Issuers Opposed to Proposed 120-Day Filing Initiative

States and local governments are lodging strong opposition to a Municipal Securities Rulemaking Board proposal that would specially designate issuers that voluntarily agree to file annual financial information to the board's EMMA system within 120 days of the end of their fiscal years.

In comment letters filed with the Securities and Exchange Commission last week, issuer groups and individual officials from states and localities warned that the "one-size-fits-all" voluntary initiative would be difficult if not impossible for many to achieve. Nonetheless, it may become a de facto standard, and the bonds of issuers that do not adhere to it could be unfairly harmed by the market, they warned.

The Government Finance Officers Association, which represents 17,000 issuer officials in the United States and Canada, cautioned that holding to a 120-day deadline may persuade a number of governments to abandon filing comprehensive annual financial reports altogether in favor of "a plain set of basic financial statements." Many issuers struggle just to meet GFOA's 180-day deadline for its Certificate of Achievement program, the group noted.

"We believe setting an 'ideal' deadline of 120 days is unnecessary, arbitrary, and likely harmful to the quality of financial reporting," wrote GFOA executive director Jeffrey Esser.

In an interview, Esser stressed that GFOA is generally supportive of three other MSRB initiatives, which would give special designations to issuers that: receive a GFOA Certificate of Achievement for excellence in financial reporting; voluntarily adhere to generally accepted accounting principles as established by the Governmental Accounting Standards Board; or submit a Web link to their investor relations or other financial or operating information.

He characterized the voluntary proposals as "a major step forward" in providing investors and the public with information that governments already disclose.

"The only major concern we have is what is currently voluntarily but it becomes a de facto standard of providing audited financial statements within 120 days, because that would be very difficult for many governments and if some tried to do that it would actually decrease the quality of the financial information," he said.

Esser said that the 120-day deadline also would be difficult for governments with multiple, legally separate component units, over which they often have little practical control. Some governments would have to rely much more on estimates in their financial reports rather than actual results to meet the 120-day deadline, he warned. In addition, he said, there are simply a limited number of fully qualified audit firms that specialize in governmental accounting standards.

In a separate comment letter to the SEC, Dean Martin, chief financial officer of Inland Empire Utilities Agency, and a member of GFOA's committee on governmental debt management, said "there is little doubt" that the voluntary undertaking "will become the expectation, and many jurisdictions that will fail to meet this standard will carry figurative 'black eye' in the mind of investors."

I also fear that politicians, for purely political reasons, would hold their local finance staff accountable to such a standard," wrote Martin, who was providing comments that were personal and not made on behalf of GFOA or Inland Empire. "This could prove counterproductive to the intent of the site, which is to encourage and promote timely and accurate reporting. Pressure to meet 120-day standard might well result in less accurate reporting as the staff and auditors push to meet an unrealistic deadline."

While generally supportive of the three other undertakings, GFOA nonetheless recommended a few tweaks to them, such as eliminating the reference to GASB from the generally accepted accounting principles undertaking, partly to reflect that many issuers are nonprofits that adhere to standards set by the Financial Accounting Standards Board.