The Stakes Are Getting Higher: Every NASBP Member Must Join the Fight!

Legislative and regulatory challenges are nothing new to the surety industry, but recent challenges are posing more severe threats, necessitating an “all-hands-on-deck” response from NASBP members.

I am sure that you have witnessed many instances in which a legislator or government official makes pronouncements about our industry that are misguided or are just flat wrong. Such lack of understanding about surety is not merely disconcerting; it is down right dangerous for our future. As an organization, NASBP expends considerable efforts and resources to educate public officials about the role and importance of surety bonding, but every surety professional needs to be engaged in this effort. Retirements and changes in officeholders ensure a continuous supply of decision-makers who will not understand the purpose or significance of surety bonds. These public and elected officials, in turn, are being bombarded constantly by constituents seeking to find work for their businesses in a tough economy. What do you think is the tenor of their discussions when it comes to bonding? Do you think it is favorable?

Judging from my own recent discussions with public officials, the salutary benefits of bonding—contractor qualification, default avoidance, performance and payment guarantees, taxpayer protection—are being miscast, sometimes inadvertently and sometimes deliberately, so that bonding is characterized as unnecessary, unresponsive, burdensome, costly, and discriminatory. What will result if we fail in our vigilance to counter such mischaracterizations? One result that is readily becoming apparent is that elected officials will reach for perceived short-term political gains over common sense and the ultimate welfare of their jurisdictions.

Two neighboring state legislatures, Maryland and Virginia, are providing us with abject lessons. Both states have provided us significant legislative battles in the past, but the latest measures offered this legislative season show an elevated level of impact and severity for our industry and for taxpayers. Are they harbingers of things to come? If these bills are enacted, will similar measures take root in the minds of legislators in other states? Those certainly are real fears, as states often look to actions taken in other states when addressing similar issues.

In Virginia, the Republican governor introduced a bill, H.B. 1951, to increase the bonding threshold on public work to $1,000.000 as a means to increase the number of minority contractors receiving public works contracts. After receiving push back from a number of groups, including NASBP, SFAA, Big I, ABC-Virginia, among others, a substitute bill was introduced and passed in the House, raising the threshold to $500,000, which, if enacted, would make Virginia’s bond threshold the highest in the country. The governor appears to have placed his “line in the sand” at the $500,000 threshold and has exerted tremendous pressure on the Senate to pass the bill. The Senate committee assigned the bill, passed it out of committee 12 to 3. When NASBP queried the Secretary of Administration, the office spearheading the effort for the governor, about the significant assumption of risk of loss placed on taxpayers resulting from the increased threshold, the response was that the Commonwealth, including presumably all its localities, was ready to assume that risk! By the way, Virginia is running a projected $338 million budget deficit this year.

You may recall that the Maryland General Assembly passed a law in 2006, permitting use of unlicensed individual sureties on state public works contracts. NASBP and SFAA vigorously opposed the measure, but the bill was enacted presumably for the purpose of providing bonding opportunities to small and emerging businesses. As part of the then new law, state agencies would report annually to the General Assembly about the effectiveness of the law in accomplishing that aim. Interestingly, the two reports made by the Board of Public Works to the General Assembly thus far indicate that small businesses have not benefitted from the law. The last report, issued November 3, 2009, states the following:

“Bidders and offerors submitted zero individual surety bonds in FY 2008 and 2009. This continues the trend previously reported in FY 2007 when only one individual surety bond was submitted in response to a State solicitation. The failure of bidders/offerors to submit ISBs [individual surety bonds] is striking particularly in light of the fact that only one agency prohibited individual surety bonds as acceptable security.”

Despite the clear lack of effectiveness of the 2006 law, bills have been introduced in the Maryland General Assembly, S.B. 782 and H.B. 1071, to exempt individual sureties from having to possess a certificate of authority from the state insurance commissioner when writing bonds on private work. Again, the purpose of these measures is presumably to bring surety credit to small, emerging and minority firms. These measures would essentially ensure that the insurance commissioner would not be able to exercise any degree of oversight and control over unlicensed individual sureties conducting business in the State of Maryland. If made law, Maryland would host an “open season” on unwitting businesses, large, medium and small, by unscrupulous operators peddling illusory bonds. NASBP will be doing whatever it can to defeat these measures and to educate the Maryland General Assembly, but it will take EVERY member in our NASBP community to do so.

Complacency cannot be the order of the day during this and subsequent legislative seasons. We cannot rely on one political party versus the other to understand our issues. As these measures in Virginia and Maryland make clear, foolhardiness can be a bipartisan effort. We cannot afford to maintain silent voices and expect our industry to have the same opportunities it has enjoyed in the past.

Understand that well-reasoned arguments by trade association staff never can replace the face of a constituent in the office of an elected official. Each surety professional must make it a point to contact and to meet with his or her elected officials to simply let them know what you do for a living, why it is important to the welfare of his or her district, and your willingness to remain a resource should he or she have questions about bonding. Encourage others in your bond department to do the same. Resources created by NASBP and the Surety Information Office (SIO) exist to assist you in making these conversations easier and effective.

Further, if NASBP contacts you to take action, please do not hesitate to do so. Our request always originates from the immediate need to address a significant threat to your livelihood and industry. Your failure or your delay to engage may mean that our position will lose the legislative battle. We typically have a very short window for response, requiring us and you to act promptly.

Please make a “sales call” to your elected representatives. There is no time like the present. Otherwise, your business may not have a strong future.