack in September, 1997 (“Task Force”). For thepast ten months, Julie has waged a determined fight in the Task Force to broaden the scope ofconsideration to include all government legal engagements, not just public finance legalengagements. The Task Force report finally issued in July, barely ten days before the ABA Houseof Delegates met to consider it, unanimously made four recommendations (the “four Task Forcerecommendations”) that became the basis for (and in substance, differ little from) the four ABArecommendations. (Six members of the Task Force also recommended a proscriptive rule – butmore about that later.) Most important, the four Task Force recommendations did not single outpublic finance lawyers.


Those of you who have been following the pay to play discussion since it began in earnest willlikely have concluded that the four ABA recommendations and the four Task Force recommenda-tions were foreshadowed by the principles set forth in NABL’s Statement of Professional Principleswith Respect to Political Contributions, adopted in February 1994 by the Board of Directors, exceptthat the NABL Statement, consistent with NABL’s function as an association of public financelawyers, focused only on political contributions by public finance lawyers. (Not only were we thefirst in the legal community to adopt a set of principles on pay to play, those principles have yet tobe improved on.) That Julie (with the considerable assistance of fellow member Jack Williams,David Cardwell, and several other members of the Task Force) was able to broaden the scope of thefour Task Force recommendations to include all lawyers representing government entities is atestament to her dogged determination and a remarkable accomplishment, for which Julie deservesconsiderable accolades and our grateful thanks. The broadening is even more remarkable when yourealize that the membership of the Task Force seems to have been rather artfully stacked for thepurpose of adopting a proscriptive rule or effective ban along the lines of the G-37-type rule that TheAssociation of the Bar of the City of New York (“City Bar”) has been pushing the ABA to apply topublic finance lawyers.

However, the debate since 1993 has not really been over the four recommendations nowenshrined in the first clause of Resolution 301-A. As far back as the NABL Statement, there hasbeen general agreement among all sides that the fundamental points contained in the four ABArecommendations, echoing the four unanimous Task Force recommendations, are reasonable andappropriate steps to take at this time. The real battle has been about whether those recommendationsgo far enough. SEC Chairman Levitt has spent much of the last five years badgering the legalcommunity from his bully pulpit to go much further. He wants to make it a violation of legal ethicsfor a lawyer or law firm to perform any public finance work for a government entity if the lawyeror law firm has made a political contribution (with minor exceptions) to an elected official of thatgovernment entity during some prior period. By his own admission, Mr. Levitt’s focus has beensolely on public finance lawyers; it is only they who affect the public markets his agency is chargedwith regulating. Mr. Levitt could not care less about what the rest of the legal community does onthis subject: it's not his problem.

Mr. Levitt and City Bar representatives have made it clear that the four ABA/Task Forcerecommendations are not enough in their view; an outright ban on performing legal services for agovernment entity is required if the lawyer or the lawyer's firm has made a political contribution toan elected official of that entity in the recent past. It has always struck me as astonishing that anyonewould advocate such a drastic proscriptive rule unless there exists demonstrable and substantialevidence that pay to play practices run rampant in the legal community and that less intrusive ruleshave been given a chance and failed to work. Despite searching far and wide for solid evidence ofactual instances of pay to play, the Task Force received only anecdotal reports of a few instanceswhere political contributions appeared to have played a role in the selection or retention of counsel.The result-oriented Task Force report brushed aside that nagging detail, concluding only that “[t]heinformation available to the Task Force indicates that there is a public perception that lawyers or lawfirms make campaign contributions to officials of state and local governments for the purpose ofobtaining or being considered for legal engagements.” (Whatever the public perception, it iscertainly evident that the reporters who write about pay to play have that perception; that is perhapsunderstandable when you realize that there is no story in pay to play unless political contributionsare made for the purpose of soliciting or retaining business. Stories seem to be written largely witha slant linking contributions and legal work.)


Six members of the Task Force voted to adopt a variant of the proscriptive rule effectivelybanning political contributions by lawyers that the City Bar has been advocating for two years,modified to create a rebuttable presumption that all political contributions are made to obtain orretain business unless the contributing lawyer proves otherwise. Five members of the Task Forceopposed this “guilty until proven innocent” rule and one member (the Chief Justice of the TexasSupreme Court) abstained from voting to spark wider debate, although he said that he harboreddoubts about the constitutionality of such a rule.

Fortunately, the presumed guilty rule advocated by the six Task Force members was modifiedbefore it was submitted to the House of Delegates and replaced by the local option clause. The merefact that Resolution 301-A contains the local option clause is stark evidence of the enormouspressures that were exerted within the ABA power structure in the three days leading up to theHouse of Delegates vote to go beyond the four ABA recommendations. This pressure stemmedfrom the acknowledged conviction on the part of Mr. Shestack, and Chairman Levitt, and the ever-present City Bar representatives, that the ABA needed to adopt a rule that effectively bans politicalcontributions by lawyers or law firms to government entities for whom they work in order to avoida public black eye for the ABA. The local option clause in Resolution 301-A was not what theywanted, of course, but they are mighty lucky to have that. In my view, there was no way the Houseof Delegates was going to vote in favor of a “presumed guilty until proven innocent” rule. Thatreality, the public pummeling thought to result if the ABA voted down a pay to play rule stridentlyadvocated by Chairman Levitt, the politics of the ABA (you advance in that organization bycompromising and keeping all sides happy), and the deft strategic placement of the subject on theagenda of the House of Delegates meeting for late afternoon on a getaway day (few delegates appearto have devoted much time or attention to the matter and more than 40% of them failed to vote onthe Resolution), all sufficed to produce the local option clause. Predictably, Chairman Levitt andthe chorus of proscriptive rule advocates have all declared Resolution 301-A a victory. In a sense,it is.

The recommendation contained in the local option clause fundamentally is not objectionablein itself. At a minimum, there should be substantial evidence of local pay to play activity –something noticeably lacking thus far – before further, more restrictive, ethical rules are warrantedin any State. But I will not be surprised to see the frontal assault mounted at the ABA repeated againand again at the state level. In other words, expect to see more calls for a restrictive rule, withoutsolid evidence that pay to play actually exists among lawyers in the State.

The first State to bear the brunt of this effort will be New York. You can expect that theproscriptive rule forces will be out in full force this fall as the New York State Office of CourtAdministration studies and considers whether to adopt specific rules on pay to play in that State. IfNew York can be persuaded to adopt an effective ban on political contributions by lawyers and lawfirms representing government entities, the other States will be under considerable pressure to fallin line. And of course, the sheer number of lawyers in New York and the number of firms with NewYork offices would give any rule adopted by New York effect well beyond the State’s geographicboundaries.

Fortunately, the debate henceforth is no longer confined to the political contributions ofonly public finance lawyers. If the First Amendment rights of lawyers representing governmententities are to be sacrificed on the altar of pay to play by enactment of a proscriptive rule, thesacrifice will extend to all lawyers representing governments, not just those involving public finance.I realize, of course, that the local option clause of Resolution 301-A says nothing about a ban onperforming legal services for a government entity if a lawyer or firm has contributed to an elected

The Bond Lawyer 4 September 1, 1998

official of that entity. Mark my words, however, when the debate heats up in New York, the“banners” will assert that pay to play unquestionably exists in New York and that it can only beended by adoption of a G-37-type rule. “Lawyers ought to have a higher ethical standard thananyone else” (do Mom and apple pie come to mind?) will be the cry – as if that alone justifiesadopting a prospective rule that effectively ends political contributions by lawyers and firmsrepresenting government entities. The banners thus far seem not the least bit troubled by the needto establish that pay to play exists before adopting a proscriptive rule; they are convinced that payto play exists and see the difficulty in establishing its existence only as proof that a rule effectivelybanning such contributions is needed. And you thought 1984 was behind us.

Hopefully, as the battle in New York and elsewhere unfolds, reason will prevail and the fourABA recommendations on which just about everyone agrees will be implemented gradually in theStates and given a chance to work before any State feels the need to adopt a much more drasticremedy. One of the nation’s most prominent ethics experts, Stephen Gillers of New York UniversitySchool of Law, quoted in the National Law Journal, has said that efforts to deal with the pay to playproblem through a bar disciplinary rule attack the problem “through the wrong door.” The conflictsof interest created by pay to play are those of the elected officials that dole out the business, not thelawyers who contribute. In essence, pay to play problems are “really a failure of governance,” amuch wider problem than mere political contributions by lawyers. That just about sums it up. Untilthe federal and state governments are prepared to deal with the entire campaign finance mess on aglobal basis extending beyond just lawyers, the four ABA recommendations in Resolution 301-Aare as far as the legal community ought to go.

" "

This is my last column as your President. At the forthcoming annual meeting, I will begin myslow walk into the “has been” category. The slate of officers and directors proposed by theNominating Committee is an exceptionally solid one that will ensure the strong and effectiveleadership of the Association’s affairs not only in the coming year but in the years to come.

I will recap the year in brief remarks at the annual meeting in September and since thoseremarks will be printed in the next edition of The Bond Lawyer, I won’t preview them here. Sufficeto say for now, it has been a challenging and interesting twelve months. I am proud to have servedas your President this past year. Thank you for both the honor and the privilege.

William H. ConnerAugust 18, 1998


WASHINGTON SAGA

Washington has been a very exciting placeduring the last quarter, although very little of it hasto do with Congressional activity. We have seenthe tragic shooting of Capitol police officers and atourist, and the ever-interesting legal jousting andjudicial rulings related to independent counselStarr’s investigation of the President. Many inter-esting legal questions are being decided in a casethat otherwise lacks the merit to justify a $40million investment of the taxpayers’ money. Inleaner economic times such an investment would-n’t be tolerated, but President Clinton is fallingvictim to the successes of the economy and thebudget deal's having created a budget surplus. Ifprograms were being unfunded while this caseproceeded, Congress and the public would caremore about reining in the independent counsel. Inmore than one way you can say that the Presidentis the victim of his own excesses.

On a personal note, since retirement has leftme watching all this from a very different perspec-tive, Washington has been a very different place.During my first week of retirement, I found myselfdriving up to 1111 Constitution Avenue (the IRSfor those of you lucky enough not to have visitedit), parking in front and then instead of visiting withBranch 5, walking down the block to what Emilycalls the Bug Museum — the Museum of NaturalHistory. I found myself marveling at the changesin my life as I was looking at the “bird-eatingtarantulas,” thinking about visits to the IRS, andchuckling to myself.

There has been some interesting legislativenews in the bond area since my last column.Congress enacted the IRS Reform bill including theprovision sponsored by Senator Hatch to permitissuers of tax-exempt bonds to challenge negativedeterminations regarding taxability by the IRS.Originally, this provision would have permittedissuers to go to court and challenge suchdeterminations. However, during the course of thenegotiations with the Treasury and Congress onthis matter, issuers became uncomfortable with therequirement that they become in effect the classaction litigant on behalf of the bondholders in sucha suit. They were being required to notifybondholders of such challenges and bondholders

were being encouraged, if not required, to join thesuit. The IRS wanted there to be only onechallenge to its determination and subsequent suitswould be collaterally estopped. Representatives ofthe Investment Company Institute, the tradeassociation for the mutual funds, had told us thattheir members were concerned that if they were tohave to become representatives of theirshareholders in tax-exempt mutual funds in thesecircumstances, then issuers would start seeing suchcosts built into the issue price of the bonds. Whileno one could quantify such costs or determine howoften issuers might avail themselves of thisprocess, the issuers felt more comfortable with thecompromise struck by the Conference Committeewhich provides for appeal of the determination tosenior members of the IRS Appeals Division.

Some question whether this kind of appeal will provide the neutral review proponents werelooking for because the IRS has a history ofupholding its lower judgments. However, thereviewers must address the “litigation risk” —buzz words for their likelihood of success. If, asproponents of this measure suggest, they need thiswhen the IRS has just gotten it all wrong, then theissuer and its bond counsel will have theopportunity to provide their legal analysis tosomeone evaluating how a court would approachthe case. Issuers felt more comfortable with thisapproach, recognizing that if it didn’t work, they


could go back to Congress and make the case for they return from their lengthy August recess. Ofa legal challenge when they were assured it was course the fall agenda will be overshadowed by thenecessary. Issuers enlisted the assistance of outcome of the President's testimony before theCongressman Rob Portman (R-OH), who has been grand jury. The Congress may be totallya friend to state and local governments in the past, consumed with the aftershock and the Independentto help ensure that this came out right in Counsel's report, preventing anything substantiveConference. Mr. Portman sits on the Ways and from happening before it recesses for the election.Means Committee, and I would expect issuers tocontinue seeking his assistance on bond matters. Iunderstand that the IRS is writing regulations toimplement this provision. Mary Reichert isheading a NABL comment project on this topic.

The other congressional activity related to the Nation’s Capitol.”bonds was the President’s veto of the educationbill providing for education IRAs to be used forprivate school education. Contained in that billwas an increase from $10 to $15 million of thesmall issuer rebate exception for school con-struction. Senator Graham (D-FL) has reintro-duced his original provision providing for theincrease and creating private activity bonds forschool construction in high-growth school districts.S.2397, cosponsored by Senators Coverdell,Torricelli, and Feinstein, would provide $10 percapita of volume cap for these qualified projects,to be administered by each eligible state. To get acomplete description of the legislation, see pageS9559 in the Congressional Record of July 31,1998.

Looking ahead to the fall agenda, the Re-publicans hope to pass a tax cut package before theNovember election. Senator Graham hopes to gethis education construction provision incorporatedinto that measure. Right now, the Republicans areas divided on how to approach the budget as theDemocrats and Republicans are. Chairman of theSenate Budget Committee Pete Domenici suggeststhere is little hope for a budget resolution this year.It is unlikely that there will be a tax cut if there isno budget agreement. Add to that the growingconcern about the new stepchildren of the S & Lcrisis, lawsuits that are projected to cost the federalgovernment $34 billion if the courts follow theinitial ruling allowing S & Ls to claim damages incases in which the federal government agreed tohelp out failing S & Ls and then never did, andthere starts to be a legitimate claim that Congressdoesn't have its fiscal house in order. That will bethe Democrats' challenge to the Republicans when

Since a thunderstorm is about to eliminate myremote communications with the office, I will signoff. I hope to see you at the Bond Attorneys'Workshop, at which time there may be someonenew telling you to “stay tuned for more news from

Amy K. DunbarAugust 10, 1998

ACTIONS BY THEBOARD OF DIRECTORSON JULY 9 AND 10, 1998

The Board of Directors met in Paget, Ber-muda, on July 9 and 10, 1998. President WilliamH. Conner presided. Also present were: Floyd C.Newton III, President-Elect; Howard Zucker,Secretary; Jeannette M. Bond, Treasurer;Directors Robert W. Buck, J. Hobson Presley, Jr.,Pamela S. Robertson, Lisa P. Soeder, CarolynTruesdell, David A. Walton, and Mary Jo White;Immediate Past President Julianna Ebert; PatriciaF. Appelhans, Executive Director; and Amy K.Dunbar, Consultant.

NABL has aJOB BANK

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at630/690-1135

Report of the Consultant


The President welcomed former Director of Director Presley gave his report, briefing theGovernmental Affairs Amy K. Dunbar to the Board on, among other things, the followingmeeting and requested her report. Ms. Dunbar matters: 315 people are registered as comparedbriefed the Board on (among other things) the with 219 people at a comparable date last year;following matters: Hatch Bill, Assisted Living, exhibitors; and status of the Bond Attorneys'Private Activity Regulations, Bankruptcy, and the Workshop book.Web Page.

Report of the Treasurer

The Treasurer provided an overview of theAssociation’s financial results as of June 30, 1998,and led a discussion on dues rates for 1999. TheTreasurer noted dues rates had not been increasedsince 1994. The Treasurer also noted that memberservices and costs had increased. After somediscussion, a motion was made by the Treasurerand seconded by Director Soeder, setting the duesstructure for 1999 as follows:

Membership $225 Less than five years since admission to practice 125 Legal Assistants 50 Retired 125

The motion carried.

The President began a discussion on the statusof the Association's Web Page. The Boardexpressed concern that the Web Page had madelittle progress since the contract was signed inJanuary and less progress since Ms. Dunbarresigned. The Executive Director volunteered tofind out what has been done and what still needs tobe done according to the contract.

ABA Pay-to-Play Task Force

The Immediate Past President updated theBoard on this matter.

Arbitrage and Rebate Committee

Director Soeder updated the Board on thecommittee’s activities.

Bankruptcy Committee

Director Truesdell informed the Board therewere no new developments with respect to thework of the committee.

Bond Attorneys' Workshop

Education Committee

The President-Elect delivered the report ofCommittee Chair William L. Gehrig. The Presi-dent-Elect presented the Committee Chair’sproposed Seminar Chairs and Vice-Chairs to theBoard:

Tax Seminar

Chair: Linda B. SchakelVice-Chair: Carol L. Lew

Fundamentals Seminar

Chair: G. Mark MamantovVice-Chair: Robert J. Eidnier

Washington Seminar

Chair: John M. McNallyVice-Chair: Scott R. Lilienthal

Approval of the nominations was moved by thePresident-Elect and seconded by Director Trues-dell. The motion carried.

Visit NABL's Web Page: www.nabl.org


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The President-Elect then presented proposedseminar location recommendations of the Educa-tion Committee:

Fundamentals 2001 Seattle

Tax 2000 West Palm Beach

or Laguna Nigel

Washington 2000 Capital Hilton

Approval of the proposed seminar locations wasmoved by the President-Elect and seconded by theTreasurer. The motion carried.

General Tax Matters Committee

Director Walton informed the Board therewere no new developments with respect to thework of the committee.

Legal Assistants Committee

Director Presley led a discussion on projectsthat need to be completed by the Legal AssistantsCommittee. The Board recommended the LegalAssistants Committee complete its list of usefulWeb Sites and the Legal Assistants' Handbook.The Board also recommended that the LegalAssistants have a separate continental breakfast atthe Fundamentals Seminar to promote networking.

Opinions

Director Robertson informed the Board thatEdwin F. Lucas III will do a full distribution of thedraft model underwriters’ counsel opinion.

Model Engagement Letter Project

Director Buck reported to the Board theproject is finished, and camera-ready copy will besent to the Executive Director next week. DirectorBuck suggested to the Board that The Role andResponsibilities of Bond Counsel be updated bythe Professional Responsibility Committee nextyear.

Securities Law and Disclosure Committee

Director White gave her report, briefing theBoard on the following matters: SEC EnforcementSubcommittee; SEC Pre-Washington WorkshopMeeting; MFA Report; Insider Trading; BlueSky; and Year 2000 issues.

Revisions to Seminar Guidelines and Guide toCommittee Operations

President-Elect Newton reviewed with theBoard the revisions to Seminar Guidelines andGuide to Committee Operations. A motion wasmade by the Secretary and seconded by theImmediate Past President to approve the revisionsto the Seminar Guidelines and Guide to CommitteeOperations. The motion carried.

Search Committee Report


The President-Elect updated the Board on theSearch Committee's activities to fill the Director ofGovernmental Affairs position.

Model Indenture

Director Truesdell presented the revised draftof the Model Indenture Project. After muchdiscussion, Director Truesdell requested that alladditional comments on the draft come directly toher. Director Truesdell also informed the Boardthat all Trustee-related sessions at the BondAttorneys’ Workshop will receive the draft, andthat a subsequent draft will be available for theBoard's November meeting.

Respectfully submitted,

Howard ZuckerSecretary


SEC PROVIDES Y2K GUIDANCEFOR ISSUERS

Editor's Note: The following are excerpts from theSEC's August 4, 1998, statement providing Y2Kguidance, and an exchange of letters between SECChairman Arthur Levitt, Jr., and AssociationPresident William H. Conner with regard to theSEC statement.

SECURITIES AND EXCHANGECOMMISSION

17 CFR Parts 231, 241, 271, 276

(Release Nos. 33-7558; 34-40277; IA-1738;IC-23366; International Series Release No.1149)

STATEMENT OF THE COMMISSIONREGARDING DISCLOSURE OF YEAR 2000ISSUES AND CONSEQUENCES BY PUBLICCOMPANIES, INVESTMENT ADVISERS,INVESTMENT COMPANIES, ANDMUNICIPAL SECURITIES ISSUERS

AGENCY: Securities and ExchangeCommission

ACTION: Interpretation

SUMMARY: The Securities and ExchangeCommission ("we" or "the Commission") ispublishing guidance for public companies,investment advisers, investment companies, andmunicipal securities issuers regarding theirdisclosure obligations about Year 2000 issues.This release provides guidance to public compa-nies so they can determine whether their Year2000 issues are known material events, trends, oruncertainties that should be disclosed in the Man-agement's Discussion and Analysis of FinancialCondition and Results of Operations ("MD&A")section of their disclosure documents. This releasealso sets forth our guidance regarding specificmatters for companies to address in their MD&AYear 2000 disclosure. In addition, we address theneed for companies to consider the Year 2000issue in connection with other rules and regulationsand when they prepare financial statements.Finally, we remind municipal securities issuers, aswell as public companies, investment advisers, and

investment companies, that the anti-fraud provi-sions of the federal securities laws apply todisclosure about the Year 2000 issue. Thisguidance supersedes the current staff guidance inrevised Staff Legal Bulletin No. 5 ("Staff LegalBulletin").

EFFECTIVE DATE: August 4, 1998.

* * *

FOR FURTHER INFORMATIONCONTACT:

* * *

Mary Simpkins, Office of Municipal Securities, at202-942-7300 (with respect to municipalsecurities).

* * *

III.E. Guidance for Year 2000 Disclosure forMunicipal Issuers

Generally, municipal securities offerings areexempt from registration and municipal securitiesissuers are exempt from the reporting provisions ofthe federal securities laws, including line-itemdisclosure rules. However, they are not exemptfrom the anti-fraud provisions. Disclosuredocuments used by municipal issuers are subject tothe prohibition against false or misleading state-ments of material facts, including the omission ofmaterial facts necessary to make the statementsmade, in light of the circumstances in which theyare made, not misleading.74

Issuers of municipal securities and personsassisting in preparing municipal issuer disclosuresare encouraged to consider whether suchdisclosures should contain a discussion of Year2000 issues. Persons, including "obligatedpersons" as defined in Rule 15c2-12, who75

provide information for use in disclosure docu-ments or in ongoing disclosure to the market, areurged to consider their own Year 2000 issues.Year 2000 issues should be considered inpreparing all disclosure documents, whether in thecontext of an official statement, continuing disclo-sure provided in compliance with a disclosurecovenant, or other information that is reasonablyexpected to reach investors and the tradingmarkets.76

Whether Year 2000 issues are material dependsupon the particular facts and circumstances for


each municipal issuer. Consideration may begiven, for example, to whether Year 2000 issuesaffect internal operations of an issuer or affect anissuer's ability to provide services and meet itsobligations, including timely payment of itsindebtedness.

Because of the varieties of municipal issuers and ofmunicipal securities, the examples provided belowmay or may not apply to a particular issuer and anissuer may be subject to facts and circumstancesrequiring disclosure not described below. Issuersand the persons assisting in disclosure preparationshould give careful consideration to Year 2000issues within the context of the facts andcircumstances applicable to the disclosing issuer orthe securities.

Examples of Potential Year 2000Problems

For municipal issuers, Year 2000 issues may bedivided into three categories: Internal, Externaland Mechanical. Internal Year 2000 issues mayarise from an issuer's own operations andmaterially affect its creditworthiness and ability tomake timely payment of its obligations. ExternalYear 2000 issues may arise from parties, otherthan an issuer, that provide payments that supportthe debt service on an issuer's municipal securities.Such payments may include, for example, healthcare reimbursement payments and payments underhousing and student loan programs, as well aspayments made by an obligated person under alease, loan or installment sale agreement in aconduit financing.

Mechanical Year 2000 issues may arise if Year2000 problems disrupt the actual mechanicalprocess used to send payments to bondholders.For example, many municipal securities payinterest semiannually on January 1 and July 1 ofeach year, or have periodic sinking fund install-ments due to an indenture trustee or fiscal agent.Issuers may wish to determine whether Year 2000issues affect their ability to identify and meet suchobligations in a timely manner and to disclose anymeasures that will be undertaken if an issuerdetermines it will not be able to meet suchobligations.

Issuers of general obligation debt may wish toconsider, for example, the adverse effects, if any,Year 2000 issues may pose to their ability to assessand collect ad valorem taxes and allocate receiptsand disbursements to proper funds in a timelymanner to make debt service payments when due.In addition, while Year 2000 issues may not direct-ly affect an issuer's ability to pay debt service, theymay affect an issuer's general accounting andpayment functions, which may be material toinvestors.

Revenue bond issuers may wish to consider, forexample, any adverse effects Year 2000 issues mayhave on their ability to collect and administer therevenue stream securing their bonds and theirability to make timely payment of principal andinterest on their obligations, as well as adverseeffects to general accounting and paymentfunctions, which may be material to investors.

Conduit borrowers, such as hospitals, universitiesand others, may wish to consider, for example, anyadverse effects Year 2000 issues may have on theirability to deliver services, collect revenue andmake timely payment on their obligations,including the obligation to pay debt service relatingto municipal securities, which may be material toinvestors.

All issuers and conduit borrowers also may wish toconsider the impact of Year 2000 problems facingthird parties on their own ability to satisfy theirresponsibilities.

Other examples of suggested disclosure forconsideration include, but are not limited to, thecosts associated with fixing an issuer's Year 2000problems, any loss associated with fixing anissuer's Year 2000 problems, any loss an issuermay incur because of Year 2000 problems, andany liabilities associated with an issuer's Year 2000problems.

While not binding on issuers of municipalsecurities, issuers and persons assisting inpreparing municipal issuer disclosure seekingfurther guidance may wish to review SectionsIII.A, B, and C of this release applicable to publiccompanies. The anti-fraud provisions of the77

federal securities law prohibit materially false andmisleading statements or omissions, including


those relating to the Year 2000 issues we have Dear Mr. Conner:discussed in this release.

* * * all state and local government issuers of municipal

By the Commission.

Jonathan G. Katz Secretary

Dated: July 29, 1998

FOOTNOTES* * *

-[6]- Section 17(a) of the Securities Act, 15U.S.C. 77q(a); Section 10(b) of the SecuritiesExchange Act of 1934, 15 U.S.C. 78j(b); and Rule10b-5 promulgated thereunder, 17 CFR240.10b-5. See Statement of the CommissionRegarding Disclosure Obligations of MunicipalSecurities Issuers and Others ("MunicipalSecurities Interpretive Release"), Securities ActRel. No. 7049 (March 9, 1994), 59 FR 12748(March 17, 1994).

* * *

-[74]- See Municipal Securities Interpretive Re-lease, cited at note 6 above.

-[75]- Exchange Act Rule 15c2-12 (17 CFR240.15c2-12).

-[76]- See Municipal Securities Interpretive Re-lease.

-[77]- See also Proposed Governmental Account-ing Standards Board Technical Bulletin No. 98-a,"Disclosures about Year 2000 Resources Commit-ted," July 24, 1998. It can be found at <http://w-ww.rutgers.edu/accounting/ raw/gasb/ga-sbhome.html>.

NABL is having a members-only

book promotion — " "

July 31, 1998

Mr. William Conner, PresidentNABLNational Association of Bond Lawyers1900 K Street, NW, 8th FloorWashington, DC 20006

I am writing to enlist your help in assuring that

securities focus their attention on one of the mostpressing issues we face today — Year 2000readiness. As you well know, unless modificationsare made, at midnight on December 31, 1999, thevast majority of computer systems will not be ableto distinguish the year 2000 from the year 1900.Many experts fear that this programming flawcould debilitate operating systems world wide.Like any other organization, state and localgovernments, authorities and agencies may haveYear 2000 problems. As issuers of municipalsecurities, their Year 2000 problems may beimportant to investors.

This week, the Commission has spoken on thiscrucial issue. We have just issued an interpretiverelease that includes a section addressedspecifically to issuers of municipal securities. I askyou to bring the enclosed paper to the attention ofyour membership. You and your members mayalso access the full release on the SEC website atwww. sec.gov, or call the Office of MunicipalSecurities at (202) 942-7300 for a paper copy.

We have worked together over the last fewyears to improve the quality and availability ofdisclosure in the municipal marketplace. Let uscontinue our partnership and encourage all issuersof municipal securities to give carefulconsideration to their Year 2000 problems anddisclose all material concerns to investors.

Sincerely,

/s/ Arthur Levitt

Arthur Levitt

" "

August 10, 1998

Mr. Arthur LevittChairmanSecurities and Exchange CommissionWashington, D.C. 20549

Re: Your Letter of July 31, 1998Regarding Year 2000 Problems

Dear Mr. Levitt:


Thank you for your letter of July 31, 1998, a copy Section 6008(b) of the Act amending Sectionof which was faxed to me on August 7 by our 1400A of the Internal Revenue Code of 1986,Washington office. Rest assured that NABL, relating to tax-exempt economic developmentthrough its Securities Law and Disclosure bonds for the District of Columbia EnterpriseCommittee and its educational programs, will do Zone.its best to educate and assist its members regardingthe disclosure aspects of the year 2000 problem.The advice and counsel of NABL members andthe guidance of the SEC should ensure that allmaterial concerns regarding the year 2000problems are disclosed to investors by issuers ofgovernmental obligations to the extent practicaland possible.

Very truly yours,

/s/ William H. Conner

William H. Conner

WEB PAGES

If we hear from enough members with webpages, The Bond Lawyer, in the next number, willpublish a list of their firms' web pages. You will,of course, get little or no business from thecompetitors or would-be competitors who chooseto scope out your web page. What you will get isthe opportunity to scope out their web pages, witha view to improving yours.

To be included on TBL's first web page list,just e-mail the firm's web address to the editor [email protected]. We'll take it from there. Wereserve, of course, the right to do reviews of webpages. They may not be gentle, but then again,they may not name names.

SHARED TAX OBSERVATIONSThe major tax event since the June 1 issue of

The Bond Lawyer has been the enactment, on July21, 1998, of H.R.2676, the “Internal RevenueService Restructuring and Reform Act of 1998.”

Only three provisions of the Act, however,directly relate to tax-exempt bonds. Two of theseare technical corrections relating to specific typesof bonds: Section 6004(g) of the Act amendingSection 226 of the Taxpayer Relief Act of 1997,relating to qualified zone academy bonds; and

The third provision relates to the much-discussed issuer right of appeal from an adverseIRS decision on tax-exemption. This provision isSection 3105 and reads, in its entirety, as follows:

The Internal Revenue Service shallamend its administrative procedures toprovide that if, upon examination, theInternal Revenue Service proposes to anissuer that interest on previously issuedobligations of such issuer is not excludablefrom gross income under section 103(a) ofthe Internal Revenue Code of 1986, theissuer of such obligations shall have anadministrative appeal of right to a seniorofficer of the Internal Revenue ServiceOffice of Appeals.

You may wonder whether an administrativeappeal to “a senior officer” in the IRS Office ofAppeals will produce a significant possibility ofreversal where the IRS has already “proposed” thatinterest on an issuer’s bonds is taxable. If so, youwill wish to be alert for a revenue procedureimplementing the new provision which is expectedto be released by the end of September.

Private Letter Rulings and Technical Advice Memoranda

Private activity bond tests. If you wereconcerned whether the interest on the Long


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Island Power Authority Bonds (referenced in this be private activity bonds.column in the June 1 issue of The Bond Lawyer)was tax-exempt, you will be interested in privateletter ruling 9823008 (February 27, 1998), whichis rumored to relate to those bonds.

Under Code section 141(d)(1), bonds are months of the acquisition will not be refundingprivate activity bonds if more than 5 percent of the bonds under the special integrated transaction ruleproceeds (or $5 million, if less) is used to acquire of regulations section 1.150-1(d)(2)(v). (Thisnongovernmental output property (that is, property section, you will recall, provides that if, within 6of an existing utility company). Under Code months before or after a person assumessection 141(d)(3), an exception is provided for obligations of an unrelated party in connection withbonds issued to acquire property providing output an asset acquisition, the assumed obligations areto certain existing service areas (the “Transition refinanced, the refinancing issue is not treated as aRule”). In the facts of the ruling, the proceeds of refunding issue.)the bonds are to be used to acquire stock andrefinance or discharge debt of an existing utilitycompany.

of the issuer and a governmental person for privateThe ruling holds that although the proceeds are to activity bond purposes.be used to acquire stock of the existing utilitycompany, they will be used indirectly to acquireassets represented by the electric system of theexisting utility company and thereby to acquireproperty providing output within the meaning of

the Transition Rule. The bonds will not, therefore,

The ruling then holds that since the proceedswill be allocated to the acquisition of assets andsince the acquisition will include assumption of theutility’s existing debt, bonds issued within 6

The ruling also holds that the company createdby the issuer’s acquisition of the stock of theexisting utility company will be an instrumentality

Next, the ruling analyzes a managementservices agreement intended to be entered into bythe issuer for operation of the acquired electricutility system. The ruling concludes that, although


the compensation arrangements under the contract independent living, qualifies as a functionallydo not satisfy the specific safe harbors for qualified related and subordinate facility of an exemptmanagement contracts in Revenue Procedure 97- residential rental facility within regulations section13 (due to provisions relating to payment of costs 1.103-8(a)(3) and (b)(4)(iii).for major capital improvements and for unforeseenevents), the term of the agreement is well withinthe limits of Revenue Procedure 97-13 andotherwise generally satisfies the RevenueProcedure. The ruling holds that the managementservices agreement will not cause the proceeds ofthe bonds to be used for private business use.

principally by residents and would be madeFinally, the ruling holds that expenditures ofbond proceeds for a described property taxsettlement will be extraordinary expenditures andwill not be subject to the “proceeds-spent-last”requirement of regulations section 1.148-6(d)(3)(ii)(B).

It is likely that several of the concepts of theruling will be applicable in other contexts.

Reimbursement versus refunding. Have youstruggled with whether the use of proceeds of aqualified 501(c)(3) bond to pay a conduit bor-rower’s taxable loan from an unrelated party is ause of proceeds for working capital as being priorto an inducement resolution? Or whether it is a useof proceeds for improper reimbursement as beingprior to a declaration of intent? Or whether it is ause of proceeds for refunding and thereby adeemed use for capital expenditures as directlytraceable to the expenditures made with the pro-ceeds of the taxable loan?

If so, you will be pleased to discover thattechnical advice memorandum 9831003 (April 7,1998) considers this question and concludes thatthe bonds are refunding bonds. Helpfully (forotherwise you may have raised the question), italso notes that there are no unexpended proceedsof the taxable loan and, therefore, there are notransferred proceeds of the bonds.

Multifamily housing facilities. Private letterruling 9822026 (February 23, 1998) sensibly holdsthat a community center building within amultifamily residential housing project that will beused for meetings, classes and cooperative childcare, and that is intended, among other things, toprovide broad on-site social services to projectresidents in order to expedite their return to

Among other matters, it was represented that,except for the day care facility, the center would beused exclusively by project residents and personsproviding services to them and that the day carefacility was commensurately sized relative to theproject, did not provide for a separate fee payableby residents and nonresidents, would be used

available on a comparable basis to all tenants.

Tribal corporation bonds. Section 7871(c) ofthe Code permits Indian tribal governments andtheir subdivisions to issue tax-exempt bonds ifsubstantially all of the proceeds are used foressential governmental functions — excludingfunctions not customarily performed by state andlocal governments with general taxing powers.

Under the facts of private letter ruling 9826005(March 20, 1998), an Indian tribe established anonprofit corporation to provide a nursing homefor tribe members, which received a 501(c)(3)determination letter, and proposed to issue bondsto finance additions to the nursing home. Theprivate letter ruling holds, however, that thecorporation has not been delegated sovereignpowers of the tribe, is not a political subdivision ofthe tribe and is not an integral part of the tribe, andso cannot issue bonds that satisfy the requirementsof Code section 7871(c).

Rebate computation credit. In technical advicememorandum 9823001 (January 20, 1998), theIRS responds to technical facts relating toadjustments to an issue’s yield by concluding thatthe issuer is not permitted to claim a $1,000 rebatecomputation credit.

Qualified scholarship funding corporation. Inprivate letter ruling 9826046 (March 31, 1998),the IRS permits a qualified scholarship fundingcorporation to terminate its status in accordancewith Code section 150(d)(3) and to transfer itsassets to a for-profit entity without adverselyaffecting its status as a 501(c)(3) corporation.

Volume cap carryforward. In private letterrulings 9827014 (March 31, 1998) and 9829031


(April 17, 1998), the IRS permits carryforwards ofvolume cap and waives irregularities.

As this is being written by me, the stockmarket is dipping, but otherwise the President is inplace and Washington is relaxing in the lazy, hazydays of summer. As this is being read by you, thestock market may be plunging, the President maybe teetering and the lazy days may be behind us,but you will have had your respite and will perhapswelcome a little hullabaloo.

Sharon Stanton White

Hunton & Williams

August 7, 1998


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QUALIFIED ZONE ACADEMY BONDS

The Taxpayer Relief Act of 1997 contains anew "no-cost" financing vehicle for public schools.Somewhat like the horse created by a committeethat ends up being a camel, the "Qualified ZoneAcademy Bond," or "QZAB," provisions combinerules familiar to issuers of tax-exempt bonds withthe private sector incentives associated with thelow income housing tax credit. The result is anallocable credit to a limited group of investorsequal essentially to the interest that wouldotherwise be due on debt issued to finance certaincosts of private/public partnership educationprograms. Although many of the concepts areborrowed from existing tax provisions, the slightvariations to these existing provisions, theincorporation of the provisions into a new order,and the introduction of new players to the processhave hampered the use of this financing technique.Nonetheless, the Administration's latest budgetproposal would extend this program to a broaderschool construction program. This proposal is inlieu of the prior year's budget proposal, whichwould have funded grants through the U.S.Department of Education to provide debt reliefthrough several mechanisms, such as interestreduction payments, reserves, or bond insurance.

Provision Summary

In technical terms, the QZABs work asfollows: An "eligible taxpayer" holding debt issuedby a state or local government, 95% or more of theproceeds of which are to be used for a "qualifiedpurpose" with respect to a "qualified zoneacademy" established by an "eligible localeducation agency" ("LEA"), is allowed an annualgeneral business tax credit equal to the product ofa credit rate times the face amount of the QZAB.The issuer of a QZAB must designate the debt asa QZAB after receipt of an allocation from theState education agency; must certify that it haswritten assurances of a required "private businesscontribution" with respect to the academy and thewritten approval of the LEA; and must ensure thatthe term of the QZAB does not exceed themaximum term permitted under the provision.

Section 1397E is very specific in identifyingthe types of programs intended to benefit from thistax incentive. Without going into the details of therequirements, the provision is designed toencourage a school (or a program within a school)in an economically distressed area to work with thebusiness community to develop school programsthat are more relevant to the world of work. Thebusinesses are expected to make contributions ofequipment and personnel in the form of mentors ortrainers with a minimum present value equal to10% of the QZAB, and the school contributes thehard costs and start-up costs associated with imple-menting a new program through the QZAB. TheFederal government becomes a stakeholder in theeffort through its payment of the interest cost in theform of the tax credit.

Treasury and the IRS have provided guidancewith respect to some of the credit calculationaspects of QZABs in Treas. Reg. §1.1397E-1T,issued in temporary and proposed form on January7, 1998 (63 Fed Reg 671) (the "TemporaryRegulations"). The Temporary Regulationsgenerally rely on the long-term taxable applicablefederal rate for purposes of establishing a singlecredit rate on a monthly basis and for purposes ofa discount factor for present-valuing the businesscontribution and determining the maximum term.With respect to the more programmatic aspects,the preamble to the Temporary Regulations statesthat no specific guidance is being issued at thispoint. Instead, the preamble states that Treasuryand the IRS intend that the taxpayer (and presum-ably tax counsel giving any opinion) can rely oncertifications and determinations of the issuer withrespect to such things as written assurances of thebusiness contribution, approval of the LEA, andthe determination that a school or program meetsthe definition of an academy, with the usual caveatthat reliance must be reasonable. The preamblealso states that the types of permitted expendituresare to be interpreted broadly.


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In Revenue Procedure 98-9 (1998-3 IRB 56), facilitate the internship and mentoring componentsthe Service allocated the $400 million credit limit of the program and student use of the equipment.for each of calendar years 1998 and 1999 among The school estimates that this would costthe States, the District of Columbia, and posses- $500,000.sions. Although the allocations are for only twoyears, they may be carried forward to subsequentyears. Allocations are based upon respectivepopulations below the poverty level, as opposed tothe private activity bond volume cap or the lowincome housing tax credit which are based on thetotal population of the jurisdictions.

The Potential

The following example, written to assistpersons working with empowerment zones andenterprise communities, illustrates the potential useof this financing technique in layperson's terms:

A for-profit hospital is a major employer in anenterprise community (the "zone"). In developingthe strategic plan for zone designation, the hospitalindicated a willingness to cooperate with a schoolin the zone to establish a special academic programat the high school level that would prepare studentsfor jobs at the hospital. The hospital has indicatedthat it is willing to donate state-of-the-art medicalequipment and computer software to the schoolsand to provide internship or mentoring experiencesfor students. The school has determined that itneeds to renovate a classroom to accommodate thedonated equipment, purchase appropriateinstructional material, and train teachers to

In order to obtain the benefits of the low-costcapital afforded through the QZAB tax credit, theschool would need to take the following steps:

1. The school obtains from the hospitalan estimate of the value of the equipment,personnel time, and facility cost associatedwith the internship and mentorship opportu-nities. As a for-profit organization, thehospital will be able to take a charitablededuction for the equipment and should beable to value this part of the donation withoutmuch effort. The determination of the value ofthe time of personnel and any facility costinvolved in an internship and mentoringprogram may require more of an effort by thehospital.

2. If the present value of the hospital'sdonation is equal to at least 10% of the cost theschool expects to incur for the new program(10% of $500,000, or $50,000 in ourexample), the school would obtain a writtencommitment of this donation from the hospital.

3. The school must have the writtenapproval of its LEA for issuance of the debt.The school contacts the financial officer andother school district or system personnel of the


LEA responsible for debt issuance. TheQZAB must be issued by a state or localgovernmental unit. In most cases, the likelyissuer would be the school district or system,but the local or state government may be theissuer in other cases.

4. The school and LEA must determinethe source of repayment of the $500,000. TheQZAB tax credit mechanism basicallyeliminates any interest cost, but the QZAB isstill a loan that must be repaid.

5. The school district or system seeks anallocation from the State education agency'sQZAB allocation equal to $500,000 (theprincipal amount the school expects toborrow). The State must provide writtenverification of an allocation of the QZABvolume limitation.

6. The school must identify an entityeligible to receive the tax credit. In this case,the school determines to sell the QZAB to afinancial institution in the area which had com-mitted to provide assistance in the strategicplanning process associated with getting thezone designation. The financial institution andthe school district or system enter into a loanagreement for the $500,000. The interest rateon the loan is set under the QZAB provisionsat 110% of a comparable federal taxable rate.The school district or system agrees to pay thefull $500,000 back in 5 years. The loan docu-ments, the hospital's written commitment ofcontributions, the school's cost estimate andother relevant documents are reviewed by atax lawyer to obtain an opinion for thefinancial institution that the transaction is aQZAB that enables the holder to take the taxcredit. The financial institution requires theschool district or system to set aside $100,000a year into a segregated fund to assure that thedebt can be repaid when the loan matures.Over the 5 years, the financial institutionreceives a tax credit equal to a stated interestrate, and believes it will owe enough taxes toreduce its federal tax liability by that amounteach year. The school district or system doesnot pay interest.

Some Observations

(1) The number of school districts or systemsthat can take advantage of this is greater than mightappear at first reading. By broadening thedefinition to include schools with 35% free orreduced lunch, a school district or system with ahigh credit rating would be able to issue QZABsfor an individual school or program within thedistrict or system meeting this criteria. The samemay be true of school districts or systems whichincorporate an empowerment zone or enterprisecommunity.

(2) The academic program and businesscontribution valuation requirements could createsome novel tax due diligence questions for counseldelivering opinions on QZABs. The generalassumption seems to be that bond counsel are theattorneys that will provide these opinions. Thepreamble to the regulations is helpful in permittingreliance on certifications, but counsel must stillwrestle with how to determine that thecertifications are reasonable.

(3) Many of the contributions will be difficultto value for purposes of evaluating whether the10% business contribution requirement is met.Even with the language in the preamble permittingreliance on certifications, issuers will expect taxcounsel to assist them in the determining that the10% threshold is met.

(4) The categories of permitted costs aremainly operating costs that schools traditionallyhave not financed with debt. Given the generalprohibition on financing working capital under thetax-exempt bond rules, counsel may have to workwith schools to identify and allocate operatingexpenditures appropriately to meet the 95%requirement. Intuitively, it would seem that schoolsystems that have been involved in state andfederal grant programs over the years should havea framework for allocating costs that would bereasonable in this context. Critics have noted thatthis provision does little to meet the tremendousneed schools are facing for construction of newschools or substantial renovation of old buildings.

(5) The eligible lenders group is ratherlimited, perhaps because of the novelty of thisinstrument. This provision will permit banks tobecome bigger players again in state and local debtissuance. In the case of empowerment zones and


enterprise communities, many banks "signed on" tothe strategic plan, but have not found the appro-priate vehicle for participating. QZABs wouldseem to be a good match.

(6) The term limit is not stated in terms ofweighted average life and does not seem tocontemplate amortization. However, the holder ofthe debt may require sinking fund payments oramortization to assure payment. Based on thetenor of the Temporary Regulations, Treasury andthe IRS do not seem inclined to put in complicatedinvestment and arbitrage-type rules for this situa-tion.

(7) Educating State education agencies withrespect to their role in allocating the tax credit ismoving slowly. This is a new task for theseagencies. An informal poll by the Chief StateSchool Officers indicates that fewer than 10 Stateshave made inquiries about this program. Thestatute provides no guidance on how the State'scap is to be allocated among various issuers by theState's education agency. While this provides theStates with a great deal of flexibility, this may notbe a positive, given the education agencies'inexperience in this area. State education agenciestypically have set priorities for purposes ofappropriations and grants, and they may find thesepriorities helpful in the allocation process in lieu ofadopting a first-come, first-served approach.

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Summary

QZABs are a good example of the growingpains associated with turning a Federal grantprogram into a tax credit. QZABs bring Stateeducation agencies into the tax system for purposesof the allocation and have the potential for bringingthe IRS into yet another complex area outside thetax collection arena for purposes of monitoringcompliance. Hopefully, bond counsel and issuerswill see potential for using this financing techniqueand will use their experience with tax-exemptfinancing to move the program forward.

Linda B. Schakel

Ballard Spahr Andrews & Ingersoll, LLP


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ISSUER'S ROLE IN SELECTION OFUNDERWRITER'S COUNSEL(GFOA Recommended Practice, 1998)

Background. Underwriter's counsel isemployed to represent the underwriter in theoffering of bonds. The duties of such counsel mayinclude drafting bond purchase agreements,drafting official statements and coordinatingdisclosure documents. Such counsel also assiststhe underwriter in meeting its legal responsibilitiesgenerally in the issuance and sale of the bonds.While underwriter's counsel represents theunderwriter, it is the practice of many issuers tohave a role in selecting or approving underwriter'scounsel. Among the reasons cited by issuers forbeing involved in the selection or approval ofunderwriter's counsel are (1) the issuer's need forassurance that underwriter's counsel is qualifiedand experienced and will give the highest priorityto the transaction, (2) the issuer's need forassurance that underwriter's counsel understandsthe issuer's finances and operations, disclosurepractices, and other pertinent information, and helppromote full and complete disclosure, (3) theissuer's desire to control the costs of theunderwriter's counsel, which are typically paiddirectly or indirectly by the issuer, and (4) the

issuer's desire to avoid the use of firms whereconflicts of interest or pending regulatoryenforcement may exist.

Recommendation. The Government FinanceOfficer's Association (GFOA) believes that issuershave a legitimate role in the engagement ofunderwriter's counsel, but recognizes that (1) theunderwriter has a reasonable need to rely on suchcounsel's competence and confidential advice and(2) the potential for conflicts of interest exists if anissuer designates a firm to serve as underwriter'scounsel. Therefore, the GFOA recommends thatissuers develop policies and procedures thatfacilitate the selection of competent andindependent underwriter's counsel. Among theprocedures that can be used are:

The issuer may draw up a list of generalqualifications or a list of acceptable firms andleave the final selection to the underwriter; or

The issuer may ask to review the qualificationsof a firm proposed by the underwriter andprovide feedback on the selection.

Firms should be evaluated based on theirgeneral knowledge and experience with disclosurerequirements; their understanding of the issuer and


the securities being offered; their ability to In reality, most of the problems described willcomplete the transaction in and [sic] orderly not happen when we greet January 1, 2000, butmanner; and the absence of any conflicts of many others may. Why? It all started decades ago.interest that might jeopardize the ability of the firmto carry out its responsibilities.

Governmental issuers can also have a role innegotiating the cost of services performed byunderwriter's counsel by reviewing the scope oflegal services to be provided and obtaining a fixed,not-to-exceed, hourly rate, or other appropriate feearrangement that takes into account the complexityof the transaction and the scope of counsel's work.

The underwriter bears the ultimate respon-sibility for the adequacy of its own counsel. Anyundue influence by an issuer, however, that callsinto question the qualifications or independence ofunderwriter's counsel may create risk to the issuerand to the underwriter because of the increasedpotential of inadequate disclosure in the offering ofthe issuer's bonds and a reduced ability of theissuer to claim reliance on the expertise of itsfinancing team.

Approved by the Committee onGovernmental Debt and Fiscal PolicyJune 27, 1998

LEGAL ASSISTANTS' CORNERSCIENCE FICTION OR Y2K?

It’s January 1, 2000, the beginning of a newyear and, arguably, a new millennium. The clockon your VCR, coffee maker, microwave oven andstove read “1/1/00,” but the program you wantedrecorded and your coffee are not ready. Oh, well,the local deli has great coffee and the program willbe repeated during the summer.

Waiting for the elevator to the street seems tobe taking longer than usual, so you walk down.Your car is parked where you left it, so whydoesn’t it start? The walk will do you good, butyou need money from the ATM. You got moneyyesterday and know you have a great balance butthe machine is refusing to hand you money andtells you that the date is 01/01/1900. Did timereverse? Did Verne’s time machine transport youto the last century? Did you forget to wake up?

When computers were in their infancy,memory was at a premium. Mainframes had lessmemory than the PCs we use today. In order tosave bytes, programmers decided it was moreefficient to store dates in MMDDYY format ratherthan MMDDYYYY, and assume 1900 as the base.While the decision seemed good at the time, weare now faced with the consequences. Mostcomputers, from mainframes to embeddedcontrollers, are affected by the decision.

Now when the older computers turn the dateover to 00, they will recognize the date as 1900which is smaller than the date for the year before,1999. Even when the four numbers representinga date are entered into a data field, the programonly recognizes the last two digits and still assumesthe “19” before the date. Some other commondate assumptions include: “00” may not berecognized and allowed as a valid date; dates mayhave a range assumed to end with 1999; reportsmay assume that the year is “19” and print it as thefirst two digits in a year; and 2000 is a leap yearand may not be recognized as such because 1900was not a leap year. Even if 2000 is recognized asa valid year, all dates after February 28, 2000, maybe wrong because the leap year is not recognized.

Probably the most frightening thing about theoverall problem of Y2K is the interconnection ofinformation within a company (or issuer, or lawfirm) and among global entities. While we, on apersonal level, may only need to worry aboutbalancing our checking ac-


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counts, companies, issuers, law firms, nations and law school at the same time would have gottenthe world must worry about all shared information. most of the jobs available. Fortunately, one jobEven those systems which have been totally was left -- with Chapman and Cutler.updated may be infected by another system whichstill has the millennium bug.

Susan M. ParkerVice-ChairCommittee on Legal Assistants

VOICE FROM THE PASTChapter 8

I graduated from Northwestern Law School inthe spring of 1950. Inflation was then growing ata higher rate than I could earn on the money I’dsaved as a frugal young ensign, so I decided toinvest it in something lasting; rather than spendingthe summer studying for the bar examination, Iwent to Europe for a couple of months. On return-ing I managed to borrow the cram course materialsfrom a classmate, to study them for a week, andthen to take (and pass) the exam. I had neglectedto focus on the fact that others who graduated from

At first I was put in the library doing researchfor whatever lawyers wanted it done; after aboutnine months of that, I was asked by Joseph Matter,one of the partners in the municipal bonddepartment, if I’d like to transfer to his area ofpractice. I didn’t know whether I’d like municipalbond law, but I knew that I did not like the library.

While I had been in law school, most of theother millions of men who had been in the serviceduring World War II were busy procreating. Theiroffspring are generally called “baby boomers.” Allof these children would have to be educated, sothere was a great need for new school constructionall over the nation. Nearly every one of theseschools was financed with bonds. Such bondsprovided the major part of my practice for the nextdecade or two.

School bonds were general obligation bondsand were voted at elections, very few of whichfailed. Usually the ballot question merely showedthe purpose of the bonds to be acquiring and


constructing school buildings, but sometimes they bond dealer had to sit with an issue that he hadwere more specific. Occasionally, in the southern bought but could not re-deliver for several days;States, the ballot would refer to white or colored the dealers got more and more unhappy with thisschools. I was uneasy about this, but found no arrangement.legal reason to refuse to approve such bonds.Then, in May of 1954, the U.S. Supreme Courtdecided Brown v. Board of Education, 347 U.S.483, holding that, “in the field of public education,the doctrine of ‘separate but equal’ has no place.Separate educational facilities are inherentlyunequal. Therefore, we hold that the plaintiffs ...are, by reason of the segregation complained of,deprived of the equal protection of the lawsguaranteed by the Fourteenth Amendment.”

From then on I advised clients that the ballot one satisfactory. Later we would usually examinecould not show whether the schools to be financed the executed bond and signature certificate beforewere for children of either race. One or two school escrowing the opinion and dispense with the tele-districts chose to refer to the location of the school gram. This worked well with most local banks, butor schools to be constructed or improved in not when the bonds were delivered in New York.expectation that the voters would know which There it often would not be an officer of the bankchildren were to be benefitted, but that did not lock who handled the transaction but rather a flunkyin the facilities to use by members of a particular who felt that his job entailed only going throughrace. motions and not accepting responsibility. This

The reaction to that decision in some Statelegislatures was strongly adverse. Georgia passeda law declaring that no public money could be usedfor integrated schools. Chapman and Cutler then By following this practice we seldom sawdeclined to approve school bonds in that State, anyone from the client issuer. We did not have tosince there was no lawful purpose for which the travel and neither did the officers of the issuer inproceeds could be used. The money could not be most cases, as the bonds would be delivered in orused for integrated schools under State law and near the issuer’s territory. Thus the expenses ofcould not be used for segregated schools under the issuing bonds (especially the fee and expenses ofU.S. Constitution. I don’t know how Georgia bond counsel) could be kept very low, and webond counsel reacted, but the law was changed at could be in our office working on other bondthe next session. issues instead of spending time on a train or an

" "

In the decades before I started, the practice ofmunicipal bond law consisted in examiningtranscripts of proceedings adopted by governingbodies and sent to bond counsel for approval afterall such proceedings had been taken. If theproceedings proved satisfactory, we would theneither prepare delivery papers or review thesignature identification certificate and thetreasurer’s receipt prepared by local counsel, andthen issue a preliminary opinion. When executedbond number one and the executed delivery paperscame in, and were found satisfactory, we wouldthen issue a definitive opinion. This meant that the

So we adopted the practice of escrowing ouropinion with a local bank, accompanied by a lettersaying that when the bank had an authorizingtelegram from us, when the bonds had beendelivered and paid for, and when the bank had afully executed treasurer’s receipt in the enclosedform, dated the date of delivery, available fortransmission to us, then it could release ouropinion. We would send the telegram when wefound the signature certificate and bond number

could get scary when the treasurer’s receipt latershowed that the issuer was over the debt limit.Fortunately this seldom happened.

airplane or in a hotel room. We were available bytelephone in case of problems. I still recall ourstandard response when we received a telephonecall on the date of sale of a publicly advertisedbond issue: “If you are calling about a disputeover who has the winning bid, don’t tell me thenames of the bidders, just say ‘one bidder’ and ‘theother bidder.’” We hoped that this would establishour impartiality and reduce the ill feelings ofwhichever bidder we decided against.

The practice of working on bond issues longdistance, with low fees but no personal contact,was phased out about the same time as Mont-gomery Ward’s catalogue business.


to serious sanctions and forced toManly W. Mumford disgorge its fee.

BOND DOGS

(In this person-eat-person world of municipalfinance, one can count on a dog's eye view to givethe true story. Skippy and Jake check in yet againwith their witless observations on the tails of thetimes.)

Skippy: A lot is being made these days of theunauthorized practice of law.

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The California Supreme Courtrecently held in Birbrower et al. v.Santa Clara County that a New Yorklaw firm aiding a long-time Californiaclient in contract negotiationscommitted malpractice by conductingthe unauthorized practice of law inCalifornia. The law firm was subject

Jake: The state bar in Texas is also goingafter the accounting firms in a big wayfor providing legal services without alicense. Even if the accountant has aUniversity of Texas law degree,because he or she cannot share feesearned as a lawyer with nonlawyers,the result is that legal advice renderedin the course of an accounting engage-ment is a no-no.

Skippy: And recently they have even gone sofar as to suggest that the preparationand marketing of legal forms writtenas computer software where the userinteracts with the computer constitutesthe unauthorized practice.

Jake: But none of these are bond counselmatters. Closer to where we eat, theNew Jersey Supreme Court publishedan opinion, labeled "Opinion 33," thatany bond counsel in that state must bea member of the state bar. Theopinion concludes that there is noreason an out-of-state bond counselshould be allowed to practice in NewJersey. The opinion also notes that theunauthorized practice of law in NewJersey is a criminal offense.

Skippy: Let's look at some of the possiblereasons for the New Jersey opinion.The most obvious, and least defensi-ble, is to protect New Jersey lawyersfrom out-of-state competition. Thatway they can keep their fees up andtheir campaign contributions down. Italso means that the client may be de-nied the opportunity to seek competentcounsel of its choosing.

Jake: The justification most often offered forrules regarding the unauthorizedpractice of law is premised on theprotection of the client from personsnot capable of providing adequaterepresentation.


Skippy: In the old days, there may not havebeen competent bond counsel in everyjurisdiction and the purchasers of thebonds believed it was necessary toretain "nationally recognized counsel"in order to market the bonds to thepublic. Today, in most jurisdictions,there are a number of recognized bondcounsel capable of deliveringmarketable opinions.

Jake: On the other hand, in the old daysthere weren't the Internet, Lexis,Westlaw and the like, so that someout-of-state practitioners did not havereadily available the research materialsnecessary to be able to answer statelaw questions.

Skippy: The question of lawyer competence issimilar to "how many cats fit in ablender?" The commentary to theModel Rules of Professional Conductstates that "a newly admitted lawyercan be as competent as a practitionerwith long experience." Nor do theModel Rules require that a lawyerhave to have "prior experience" inorder to be competent. I ask you,"would you rather have an out-of-statebond lawyer with 30 years' experienceand the most current researchtechnology or an in-state lawyer freshout of law school who can't spellULSATU and still giggles when he refersto legal Ubriefs?U" If the answer is theout-of-state guy, then the notion ofcompetence isn't really what iscontrolling this issue.

Jake: Face it. We know what is controllingthis issue. It's local lawyers wanting toprotect their turf. Let the other doguse his own hydrant.

Skippy: There are several other factors thatmake this problem even more com-plicated. These days, there are taxcounsel, bankruptcy counsel, securitieslaw counsel, and blue sky counsel allinvolved looking at other than aparticular state's laws. Even where

bond counsel is being asked to give astate law opinion, the opinion is withrespect to securities that trade in anational market. Laws andinterpretations of other jurisdictionsand of federal law will have a part toplay in any analysis. In many transac-tions, there are multiple counselinvolved including some who aremembers of the in-state bar. ABAEthics Opinion 316 permits lawyersfrom multiple states to "associate."

Jake: So what is the right policy answer?

Skippy: In the context of sophisticated finan-cial transactions with parties who fullyunderstand their options, the clientshould be able to choose as its lawyerwhoever it wants. A different rulecould apply where the client is "thelittle puppy" lacking in the experienceand expertise to make an intelligentdecision as to whether out-of-statecounsel can serve its interests.Obviously, the lawyer, if not amember of the state bar, should haveto disclose that fact to his or her clientand would have to be comfortable thathe or she is competent to handle theparticular matter. Perhaps thereshould be a rebuttable presumptionthat an out-of-state lawyer is notcompetent, which presumption couldbe refuted by a demonstration ofcompetence based on experience,standard of practice, similar transac-tions and the like.

Jake: But the right policy answer doesn'tappear to be the current legal answernor is it the direction in which statebars and courts are moving....

" "

Skippy: Readers of this column know that weare big believers in the power of theacronym. The financial markets areloaded with products that sell becausethey spell. The latest to catch ourinterest was released by BT AlexBrown as "Equity Linked Venture


Investment Securities" — that's right, Skippy: You know how to whistle, don't youthe "Elvis." Jake?

Jake: This creates a whole new source ofproduct names. Rather than banksoffering CDs, they could call them"Simple Interest At Taxable Rates" or"Franks" for short (not to be confusedwith the French currency). Heck,sightings of Elvis are old hat; thesedays people are seeing old Frank inVegas daily. We leave as an exercisefor the interested reader developinguses for John Wayne, Groucho Marxand Marilyn Monroe.

" "

Skippy: It isn't often that a magazine (otherthan Playdog) grabs our attention, butthe June 8 Tax Notes is just loadedwith good stuff. First, it tells us thatthe IRS scored a "C" on its update ofits computer for Y2K compliance.Before getting after the IRS, it shouldbe noted that a "C" was a high score;the average grade was "F." Then, ittells us the Agricultural HempAssociation of Fort Collins, Colorado,was granted 501(c)(3) status. Finally,we learn that the IRS included JackieRobinson collector coins advertising intheir refund check envelopes and sometaxpayer had the audacity to complain.Doesn't get better than that.

Jake: While we are on the subject of"literature," the Investment Dealers'Digest of June 15 reports that ifGoldman Sachs goes public, somesenior guys will make $200M, somejunior guys (5 years' experience) willmake $1M and the average partner(and there are 190 of them) will make$76M. I have a solution to this yieldburning mess. Have each investmentbanking firm contribute to a fund theamount that they are willing to pay.Goldman can make up the difference.That way, nobody suffers and thewhole mess will be behind us.

" "

Jake: Doesn't that depend on whether or notI'm a disgruntled former employee?

Skippy: This whistleblower claim nonsense istroubling for the implications that itcreates with respect to the propercharacterization of arbitrage earnings.The theory being employed andapparently accepted by the JusticeDepartment is that the excess arbitragerepresents a payment which is owed tothe federal government and the whis-tleblower claim represents therecovery of an amount which is owedbut unpaid.

Jake: That can't be right. If there isarbitrage impermissibly earned, say byan excessive markup of yield-restricted securities, then the bonds aretaxable and the payment owed is notthe arbitrage earnings but the tax onthe bond interest.

Skippy: They can't use that theory because thewhistleblower statute does not applyto the collection of taxes.

Jake: Well, then I've got the perfect scheme.We blow the whistle on the whistle-blowers for the amount they receive asbeing an amount to which they are notentitled as a matter of law.

" "

Skippy: On the subject of get rich schemes,don't go into politics with the thoughtof scoring bigtime on all of thoseinvestment banker campaigncontributions. It was recently reportedthat the NASD denied a G-37 waiverfor a campaign contribution of $25because of the implication that it wasmade to purchase bond business.

Jake: How much business do you think youcan buy these days for 25 simoleons?


Skippy: Well, that depends on whether the Jake: Everybody sues everybody, nobodyNASD is going to continue to put a wins, turn your head and cough, andpremium on stupidity. If they focus on it's "showtime baby go down."truly petty amounts instead of moreimportant issues, we won't need toworry about buying business, becausethere won't be any business left to buy.

" "

Jake: We have again been confronted withthe mess of calling bonds which havebeen escrowed to maturity. Theproblem arises because there are toomany buyers and sellers out there whodon't appreciate the source of thevalue of a defeased bond.

Skippy: To begin with, the notion that thepricing of a new issue reflects whetherthe issuer has built into the bond thepotential to escrow the bond tomaturity and then call it out early isridiculous. The market just doesn'tthink in those terms.

Jake: I think I saw that idea recentlysuggested by an irate trader who wrotea letter to The Bond Buyer.

Skippy: And then when the bond is defeased,the holder gets a windfall that it didnot pay for.

Jake: The holder then sells the bond, collectsthe windfall, and the poor secondarymarket buyer who thought he boughtan escrowed to maturity bond has arude awakening when the issuer triesto call him out.

Skippy: The solution is "obvious." When theissuer issues some other bond issue,perhaps privately placed, sold at adifferent time and to a differentmarket, it discloses that it reserves itsrights to call the defeased bond. Ofcourse the holder of the defeased bondcares not about the second bond issueand takes no notice of the issuer'sdisclosure. And then you've got asituation on your hands.

" "

Jake: The shortage and turnover of bondlawyer associates is a direct result ofthe advertising strategy being em-ployed by the large law firms whichare falsely representing the positionsavailable.

Skippy: Without exception the ads state,"Candidate must have superioracademic credentials."

Jake: I think I know where you are going. Atruer and perhaps more effective jobposting might read, "Wanted, middle-of-the-class dullard willing to sit in asmall windowless office for longperiods of time redrafting thesubstitute trustee provisions of anindenture. Client contact will beminimized by paranoid partnersfearful that some second year asso-ciate might steal their clients. Per-sonality not a prerequisite. No need toworry about theoretical liability arisingfrom a partnership track position.Vacations possible, weekend worknegotiable, overtime work available,Christmas day optional."


Skippy: At least that way, if someone takes thejob they won't be disappointed withthe work.

Jake: With that, adios amigos.

Skippy: Yup, later dudes.

Skippy and Jake

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EDITOR

(Editor's Note: The following letter of July 6,1998, was received in response to one from youreditor, which enclosed a newspaper clippingclaiming that some of the Southern persuasion put"mini-pickled okra" in their martinis.)

Dear Squire Kiel:

In keeping with my longstanding tradition ofnot replying to your mail until it has thoroughlyripened, I now respond to yours of April 13, 1998,regarding the claim of the comely Ms. Rosencransthat some southerners employ "mini-pickled okra"in their martinis. I wouldn't accuse her of fabricat-ing this claim from whole cloth (whatever thatmeans) as there are many southerners who think aseven course meal consists of a six pack of beerand a bowl of grits. However, in my experience, Ihave not come across any denizens of these partswho put okra of any sort in their adult beverages.

In my view, the only way to eat okra is breadedand fried. In that regard, it is my firm convictionthat the deep-fat fryer represents the greatestscientific achievement of our century.

Lamentably, okra is served in the south mostoften in a sort of stewed, slimy state and, once in


one's mouth, there is no possible way to avoid With every good wish to you and all underswallowing it. your protection, I am Increasingly incontinent,

The great southern raconteur, Jerry Clower,tells a story about two hound dogs who attacked abowl of leftover okra in unison and it was so slimythe dog who ate it didn't even realize he had doneso, with the result that both of them fought for ahalf hour, each thinking the other had beaten himto the table scraps.

Your columnist also said the hosts wereserving "vodka martinis," which purists think

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to be an oxymoron. I checked with my partner andprotégé, Ruth Tinsley West Garrett Brown Wells(cha-cha-cha), who is a known "vodka martini"partisan, and she said that "mini-pickled" was anapt description of the results of some of hermartini-swilling adventures but she couldn'tremember if okra had ever been involved.

Finally, I agree with you that The BondLawyer: The Journal of the National Associationof Bond Lawyers is a somewhat cumbersome title.Perhaps you should consider renaming it. I thinkThe Burning Yield has a nice ring to it.

Robert L. Steed

King & Spalding

Atlanta Letters to the editor are welcome. Or, e-mail tofokiel@fusenet.

BOOK REVIEWS

Joe Mysak, the New Yorker who is theformidable former editor of The Bond Buyer, whonow edits Grant's Municipal Bond Observer andGrant's Municipal Bond Issuer, has had publishedby Bloomberg an excellent little (4½" × 8") 212-page hardbound volume entitled Handbook forMuni-Bond Issuers. It is chockablock withpractical advice for issuer officials who deal withissues like competitive bids versus negotiatedsales, public relations, and a lot more. In general,Joe encourages issuers' unrelenting skepticismabout underwriters' initiatives and ideas. Withrespect to the role of bond counsel, he quotesextensively and approvingly from the Association'sLawyer Proliferation in Public Finance Trans-actions, and ridicules New York City's $150 perhour fee cap on special disclosure counsel'sservices. He concludes by noting that "when yougo shopping for bond counsel, the most importantconsiderations are professionalism and good ideas.The least important factor is price. You get whatyou pay for." Well, yes. For $40, he'll share hiswisdom with anyone. Copies are available fromBloomberg (800-233-4830) and throughwww.amazon.com (at a 30% discount).

Ehlers on Public Finance, subtitled BuildingBetter Communities (392 pages, hardbound, $319postpaid from Lone Oak Press, j P.O. Box 841,Northfield MN 55057, 1998), is a somewhateccentric distillation of its author's approaches tostructuring and marketing bond issues. Robert L.Ehlers, a Montanan (pictured on the cover in fullcolor in a cowboy hat and blue jeans), has spentnearly forty years in public finance consulting, and(according to the cover) "has sold more than $10


billion in over 700 issues of municipal bonds." Hisbook, which includes six forewords, anintroduction, a glossary, a list of references(including three Association publications), and anindex, received favorable reviews from The BondBuyer, Nation's Cities Weekly, and Minnesota Law& Politics.

Mr. Ehlers is all over the map as to whombond counsel represents, but appears to come

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down in favor of the notion that bond counsel's usefully and in depth with the many difficult"primary responsibility and reason for being is to questions which confront issuers, and he is not shy.protect purchasers and investors." He believes (The last chapter, entitled "Too Damn Manythat bond counsel "may not be able to represent the Bonds," treats of the oversupply problem, andissuer as a fiduciary," and that "the relationships urges both self-restraint and restrictions on privatebetween bond counsel and the issuer differ purpose bonds and advance refundings.)importantly depending on whether the bonds aresold at private sale or competitively." Continuingthis theme, he asserts that "in a private sale, bondcounsel is often nominated by the underwriter whostructures the issue, is the main contact with [bond]counsel[,] and dictates terms to fit its wants.Especially in a private sale, bond counsel may havean imperative to represent buyers' interests, someof which are antithetical to those of the issuer."Mysteriously, while the author addresses conflictsthat bond counsel may have because of "conflictinglocal political and economic pressure," he does notaddress the need for bond counsel — or issuers —to deal with conflicts inherent in bowing to the willof the underwriter while being compensated by theissuer.

To his credit, Mr. Ehlers deals firmly with theevils of opinion shopping and politically-motivatedretention of bond counsel. But oddly, he tells us atleast twice that six transcripts should be prepared;at one point the sixth copy is for the insurer, whileat another it is for the trustee "if there is one."

The foregoing discussion, focussing as it doeson matters of parochial interest to bond lawyers, isof course essentially unfair. Mr. Ehlers' book deals

Should you buy the book? If you are lookingfor broader perspective on the municipal market— albeit from one whose views are in partgeneralized from his Montana experience — and ifyou're having a good year, then by all means do.

EDITOR'S NOTESOn May 21, Rep. Phil English (R-Pa),

evidently no friend of public power, introduced(with two co-sponsors) H.R.3927, which providesthat government-owned utilities that choose to sellelectricity beyond their service territories will, inRep. English's words, "be denied the use of tax-exempt debt and their general income tax exemp-tion to support their electricity sales."

Rep. English estimates that fewer than 30"large, aggressive" government-owned utilitieswould be affected by his bill. He says that his billwould not affect rural electric cooperatives norfederally-owned utilities (Bonneville PowerAdministration, Tennessee Valley Authority), andwould "in no way affect existing tax-exempt bondsor current bond holders."


What is pernicious about Rep. English's bill isthat the principle it would set — that municipally-owned utilities which serve customers beyond theirboundaries should be denied the use of tax-exemptbonds and should be taxed on their income —would apply as well to extraterritorial water, sew-er, and gas services.

The result, of course, would be that municipalutilities which serve areas beyond their boundarieswould have to charge extraordinary premiums forthat service (if state law permits), even thoughthere may be no shareholder-owned utilityinterested in or able to provide services to the samecustomers.

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Nation's Cities Weekly (July 27) summarizedPresident Clinton's Executive Order on Federalism(No. 13083), issued on May 14, as one which"would alter fundamentally the relationship of thefederal government and state and local govern-ments.... It would set the federal government andits many agencies that affect cities and towns on avery different policy course — revoking earliercommitments [President Reagan's Executive OrderNo. 12612 and President Clinton's Executive OrderNo. 12875] to oppose unfunded federal mandatesand federal preemption, and replacing them withexpanded guidelines and justifications forpreempting historic and traditional municipalauthority."

Every organization representing state and localelected officials called on Mr. Clinton to rescindExecutive Order 13083. In a "sense of the Senate"resolution sponsored by Senator Fred Thompson(R-Tenn), the U.S. Senate unanimously called onMr. Clinton to rescind.

The Executive Order was scheduled to takeeffect on August 12. A July 29 article by DavidBroder in The Washington Post said that the WhiteHouse has offered to delay its effective date untilmid-November to provide time for consultationswith groups representing state and local officials,who were not previously consulted.

Your editor is reliably advised that problemsfor state and local governments may also inhere inthe other 3,000 or so Executive Orders issuedduring the current administration, or in PresidentialDecision Directives or National Security DecisionDirectives, with particular reference to unfundedmandates.

The American Bar Association in early Augustadopted a sort of compromise resolution thatdirects its ethics committee to come up with a ruleby next year which would stamp out politicalcontributions calculated to get business for thecontributor. The ABA, of course, recommendsbut does not prescribe.

Our Association was created in 1979 as a purealternative to the ABA, which had for many yearssorely neglected the interests of bond lawyers.Should we now let the ABA dictate, via itsrulemaking process, the composition of bond lawfirms? This battle, it seems likely, will be foughtout state-by-state, if the committee drafts and theABA proposes the rule contemplated by its Houseof Delegates resolution. Can you imagine an ABArule — or rules in the several states — whichdisqualify you from opining on an issue if you oryour partner has contributed more than $ X to acandidate? I think not. Directed by Messrs. Levitt,Shestack, and Martin, the ABA has gone wrong.I encourage you to do what you can to set it on thepath of righteousness.

In an August 3 article that might have been(but was not) entitled "Paying to Vend," The WallStreet Journal's Richard Gibson, relying in part ona Chicago Tribune piece, says that McDonald's


Corp. chairman Michael R. Quinlan sought contri-butions from company vendors in aid of an Illinoisgubernatorial candidate,

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and asked contributors to send their checks to Mc- often claustrophobic venues, pay north of 15%Donald's corporate headquarters. taxes on everything, and endure all those pushy

We are reliably advised that some membershave shared with their issuer clients Glenn Floyd'spathbreaking article ("Ownership of UnclaimedDebt Service Monies," The Bond Lawyer, June 1,1998, page 23), and that those issuers have beenbedeviling paying agents to good effect.

Every once in a while (actually, thousands oftimes each year) financial advisors or underwritersof municipal bonds drag issuers and their lawyersinto Manhattan to confer with rating agencies orbond insurance companies. Sometimes, issuerseven go by themselves.

So why can't the New York folk come to therest of the country? How can it be an efficient useof public resources for seven people from Topekato go to Manhattan to visit two (or even four)insurance company or rating agencyrepresentatives? (If they happen to turn up on aFriday, they'll be put totally off balance by the WallStreeters in khakis and blue jeans.)

Why should Main Street buy $300 hotelrooms, ghastly cab (or odiferous subway) rides,overpriced tickets to scatological Broadway fare in

vendors? The New Yorkers could bring most ofthat to us via videotape, if we have to have it. Onecan imagine a video which pans down Wall andChurch Streets, offers a Century 21 clothingcatalog, takes us into and out of the Cortland Streetsubway station and through that old cemetery withits above-ground stone tombs, up to the top of theWorld Trade Center (or at least to "The GreatestBar in the World"), winkles at the Statue ofLiberty, flits through the NYSE and any number ofZagat-rated restaurants, and finishes with FifthAvenue and Madison Avenue footage, with toll-free numbers as yellow subtext. But perhaps it'salready been done.

Wall Street should come to Main Street, inperson or via videolink or the Internet, and asinsurance companies and rating agencies prolif-erate, it will.

While we're castigating New Yorkers, take alook at DTC's annual report. (Bear in mind thatDTC is owned by its bank and broker-dealermembers, as shareholders.) This epistle comeswith a 2D touchy-feely cover, in silver and black.It is printed on (we're guessing here) forty- or fifty-


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pound coated stock. It includes lots of color pho-tographs.

If you got this kind of annual report from, say,Procter & Gamble, you'd scream bloody murder."How," you'd say, "can these bozos spend that kindof money just to write me a letter?" And you'd beright.

But DTC has no such inhibitions. Why?Because its members don't care. DTC is anincredible success story. Its management hasgotten arrogant — witness the multitudinoustroubles Wally McBride et alia had to endure toget to the "Joint Recommendations for Commu-nicating with the Beneficial Owners of DefaultedMunicipal Securities" printed in the June 1 numberof The Bond Lawyer.

The ALAS-generated articles which appearedin the December 1, March 1, and June 1 numbersof this journal have led — or should have led — allright-thinking members to the conclusion that if theSEC or the IRS — post-closing — confrontation-ally questions their issuer clients about yield-burning issues (as opposed to just raising a fewtechnical questions), they should not pause muchbefore taking a hike in favor of other counsel withno conflicts and (mayhap) better expertise in deal-ing with the agencies. Are we all on the same pagehere? We'd be happy to hear from anyone whodoes not concur.

Bob Buck, who has served as an AssociationDirector since 1995, has bailed out of bond lawand is taking up wooden boat-building. Should westudy at his feet? He has been one of the hardest-working Directors we've ever had (see the ModelEngagement Letters revision, now final, after per-haps 23 drafts), and deserves all the kudos you cansend his way. And thanks and more thanks toPalmer & Dodge for sharing him with us (as itshared Jim Perkins, Neil Arkuss, and AmyDunbar). Bob was/is one of the nicest, most civil,elegant, and centered bond lawyers you will evermeet.

At the September members' meeting, we sayfarewell to the redoubtable Julie Ebert. She gavean unconscionable amount of time to the

Association, even after she stepped down as President (asa member of the ABA Task Force on pay-to-play

contributions, whereon she served to good effect).Julie is a lawyer with a conscience, and ameticulous work ethic, and has a gutsy sort ofcharm you'll not often encounter. Julie!

Here's a vote for plain vanilla. The SEC hasmade very clear its views that the issuer's officialsshould understand and bless the issuer's officialstatement, and that they are not in that regard torely entirely on retained professionals, no matterhow carefully and sensitively selected.

Ergo, if the issuer's governing body ispresented with a structure or a gambit that can beproperly understood only by turtlegeek computercowboys, and if the page(s) in the officialstatement which explain that structure or gambitare not written (can't be written?) for a layaudience, there may be some exposure created forthose involved. Give it some thought.

Several inquiries have been received about thedisclosure dragon whose image accompanied PaulMaco's speech in the last issue. The trees, whilereal, were of course meant to suggest the verticalbars of a jail cell. (The SEC is getting serious.)The dragon itself is a seven-ton chunk of Indianalimestone sculpted locally for your editor'sdaughter.


Full-page Muni Bond Professionals... ad


BOND ATTORNEYS' WORKSHOP

September 16 – 18, 1998

Palmer House Hilton Hotel

Chicago

The preeminent annual gathering of bond lawyers, covering virtually all aspects ofmunicipal bond law; for lawyers with more than three years of bond experience.

Please call Executive Director Patricia Appelhans for more information:630/690-1135

QUARTERLY LIMERICKS

I

In the bonds, with the bonds,Where the sun never shines —

And an army of antsHolds some sway —

There'll be ups, there'll be downsAnd no doubt there'll be some hell to pay.

Down the streets, down the roadsIn the shade of the trees

Lie some good deals and badAnd the rest:

Most are fine; some are stressedAnd will feel the IRS and SEC caresses.

So this doesn't quite rhymeBut Orin is fine with the notion that nothing

Is perfect: he'llTake his best shots

And retreat to an aerieFrom whence he need not further climb.

II

Summertime, and the breathin' is wheezy;Arthur's jumpin', and his ire is high;

Martin and ShestackGot a little bit sneezy,

So handkerchiefs wave, and the message is fie

On impertinent bond lawyersWho bend not to the Chairman's old whip.

We're out in the woodsHere, we're sawyers

(Of the iceberg, we see only the tip).

III

In the pines, with the whines(Does the sun ever shine?)

We go on confrontin' Old Arthur:At the bond lawyer's hearth or

In Canadian venues, with dissenting opinions so fine.

IV

Messrs. Shestack and Martin, in snugglies,Went north to Toronto, got uglies:

Raved some and ranted,And lobbied and panted,

Didn't get a whole lot of warm huglies

From their fellow ABA delegatesWho had a lot else on their plates:

Didn't get their new ruleSo they swim in the pool

With those without Friday night dates.

Orin Macgruder

MEMBERSHIP SERVICESEducation Program

The Association conducts seminars and workshops dealing with matters of interest to the bondlaw community. Still ahead in 1998:

R September 16, 17 and 18: Bond Attorneys' Workshop, Chicago — for lawyers withmore than three years of bond experience — the preeminent annual gathering of bondlawyers, covering virtually all aspects of municipal bond law

This event offers members opportunities to exchange ideas about law and practice with fellow practi-tioners. For more information, call Executive Director Patricia Appelhans at 630/690-1135.Law Reform: Committee Participation

Through its Committees on Arbitrage and Rebate, General Tax Matters, and Securities Law andDisclosure, as well as ad hoc committees and task forces, the Association regularly testifies and fileswritten comments about proposed tax, securities and other federal legislation and regulations, and actsas an amicus curiae in judicial and administrative proceedings of general interest to the membership.(Amicus curiae guidelines are available from the Executive Director.) NABL members are invitedto participate in committee activities. The Association works closely with public interest groups andindustry organizations on matters of mutual interest.Office of Governmental Affairs

In Washington, the Office of Governmental Affairs represents the Association in federalregulatory and legislative matters. It cooperates with state and local government groups, con-gressional and regulatory staffs, the Association's substantive committees, and individual membersto help identify, inform, and educate Congress and federal regulatory agencies about public financeissues. Members may contact Administrative Assistant Laura Butera at 202/778-2244 ([email protected]), or at 1900 K Street NW, Suite 1200, Washington, DC 20006-1109, to discusslegislative and regulatory issues, request copies of current public finance proposals before Congressor regulatory agencies, and obtain NABL comments on proposed securities and tax regulations. Forthose with Internet access who send their e-mail address to her, she maintains e-mail contact withmembers on timely issues.Other Membership Benefits

P Subscription to The Bond LawyerP Information of immediate concern is mailed to the membershipP The Association's home page on the World Wide Web: www.nabl.orgP Preferential admission to the Association's educational programs at substantially reduced

rates and reduced air faresP Discounts on many of the Association's publications, including Disclosure Roles of

Counsel in State and Local Government Securities Offerings, Second Edition; FederalTaxation of Municipal Bonds (through Aspen Law & Business); Blue Sky Regulationof Municipal Securities; and seminar course books

P Free access to the Association's Job Bank through which members can receive joblistings and firms can seek members interested in employment opportunities

P No charge for placement in The Bond Lawyer of brief notices of employment opportuni-ties available or sought

P Budget Rent-A-Car discount

[Bond Buyer ad on outside back cover — 1998 Conference Schedule]

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