ATLANTA — Government Finance Officers Association members are scheduled to vote this morning on a policy statement calling on the Securities and Exchange Commission to maintain a stable, $1.00 net asset value per share of money market funds and to scrap plans to consider a floating NAV.
If approved by the portion of the 17,000 members who are attending their annual conference here, GFOA would become the latest market group to warn against possible changes to the SEC’s Rule 2a-7 that would require the price of fund shares to float.
The money fund industry is largely opposed to the idea.
“This proposal could eliminate the entire stable NAV money market fund market, which could adversely affect state and local governments,” the GFOA policy statement reads.
It noted that states and localities invested $92 billion in money funds last year and that the same funds were the largest holders of short-term tax-exempt paper, owning 65% of short-term muni debt.
The policy statement would go before the group’s members following the GFOA’s board approval of it. Sunday.
At the same time, the GFOA members will vote on a separate policy statement urging the Governmental Accounting Standard Board to cease its work on a project that is designed to set standards for forward-looking statements in government financial documents.
The one-page statement, approved by the board at its March meeting, warns that GASB’s development of its “fiscal sustainability” project goes beyond the accounting standard-setter’s mandate.
It “exceeds its legitimate authority and expertise and constitutes an inappropriate use of scarce resources,” the issuer group said.
“The GFOA believes that the issue of assessing a government’s future fiscal sustainability clearly is beyond the scope of accounting and financial reporting as they have traditionally and universally been understood,” the resolution states, adding that the GFOA is “adamantly opposed” to the project.
GASB has declined to respond directly to GFOA’s resolution, but has said that it plans to move forward with the project, contending research and findings of other standard-setters show that users of state and local government financial reports consider it important to understand a government’s past and current economic condition, “including how the government arrived at its current status, with an eye toward assessing a government’s future financial viability and sustainability.”
The money market fund policy statement follows the SEC’s approval in January of a series of changes to Rule 2a-7 to boost funds’ resilience during a market crisis. While approving those changes, SEC officials said staff were considering additional reforms, including a floating NAV.
But GFOA’s statement notes that governments depend on the safety and liquidity of money funds for their “constantly flowing operating funds and as part of their cash-management strategy,” and that without being able to invest in these funds, governments would have to look to other investment vehicles that would be “less attractive, less liquid and may carry greater risks.”
“Additionally, while state investment pools are not covered under Rule 2a-7, they use it as a guide for their own pools, so a change to the rule would expose funds in many state pools across the country, as well,” the policy statement said.
Bob Eichem, finance director of Boulder, Colo. and a member of the GFOA committee on treasury and investment management, said a floating-rate NAV would make investments in money funds much riskier for municipal issuers because they could no longer be assured that their money-fund investments would not decline in value.
While he said no investment is guaranteed, the stable NAV system has worked well, despite the run on the Reserve Primary Fund, which famously “broke the buck,” or fell below a $1.00 NAV, in late 2008, after Lehman Brothers bonds it owned defaulted following that firm’s collapse, and fund investors rushed to sell their shares.
