Muni Think

Since the autumn of 2007, the municipal market has been reeling from the crash of the mortgage market and the collateral-damage impact on the ratings of, and appetite for, bond insurers.

We write to clarify and reinforce the long-standing position of governmental municipal issuers in support of complete and full disclosure in the municipal bond market.

We read with interest the comments of the Government Finance Officers Association's debt committee, reported in The Bond Buyer article "GFOA Shifts on Muni Disclosure" in the June 30 edition.

Municipal bonds, issued by state and local governments to build the infrastructure of our nation, historically have been among the safest investments available to the public. Yet public disclosures about such bonds have long been viewed by investors and others as murky and difficult, if not impossible, to find.

Borrowers today are a little like Ali MacGraw in “Love Story.” For them, ample liquidity means never having to say they’re sorry to their creditors, their board, or their community.

The American Recovery and Reinvestment Act created a new kind of municipal debt instrument called a Build America Bond. BABs were designed so that issuers, if they chose, could raise capital through the broader and deeper liquidity of the taxable market.

HRF Associates' comprehensive plan (Monitor Assurance Corp.) to address the liquidity and credit needs of the municipal market has drawn comparisons to a plan offered by the National League of Cities. HRF detailed its plan with the NLC in January and it appears that some elements have been incorporated into their proposal. However, there are significant and fundamental differences in the plans' approaches to underwriting and risk management, reliance on federal involvement, and federal exit strategy.

The House Financial Services Committee Thursday will hold hearings on four key areas of the municipal bond market. Two of the proposals are targeted to restoring municipal government access to reasonably priced capital: liquidity and bond insurance. A third is an effort to increase government oversight of financial advisers. The fourth, however, has a different tone. The proposed legislation is titled the "Municipal Bond Fairness Act" and seems designed to push rating agencies to upgrade municipal bond ratings.

We are replying belatedly to Michael Decker's commentary calling for greater regulation of the municipal bond market, "It's Time to Close the Financial Adviser Loophole," on April 6.

Refining SEC rules to build on the lessons of last fall's experience and pursuing ICI's suggestions would be well worthwhile. A "death sentence" is fundamentally a bad idea.