The Long Island Power Authority Thursday awarded a $1 million-a-year financial services contract to a firm that recommended LIPA's finance chief for his job, rejecting a second finalist that offered to do the work for less than half the price.
At a LIPA trustees meeting in Uniondale, Tom Falcone, LIPA's chief financial officer, acknowledged that he'd received a job recommendation from the winning bidder, Public Financial Management of Charlotte, North Carolina, for his post at LIPA. Falcone was a member of the three-person committee that reviewed the financial advisory contract bids and recommended awarding the contract to PFM. The authority has said his connections to the firm do not pose a conflict.
"Prior to the board taking this action, let me state that PFM, LIPA's then-current financial adviser, served as a reference for me when I was being hired," Falcone said in a statement read to trustees.
LIPA's board unanimously approved the five-year contract, with several offering their support for Falcone. One trustee, Suzette Smookler, apologized to him for a Newsday story Thursday that raised the questions about his connection to a PFM senior director and his job recommendation.
Falcone, who joined LIPA in January, spent 13 years as an investment banker at Morgan Stanley, where he worked with PFM senior director Eugene Devlin from 2003 through 2007, he said, adding the two have "no personal relationship." Devlin had headed Morgan Stanley's Public Power Group and its public finance department before retiring from that firm in 2007.
LIPA chief executive John McMahon earlier asserted that "the receipt of a job recommendation or reference does not amount to a conflict."
LIPA's review committee rejected a lower offer from Public Resources Advisory Group, a Manhattan firm that bid $480,000 annually to conduct the work, LIPA said. PRAG is considered the top financial advisory firm among New York State municipal bond issuers.
PRAG, according to LIPA, was offering to do the work for LIPA as a "loss leader," to gain a stronger foothold in the municipal utility sector, where PFM dominates. PRAG and PFM officials didn't respond to requests for comment.
Falcone said in an interview the LIPA committee's review used a "standard industry practice" that weighted technical qualifications at 70 percent and cost at 30 percent. "The selection came down to technical over weighted cost," he said, explaining why the lower-cost bid was rejected.
PFM's winning bid, which is subject to state attorney general and state comptroller review, makes it an adviser for both financial and related services. The job includes assessing bank and capital markets, helping with financial policies, maintaining rating agency relationships and evaluating financial strategies. PFM has been LIPA's financial adviser for the past five years, and was paid $735,231.86 last year.