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A Project of The Annenberg Public Policy Center

No Truth to ‘No Bid’

In Florida’s gubernatorial race, Republican candidate Rick Scott claims his Democratic opponent, Alex Sink — the state’s chief financial officer — “funneled” $770,000 in "no-bid contracts" to her former employer, Bank of America. That’s not true. Sink was not the principle decision-maker, and there was plenty of open competition for the business in question.

The ad also claims she had a conflict of interest, though there’s no evidence of that.

The ad, which first aired Sept. 27, casts Sink as misusing her office to reward her former employer, Bank of America, and enrich herself. (Sink was president of the bank’s Florida operations from 1993 to 2000.) Over the sound of a typewriter clacking away, the announcer says: "Newspapers discovered Chief Financial Officer Alex Sink funneled three quarters of a million dollars in no-bid contracts to Bank of America. That’s the same Bank of America run by — you guessed it, Alex Sink."

This is wrong on two counts. First, there is no evidence that Sink "funneled" anything to anyone; she was one of four who unanimously accepted a staff recommendation to award the contract. Second, it is highly misleading to say Bank of America got "no-bid contracts," because 39 different firms were openly competing for the business.

Not ‘No-Bid Contracts’

Here are the facts:

The Florida State Division of Bond Finance issued Requests for Proposals for the bond sale at issue in Scott’s ad. A seven-member staff committee reviewed and ranked 39 underwriting proposals, and made a recommendation to the bond finance board. Sink was one of four board members (the governor and his three cabinet officers) who voted unanimously to accept the recommendation.

The ad’s allegation is based on a story by the St. Petersburg Times about unintended consequences of Sink’s blind trust, which included Bank of America stock when it was set up in 2008 shortly after she won election as the state’s CFO. Scott’s campaign seized on this paragraph as evidence of her malfeasance:

St. Petersburg Times, Aug. 2, 2009: Sink voted with the governor and other Cabinet members to allow negotiated, or no-bid, bond deals for a financial underwriting team that includes her former employer, Bank of America. One transaction resulted in $770,000 in fees for a subsidiary of the bank and its newly acquired Merrill Lynch unit.

The newspaper’s offhand reference equated "negotiated" bond deals with "no-bid" contracts, but that’s wrong. The fact is that Sink simply endorsed a recommendation that resulted from a highly competitive and open process known as a "request for proposal" or RFP.

It’s common for states and other governing bodies to issue RFPs when selecting professional services, such as underwriters. It is not like buying widgets or building bridges, when a competitive bid process is used to award a contract to the lowest responsible bidder. Under an RFP process, a governing agency ranks proposals based on a host of factors and then selects from among those with the highest ratings. That’s what happened in the fall of 2008 when Florida decided to issue $300 million in lottery revenue bonds.

The seven-member staff committee that rated the 39 firms ranked Merrill Lynch first and Bank of America fourth, according to a Nov. 18, 2008, letter sent to the cabinet by Ben Watkins, director of the Florida Division of Bond Finance. In his letter, Watkins recommended the selection of five large firms (including Merrill Lynch and Bank of America), three mid-size firms, three small firms and one Internet-based firm to handle the negotiated bond sale based on the staff recommendation. The cabinet unanimously approved that recommendation at a Dec. 9, 2008, meeting.

In addition to recommending the firms to handle the bond sale, Watkins recommended that it be a negotiated sale — breaking with the normal practice of a competitive bond sale. The cabinet agreed. This is where the newspaper — and Scott’s campaign — confused the issue. 

Watkins told the cabinet that the bonds should be sold through a negotiated sale because of "unstable market conditions" that made it difficult to sell even high-quality bonds. The decision to switch to negotiated sales was not uncommon at the time. Terry Agriss, a senior financial adviser for Black & Veatch, wrote a December 2008 report that "negotiated sales are particularly beneficial in an uncertain market," even though "fees to the underwriters may be slightly higher."

In her report — "Municipal Bond Market Issues: Recent Developments" — Agriss wrote:

Agriss, December 2008: Amid the disruptions to the U.S. financial markets generally and the municipal securities industry specifically, many bond issuers have through the necessity or choice either changed the way they issue bonds or held back on completing bond deals in the latter part of 2008.

So, the switch to negotiated bond sales was considered appropriate under the circumstances, and the RFP process used to select the underwriters followed the "best practice" standards issued by the Government Finance Officers Association for negotiated sales.

One last thing about this transaction: The ad says Bank of America received "three quarters of a million dollars" in fees. The newspaper story — which the Scott campaign cites — says "a subsidiary of the bank and its newly acquired Merrill Lynch unit" earned $770,000 in fees. It is true that Merrill Lynch earned $739,773 and Banc of America Securities LLC, a subsidiary of Bank of America, earned $30,548, so combined the two earned $770,321, state records show. But the selection of Merrill Lynch, Banc of America Securities and other underwriters was made before Bank of America completed the deal for Merrill Lynch. Bank of America and Merrill Lynch struck a tentative deal in September 2008, but shareholders of both companies didn’t agree to the merger until Dec. 5, 2008.

Conflict of Interest?

The ad goes on to claim: "Sink never disclosed her conflict of interest." However, there’s no evidence that Sink had a conflict of interest. In fact, the central point of the newspaper story on which this ad is based is that Sink’s efforts to avoid a conflict — putting her Bank of America stock in a blind trust — had created uncertainty on that point because of Florida’s weak ethics regulations.

The Scott campaign claims that Sink held stock and other assets in Bank of America at the time of transaction and, therefore, needed to disclose that she would personally benefit from any dealings with Bank of America. However, it would have been impossible for either Scott or Sink to know whether she would benefit, because Sink’s assets are placed in a blind trust.

Sink signed her blind trust agreement on Dec. 28, 2006, after she was elected, to avoid future conflicts. Her financial disclosure statement indicated that Sink held stock in Bank of America in June 2006, but the nature of a blind trust would have prohibited her from knowing if she still held that stock when voting on matters involving Bank of America.

“There are no provisions in the Florida state code of ethics which regulate conflict of interests with regards to blind trusts,” Dan Carlton of the Florida Commission on Ethics told us. Therefore, Sink was not legally required to report this potential conflict. Public officials do have to reveal potential conflicts in their yearly financial disclosures. Sink fulfilled this requirement by reporting the income from her blind trust. Because she didn’t know what was in the trust, however, she had no legal obligation to disclose if she held stock in Bank of America.

Nobody knows whether Sink held stock in Bank of America at the time of the bond deal. That was the point of the St. Petersburg Times story, which was headlined: "CFO Alex Sink’s blind trust limits public financial disclosure." In that article, Sink said: "I’m damned if I do and damned if I don’t." That is true.

— by Lauren Hitt and Eugene Kiely