GFOA Panel OKs 3 Recommended Practices at Its Winter Meeting

A Government Finance Officers Association committee approved three recommended practices documents at its winter meeting here last week, including one that urges issuers to hire financial advisers when pricing bonds in negotiated sales and another that says finance officers should play "a central, functional role" in teams exploring or negotiating privatization projects.

The committee on governmental debt management also approved a brief, two-paragraph policy statement on federal assistance to the municipal bond market Friday that expresses support "for legislative and regulatory efforts that are focused on extending direct assistance to help state and local governments better access the municipal market."

Its action comes as the muni market has suffered from unprecedented disruption since last year and as lawmakers and the Obama administration have promised to help it.

Such efforts should "include measures that would provide clear authority to the federal government to enhance market access and liquidity for state and local government issuers," the statement says. "As the federal government develops remedies for the municipal market, state and local governments need to be a partner in these discussions."

All four documents will be taken up by the GFOA's board at its meeting at the end of the month.

Another RP, on using variable-rate debt instruments, was tabled until the committee's June business meeting in Seattle.

The RP on pricing bonds in a negotiated sale notes that a successful negotiation requires that the issuer have access to current bond market data as well as skills and experience in negotiating the pricing of bonds.

"Many, if not most, issuers do not have sufficient inhouse access to market data or extensive experience in negotiating and evaluating bond pricings," it says. "In such cases, [GFOA] recommends that issuers should only consider a negotiated sale if the issuer intends to retain the services of a financial adviser (unrelated to the underwriter) to advise them on all aspects of the sale, including the selection of the underwriter, structuring of the bonds, preparation of disclosure information, pricing of the bonds, and post-sale evaluation of the sale results."

The RP on negotiated pricing is the fourth related to the sale of bonds that has been adopted by the committee since 2007. The others provide guidance on selecting and managing the method of sale of state and local government bonds, selecting financial advisers, and selecting underwriters for negotiated bond sales.

The privatization RP defines such projects broadly, encompassing "the long-term transfer or sale of public assets or asset management rights to a private entity in exchange for a range of government financial, liability transfer and risk mitigation benefits."

Among other things, the RP recommends that the financial officer should lead the development of a process to evaluate and implement a potential privatization and should provide options and policy recommendations for the prudent, sustainable application and use of all financial benefits expected as a result of the agreement. Such policy should be crafted before any funds are received as part of an agreement.

A third RP approved by the committee on the Web site presentation of official financial documents recommends every government to use its web site as a primary means of communicating financial information to citizens and other interested parties.

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