One Network firm underwrote water system while another managed

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Before consulting firm Resource Development and Management took on stewardship of the Municipal Authority of Westmoreland County, financial firm RRZ Public Markets Inc. gained a key financial role with both the authority and that county.

"RRZ had the exclusive rights to [underwrite] bonds at both the authority and the county before the political winds changed," said Westmoreland Commissioner Tom Balya. "It was a political relationship, no ifs, ands, or buts about it," he said, refusing to elaborate, but adding that he instituted competitive bidding for bond work around 2003.

RRZ's ownership team included Charles R. Zappala, brother of former state Supreme Court Justice Stephen A. Zappala Sr. The former justice is also the former law partner of RDM's Executive Vice President James J. Dodaro, whose law firm, Dodaro Matta & Cambest, shares office space with RDM.

Charles Zappala declined to be interviewed for this story.

RRZ was the sole underwriter or one of two underwriters on 14 Westmoreland County bond issues, totaling $254 million in principle, from 1991 through 2000. During the same period, RRZ was the underwriter for 10 Municipal Authority of Westmoreland County bond issues, totaling around $300 million in borrowing. Underwriters typically get a fraction of a percentage point of the amount borrowed in return for finding buyers for the bonds.

Leonard L. "Skeets" Paletta, a former municipal authority board member, said it was "a natural thing" that the authority worked with people with whom its officials had "friendships."

"You have to have faith in people with whom you're going to do major business," he said.

In one case, an RRZ-underwritten borrowing got the municipal authority into conflict with the Internal Revenue Service.

RRZ underwrote a 1995 tax-exempt bond for $21.56 million for the municipal authority, and was paid $323,091, or around 1.5 percent of the proceeds, according to the official statement describing the borrowing. In 2004, an IRS agent investigated whether the authority owed taxes on the borrowing. The IRS agent in a court declaration wrote that the debt was issued "for no apparent reason" in part because it didn't reduce the authority's debt service.

The municipal authority hired a Washington, D.C., tax lawyer and called to the discussion table the professionals who had underwritten the bond and provided legal advice. "We made all of them get involved," said authority solicitor Kenneth Burkley "because [the authority] certainly did nothing wrong."

The authority eventually entered into a modest settlement with the IRS, he said. "We were not in any way, shape or form at fault, and the point made by the IRS was wrong."

In 2003, RRZ Public Markets was sold to J.P. Morgan Securities, Inc. The municipal authority's bond borrowing since has been handled by a variety of firms.

Rich Lord: or 412-263-1542.


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