Northampton City Council Sells Out to the Lowest Bidder

On February 2^nd, 2012 the Occupy Wall Street road trip brought its 99% message of greed, fraud and corporate malfeasance to Northampton, with films, workshops, marches and, of course, a General Assembly. The GA however was interrupted with the news that the Northampton City Council, (which was meeting not fifty feet from the G.A.) had just voted to sell their $20 Million dollar bond issue to investment mega-bank Morgan Stanley, of Wall Street infamy. The G.A. cleared of half its members who emerged at the City Council Chambers as a “mic-check” Occupy action to question the council about their decision. The result was an agreement by City Council President Bill Dwight to hold a public forum to discuss the issues raised by the Occupy action.

So, what’s at issue over the municipal bond offer? Many issues here are related in real terms that bear upon the City Council’s decision making process, judgment and vision. First some background:

The City is financially strapped due to the recession and cuts in state and federal aid. Despite the need to gain more in tax revenue, the city gave Coca-Cola Corp. tax break incentives to build an addition on their plant. Also, the city gave Kollmorgen Corp. tax incentives to relocate from their aging headquarters on King Street to prime real estate up on Hospital Hill. Kollmorgen said “thanks a lot” and then (after they were barely settled in their new digs) accepted a buyout offer from another multi-billion dollar defense contracting corporation. And then there’s Smith College that pays no tax on much of their real estate.

Meanwhile, homeowners got a double Prop 2 and a half override whammy. Two years ago a Prop.2 ½ override was passed by voters to fund education. Last year voters passed a “set aside” of Prop 2 ½ limits again allowing the city to issue over $10 Million in bonds to fund a new police station. Now, no-one can argue that the new police station wasn’t an urgent need. But, the highly paid consultants that formulated the needs assessment came up with a multi-story structure with two-tiered garage attached and a price-tag of over $15 Million to be funded in part by the “Capital Improvements” account and the remainder from the issue of $10Million in municipal bonds. But by the time the question reached the ballot, the dollar figure was missing. After the voters said “yea”, the amount ballooned to $17Million ($14M for the police station) and with interest the total is $20million over twenty years. (Now to be fair, I understand that only $10 million of that is covered by the override vote.)

So one question arising here is: If the city had decided NOT to give the corporations and Smith College tax breaks and instead charged them a one-time only “User Fee” to be applied to a new police station, could that have lowered the principle of the bond issue? And could the price tag have been lowered further by not building a two-tier garage? And if the principle were lowered, would financing be possible by local and regional co-op banks?

Answer: It depends. The Coca-Cola tax is relatively insignificant, at $34,000 over 9 years, but the Kollmorgen tax break estimated at $900,000 over 9 years and with user fees it could be a significant factor; as would user fees charged to other billion dollar corporations here. And if the bond issue was for $10 million the opportunity might exist for a credit union or co-op banks to fund that amount. And, as it turns out, there is something called a “Retail Bond Offering” which a city can issue to the general public before the bond issue is put out to bid. A retail bond offer allows individuals to buy up to one million dollars of municipal bonds and receive tax free income and interest for twenty years.

More Questions: Is Homeland Security using space in the new building and if so are they paying for it? And, why was a couple of $ Million added on to the bond issue for the ballparks? Are they such a high priority as to warrant more debt? Okay, back to the synopsis.

Meanwhile, the City sent out bids, expecting to pay about 4.5 per cent interest but were pleased to accept a lowball bid from Morgan Stanley of 2.5 per cent., a savings of a few million dollars over twenty years. Now it seems the financial adviser to the City of Northampton on the municipal bond offering, First Southwest Co., was just named as the bidding agent in a bid rigging lawsuit judgment in Texas. It seems they allowed, (for a fee) J.P. Morgan to lower its bid after the deadline had expired.

So, what’s wrong with Morgan Stanley. A quick Google search produced this from Wikipedia:

In 2003, Morgan Stanley agreed to pay billions of dollars^[vague] in order to settle its portion of various legal actions and investigations brought by Eliott Spitzer, the Attorney General of New York, the Financial Industry Regulatory Authority (FINRA)), the Securities and Exchange Commission, (SEC) and a number of state securities regulators, relating to fraud that was perpetrated upon retail investors by a dozen of the largest investment banking securities brokerage firms.

The New York Stock Exchange imposed a $19 million fine on January 12, 2005 for regulatory and supervisory lapses

On May 16, 2005, a Florida jury found that Morgan Stanley failed to give adequate information to Ronald Perelman about Sunbeam thereby defrauding him and causing damages to him of $604 million. In addition, punitive damages were added for total damages of $1.450 billion. This verdict was directed by the judge as a sanction against Morgan Stanley after the firm’s attorneys infuriated the court by failing and refusing to produce documents, and falsely telling the court that certain documents did not exist. The ruling was overturned on March 21, 2007 and Morgan Stanley was no longer required to pay the $1.57 billion verdict.^[24]

The Financial Industry Regulatory Authority (FINRA) announced a $12.5 million settlement with Morgan Stanley on September 27, 2007. This resolved charges that the firm’s former affiliate, Morgan Stanley DW, Inc. (MSDW), failed on numerous occasions to provide emails to claimants in arbitration proceedings as well as to regulators. The company had claimed that the destruction of the firm’s email servers in the September 11, 2001 terrorist attacks on New York’s World Trade Center resulted in the loss of all email before that date. In fact, the firm had millions of earlier emails that had been retrieved from backup copies stored in another location that was not destroyed in the attacks.^[27] Customers who had lost their arbitration cases against Morgan Stanley DW Inc. because of their inability to obtain these emails to demonstrate Morgan Stanley’s misconduct received a token amount of money as a result of the settlement.

And most recently, this headline from: November 10, 2011

FINRA Fines Morgan Stanley $1 Million and Orders Restitution of $371,000 for Excessive Markups and Markdowns

WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Morgan Stanley & Co. Inc. and Morgan Stanley Smith Barney LLC $1 million and ordered $371,000 in restitution and interest to customers for excessive markups and markdowns charged to customers on corporate and municipal bond transactions, and related supervision violations.

FINRA found that Morgan Stanley charged markups and markdowns ranging from below 5 percent to 13.8 percent on corporate and municipal bond transactions, which were higher than warranted given factors including market conditions, the cost of executing the transactions and the value of the services rendered to the customers.

In addition to this, Morgan Stanley received hundreds of billions of dollars from the Federal Reserve Bank during the TARP bailout, knowledge of which was kept from Congress, according to recent information obtained by Bloomberg News:

“Lawmakers knew none of this.

They had no clue that one bank, New York-based Morgan Stanley (MS), took $107 billion in Fed loans in September 2008, enough to pay off one-tenth of the country’s delinquent mortgages.”

And the record for the other Wall Street investment banks is no better. One key issue here is that they are investment banks not commercial banks. (or in a parallel universe, State Bank)

“So what”, you say? Here’s what: For the Northampton City Council to be blind to Morgan Stanley’s track record and equally deaf to Occupy’s message calling for an end to corporate malfeasance and fraud when making decisions that impact future generations is perplexing at best and certainly troubling. It raises questions of ethics, judgment and creative planning as well as their alienation from public opinion. And more importantly the City Council seems oblivious to the critical issue and paradigm shift imperative for communities across the country: How to create and sustain a regionalization of resources and stop the money flow out of State (down river) to Wall Street.

It behooves the Occupy movement to present and articulate the alternative. Several cities across the country – Austin, Berkeley, San Francisco and Seattle among them – have voted to explore ways to move their money out of the “to big to fail” banks. But for municipal bond issues, the “retail bond offering” combined with user fees charged to billion dollar corporations and institutions and co-op bank financing may offer an alternative to dealing with the “banksters”. Or, one can imagine Kollmorgen’s new owner offering to buy city bonds at a retail offering thereby investing in the community and profiting as well. And, what about Homeland Security, anyway???

Elliot Tarry is a co-host/producer of the Bread and Roses Show 4-5pm Fridays on Valley Free Radio, WXOJ-LP, 103.3fm, http://BreadandRosesRadio.wordpress.com