You asked for a summary and legislative history of the law that bars individuals associated with a brokerage firm that does business with the Office of the Treasurer from making campaign contributions to candidates for that office and prohibits the treasurer and candidates for treasurer from soliciting contributions from such an individual on behalf of candidates for any public office. The question arises from the Office of the Treasurer's practice of leaving the selection of brokerage firms to the investment management firms it hires.

SUMMARY

In 1995, the General Assembly passed a bill proposed by then-Treasurer Christopher Burnham to (1) prohibit an investment services firm doing business with the state treasurer's office from soliciting or making campaign contributions to candidates for the office of treasurer and (2) prohibit the treasurer from doing business with any investment firm whose political committee (known as a PAC), owner, or certain type of employee has contributed to his exploratory or campaign committee. Brokerage firms doing business with the treasurer and its employees were included in the definition of investment services firms and therefore, covered by the ban.

In 2000, the legislature expanded the restriction to bar contributions from the same covered firms and individuals to candidates for any public office, not just the state treasurer's office and prohibited the treasurer and others from soliciting campaign contributions for any candidate from such people.

The language of both acts clearly includes brokerage firms, their owners, and employees with managerial or discretionary responsibilities. The legislative history offers no explanation as to why they are covered nor does it characterize the type or degree of contact the firms and individuals may or may not have with the treasurer or her office. In the public hearing testimony and House and Senate debate, no one makes a distinction based on the entity that actually retains brokerage services, whether it is the treasurer's office directly or through investment management firms. Nonetheless, though there is no expressed indication of the legislature's specific intent with respect to brokerage firms or their employees, certain general statements appear to indicate that the General Assembly intended to cover the investment services firms whose compensation or contracts the treasure controls.

1995 LEGISLATION

Provisions

At Treasurer Burnham's request, the Government Administration and Elections (GAE) Committee raised sSB 1059, An Act Concerning the Integrity of the Office of the Treasurer. The bill:

1. amended the Code of Ethics for Public Officials to bar the treasurer from paying any firm that provides investment services if the firm's PAC or an individual associated with the firm has made or solicited a campaign contribution to an exploratory or campaign committee established by a candidate for the office of treasurer during the treasurer's term of office;

2. added to the state's campaign finance laws a ban on contributions to candidates for treasurer from individuals or business PACs associated with investment services firms doing business with the treasurer's office; and

3. added a disclosure provision to the law on soliciting campaign contributions requiring candidates for treasurer to include in their communications a statement explaining the ban.

The bill (enacted as PA 95-188) included brokerage firms in the definition of "investment services" that are covered under the law. In each of three sections, it includes the same language:

"Investment services" means legal services, investment banking services, investment advisory services, underwriting services, financial advisory services or brokerage firm services." (emphasis added) (CGS §§ 1-84, 9-333n(f), and 9-333o(f)).

The individuals the act applies to are the "owner of a firm which provides investment services" and any one "employed by such a firm as a manager, officer, director, partner or employee with managerial or discretionary responsibilities to invest, manage funds or provide investment services for brokerage, underwriting and financial advisory activities which are in the statutory and constitutional purview of the treasurer" (emphasis added) (CGS §§ 1-84 and 9-333n(f)).

Application to Brokerage Firms and Employees

While nothing in the legislative history of the 1995 measure discusses the rationale for including brokerage firms in the ban, some of the general explanation of the bill's purpose implies an attempt to cover decisions within the treasurer's control.

Senator DiBella remarked in his discussion of an amendment that "the [underlying] legislation would preclude the Treasurer from dealing with those people that he directly would control or authorize to do work for the Treasurer's office" (Senate Transcript, May 3, 1995).

In Treasurer Burnham's testimony before the GAE Committee on March 6, 1995, he says: "the State Treasurer has the ability to direct millions of dollars worth of State business to almost any vendor he chooses.... This bill will make certain that future Treasurers will choose investment professionals based only on the quality of service, credentials, cost-effectiveness, merit and talent, rather than on the amount of money a firm has generated for a Treasurer's campaign." When asked about the fees the treasurer pays, he described them as "money management fees, fees that pension fund managers, money managers across this nation receive for managing a piece of our portfolio. We currently have 69 managers, money managers. It's part of the seven million dollars that went to 160 stockbrokers that executed orders on behalf of the State of Connecticut."

2000 LEGISLATION

Provisions

In 2000, the General Assembly passed a comprehensive bill dealing with the treasurer's office (PA 00-43, An Act Concerning Powers and Duties of the Treasurer and the Investment Advisory Council) that included revisions to the campaign finance provisions enacted in 1995. Applying the same definitions of investment services firms (including brokerage firms) and the associated individuals, it banned contributions from them to campaigns of any candidate for public office, not just candidates for state treasurer. It also prohibited the treasurer, the deputy treasurer, candidates for treasurer, and members of the Investment Advisory Council (IAC) from soliciting campaign contributions for any candidate from such people. And it prohibited the appointed members of the IAC from making or soliciting contributions to or for candidates for treasurer.

Application to Brokerage Firms and Employees

In the House debate of April 5, 2000, there are references to a "broker/dealer investment adviser" and "broker/dealer," but only in connection with the act's finder's fee and investment policy statement provisions. On April 13, the House reconsidered the legislation and members referred to brokerage firms and brokers.

In one exchange between Representatives Knopp and Lockton, Representative Knopp said:

The focus is on the causal connection between the Treasurer's Office and entities that do business with the Treasurer's Office for which there is some discretionary authority in the Treasurer's Office to make a contract, pay compensation and so on. It's not intended to cover the entire world of investments as long as there is no direct connection with the Treasurer's Office and that entity (House of Representatives, April 13, 2000 transcript).

Representative Knopp also made the point that the provision is based on the federal policy that applies to federally licensed brokers (which he mentioned specifically) and others in the securities industry involved in public financing whose campaign contributions are restricted (the Municipal Securities Rulemaking Board's Rule 37).

Nothing in the Finance, Revenue and Bonding Committee's public hearing transcript or the Senate proceedings touches on the question of why brokerage firms or brokers are covered under the law.

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