* NYS wants 2-yr ban for firms that donate to campaigns

* SEC says may reconsider this reform dropped in 1999 (Adds byline, recasts, new details in paragraphs 1-3, 5-12)

By Joan Gralla

NEW YORK, May 11 (Reuters) - Investment firms should be barred for two years from managing U.S. public pension funds if they make campaign contributions to the politicians who make the investment decisions, a spokesman for New York's state comptroller urged on Monday.

New York Attorney General Andrew Cuomo and the Securities and Exchange Commission are probing kickbacks they say that firms paid to be chosen to make investments for New York's $122 billion pension fund under the former state comptroller. The investigation has gone national, reaching Texas, New Mexico and California.

"'Pay to play' has absolutely no place in the management of public pension funds," said the current state comptroller, Thomas DiNapoli, who urged the SEC to subject public pensions to the same rules that limit campaign donations by broker-dealers who underwrite municipal bonds.

"The SEC can help restore public confidence in state and local government pension plans all across the nation," added DiNapoli, a Democrat.

The kickback probe is scrutinizing ties between lobbyists, lawyers, investment firms and placement agents -- middlemen hired by firms eager to manage public pension funds' assets, which total nearly $3 trillion. For details, please see: [ID:n30521869].

DECADE-OLD RULE MAY GET AN ENCORE