JeffCo, Alabama Financial Adviser Address Disclosure at SEC Hearing

BRADENTON, Fla. — Attorneys representing Jefferson County and a financial adviser for Alabama told the Securities and Exchange Commission Friday that there is room for improving disclosure practices while striking a balance with the needs of financially struggling issuers.

The one-day SEC field hearing was held in Birmingham, the seat of Jefferson County, and largely focused on municipalities suffering from budgetary distress and troubled financings as well as appropriate disclosure practices in the primary and secondary markets.

The national recession, exploding pension and health care costs, and unsustainable programs are among the underpinnings of many municipal struggles today, said J. Foster Clark, a partner at Birmingham-based Balch & Bingham LLP, the county’s disclosure counsel.

“Jefferson County’s current challenges are the result of too much debt, a fragile financing structure, and the implosion of the financial markets,” he said.

Though there were confidential topics he could not address as the county’s counsel, Clark said the SEC’s mandate of protecting investors by promoting market transparency and good disclosure is consistent with the interest of issuers.

“Without a healthy and functioning market, issuers can not finance important projects,” he said. “However, communities struggling with serious financial challenges must prioritize the problems they can realistically deal with from day to day during particularly difficult times.”

When it comes to secondary market disclosure and a distressed issuer, Clark said there may be “room in those situations to talk about more frequent, more meaningful reporting.”

Clark told the SEC panel that at least 95 material-event notices have been filed by Jefferson County in the last three-and-a-half years. “I suspect that’s a world record,” he said.

Significant advances in disclosure have been made because of SEC enforcement actions, regulatory initiatives, and continuous disclosure requirements, according to J. Hobson “Hobby” Presley, founder of Birmingham-based Presley Burton & Collier LLC.

Many issuers have a solid appreciation for disclosure responsibilities, said Presley, who did not address Jefferson County specifically. His firm. along with Balch & Bingham, represent the county in an Internal Revenue Service examination begun in June into compliance with federal tax requirements involving $2.3 billion of sewer warrants. The county has a total of $3.14 billion of sewer warrants that are in default.

Though Presley said disclosure efforts have become better over the years, particularly with the Municipal Securities Rulemaking Board’s online EMMA system and issuers’ use of the Internet, there is room for improvement.

“There is a lack of clear guidance for small issuers,” he said, adding that a big challenge is developing disclosure standards “without unnecessarily burdening and intruding on local governments.”

Financial adviser Phil Dotts said municipalities usually don’t become distressed overnight, though sometimes sudden events can occur. “Regulatory oversight is good for the industry,” said Dotts, president of Huntsville-based Public FA Inc., a financial adviser to the state of Alabama.

The SEC should focus on encouraging states to institute better debt-management policies, he said, noting that bond oversight commissions such as the one North Carolina uses can result in lower interest rates and better practices. He also said that state officials should consider laws giving them the ability to intervene when issuers are distressed.

The SEC field hearing came a day after Jefferson County postponed a decision about filing for bankruptcy over its troubled sewer warrants to examine an offer by creditors that would restructure the debt. The board meets Thursday to announce if it will settle, extend the time for negotiations, or file the largest-ever bankruptcy in the United States.

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