Nestande Aided by Firm That Won Bond Pact

Three months before the Orange County Board of Supervisors awarded a lucrative airport bond underwriting contract to a prominent New York brokerage house, an official of the firm promised Supervisor Bruce Nestande financial help in his campaign for secretary of state, Nestande and the official acknowledged this week.

Three months after the decision on the contract, which was preceded by lobbying by current and former White House advisers on behalf of rival firms, Nestande received more than $13,000 from Smith Barney Harris Upham & Co., the brokerage house selected as the lead underwriter, and its corporate officers.

Nestande said he was offered campaign funds by former presidential adviser Steven Rhodes, now a Smith Barney vice president, before county supervisors awarded the firm the lead underwriting role in the sale of $270 million in revenue bonds to finance expansion of John Wayne Airport. Rhodes is a longtime Nestande political associate and served in the White House as local government liaison during President Reagan’s first term.

Later, Nestande was called by Michael K. Deaver, formerly Reagan’s deputy chief of staff who now is a Washington-based lobbyist whose clients include Smith Barney. Deaver and Nestande were members of Reagan’s Sacramento staff when Reagan was governor.

Nestande said none of these discussions influenced his own support for Smith Barney and that he did nothing to sway his fellow supervisors.

An official of the state Fair Political Practices Commission said such contacts between a public official and a campaign contributor are not illegal unless the contributions are made in exchange for direct action on a specific issue.

Nestande and Smith Barney officials strongly denied any such exchange was involved.

Deaver was unavailable for comment on the Orange County matter.

The former Reagan aide is under investigation for allegedly violating prohibitions against contacting government officials he once worked with on behalf of his business clients shortly after he left the White House last year.

Last week, Republicans and Democrats on a House subcommittee condemned Deaver and voted unanimously to refer evidence that he may have committed perjury to the independent counsel investigating Deaver’s activities. The subcommittee charged that Deaver apparently lied during five hours of testimony to the panel last May.

A unit of Merrill Lynch & Co. previously had been chosen for the lead underwriting role, but more than three years of litigation by Newport Beach residents against airport expansion put the bond sale on hold. The matter of selecting underwriters was reopened after last year’s out-of-court settlement with Newport Beach, and county staff members recommended that the Orange County supervisors choose between Merrill Lynch and Smith Barney.

In an 11th-hour bid to counter Smith Barney’s lobbying effort, Merrill Lynch hired presidential political consultant Stu Spencer and speech writer Ken Khachigian, according to several county supervisors. The supervisors chose Merrill Lynch for the secondary role of co-manager of the bond sale.

No Discussion on Vote

Although between $500,000 and $1 million in management fees and sales commissions were at stake in the $270-million bond issue, there was almost no discussion when county supervisors voted unanimously for Smith Barney on March 6.

Nestande said in an interview this week that Rhodes offered to raise funds for his statewide campaign sometime in December or January.

“He came to me and said Smith Barney was the biggest contributor to (Mayor) Tom Bradley (a Democrat) in Los Angeles and that if I could stand that, he wanted to help raise money for me,” Nestande, a Republican, recalled. “I said sure, but wait until this bond thing is settled because I didn’t want the fund raising to get mixed up in that. . . .”

Rhodes agreed, saying that “I’ve known Bruce Nestande for years, going back to when he was working for Ronald Reagan in Sacramento. . . . When I was in the White House, I used to call on him all the time, sometimes at the request of the President, to obtain his help in lobbying various congressmen on legislation of particular interest to the president. He always came through. So of course I wanted to help him financially. But also, I did not want to put him in an embarrassing position, so I waited until after Smith Barney was selected as the lead underwriter for the airport bonds. I organized a fund-raiser for him here (at Smith Barney’s New York headquarters) and I asked the other fellows (Smith Barney executives) to contribute. They did.”

Campaign Disclosure Statement

Of the $13,000 that Nestande reported receiving from Smith Barney in his most recent campaign disclosure statement, $1,372 came from the firm and the rest from corporate officers.

Meanwhile, Nestande said that during a telephone conversation with Deaver about unrelated matters, Deaver reminded him that Rhodes, a mutual friend, was now working for Smith Barney. “I didn’t even know that Smith Barney is one of Deaver’s clients until you just mentioned it,” Nestande told a Times reporter. “I told Mike (Deaver) that Rhodes and I had already talked several times, and that was the end of it.”

Although Nestande said he didn’t try to influence his fellow supervisors, Assemblyman Richard Robinson (D-Garden Grove), chairman of the Assembly Public Finance Committee, recalled that he had written a letter to the supervisors--at Nestande’s request--urging them to open up the bidding process on the airport bonds and not automatically rely on underwriting firms that had done business with the county previously. Robinson said Nestande never told him why he wanted the letter, but he concluded that anything promoting competitive bidding among underwriters would be good for the public interest.

But Nestande said he never asked Robinson to write any such letter and knew nothing about it.

“I don’t know what you’re talking about,” Nestande said. “I’ve never seen that kind of letter. It’s absurd. I wish I could convey to you the level of non-involvement I had in this thing. . . .”

Orange County Tax Collector-Treasurer Robert L. Citron recalled that he had argued that Merrill Lynch should get the lead underwriting role because of that firm’s experience and because it had successfully underwritten housing bonds for the county.

‘Had It Locked Up’

Citron said several supervisors’ aides had told him he was wasting his time because “Smith Barney already had it locked up, and they said it was because of the firm’s White House connections.”

“At that point in time,” Citron said, “Merrill Lynch hired Stu Spencer (and Ken Khachigian), but it was too late. They came into the picture on the Friday before the Tuesday board vote. They couldn’t buck it.”

A Merrill Lynch executive who requested anonymity said the firm went to Spencer and Khachigian only because it wanted to match the political clout ascribed to Deaver and Rhodes.

Other supervisors said they were lobbied heavily on the bond matter by Rhodes, Spencer and Khachigian. None received campaign contributions from either Smith Barney or Merrill Lynch.