WASHINGTON — Dealers are urging regulators not to impose fees on them to help fund the Governmental Accounting Standards Board until after a congressional watchdog agency completes a study of the standards setter.
In a letter sent to the Securities and Exchange Commission Tuesday, the Securities Industry and Financial Markets Association argued that the study, which the Government Accountability Office must conduct within the next six months, will influence the SEC’s views on this matter.
“The GAO’s research will surely provide important information and conclusions to inform the SEC’s consideration of GASB funding issues, and we urge the SEC to withhold any action on GASB funding until after the GAO has completed its work,” wrote Michael Decker, SIFMA’s managing director and co-head of its municipal securities group.
The two-page letter comes in response to SEC requests for comment on its hundreds of mandates under the new financial regulatory reform law.
Dealer groups previously expressed opposition to the funding provision, which was added to the legislation just before it cleared Congress.
Specifically, the provision authorizes, but does not require, the SEC to direct the Financial Industry Regulatory Authority to collect from dealers “a reasonable annual accounting support fee to adequately fund the annual budget” of GASB.
At the same time, the GAO has 180 days from the July 21 enactment of the new law to report to Congress on the role and importance of GASB for the muni market, as well as the level at which it has been funded.
In its study, the GAO must “consult with the principal organizations representing state governors, legislators, local elected officials, and state and local finance officers,” the law says.
GASB currently is funded through voluntary contributions from state and local governments, as well as revenue from the sales of its publications. However, it is constantly short of funds and its dependence on issuers is seen as a conflict of interest.
The board reported a $3.83 million budget shortfall for 2009 and projects a shortfall of $4.46 million in 2010, according to estimates on the group’s website.
GASB spokesmen Neal McGarity declined to comment for this story.
Though dealer groups previously said it would be inappropriate to collect fees for GASB from their members, SIFMA stressed that it welcomes the GAO study of the standards-setting board.
Market participants have speculated that Congress directed the regulators to tap dealers on GASB funding because regulators currently have no authority over issuers.
Were Congress to direct a regulator to collect the fee from issuers, “they’d be playing with Tower and it gets very sensitive,” said one issuer official, referring to an amendment to the Securities and Exchange Act of 1934 that prohibits the SEC or the Municipal Securities Rulemaking Board from collecting documents from issuers prior to bond sales.
Decker noted that while private-sector issues of bonds are required to adhere to generally accepted accounting principles established by the Financial Accounting Standards Board, there are no federal statutory or regulatory requirements that state or local issuers must comply with GASB standards.
“Indeed, many governments do adhere to GASB standards, but not all,” Decker wrote. “Also unlike FASB GAAP, neither the SEC nor any other regulator has oversight over GASB’s standards.”
The commission has pointed to the lack of consistent accounting standards among municipal issuers as part of its calls for increased oversight of the market.
In a September 2007 speech, Martha Mahan Haines, the SEC’s muni chief, estimated that 20,000 issuers use a variety of accounting methods that do not conform to GASB standards.
