Analysts want more frequent tax bond disclosure

Analysts want a steady flow of timely information about dedicated tax bonds in issuers’ secondary market disclosures.

In a draft recommended best practices paper released Tuesday, the National Federation of Municipal Analysts urged issuers of dedicated tax bonds to submit interim financial disclosure on at least a quarterly basis, though the group said monthly filings would be preferable.

“The NFMA strongly urges issuers of dedicated tax bonds to issue secondary market updates on a more frequent basis, as financial and operating information can grow stale and inaccurately represent an issuer’s profile,” NFMA wrote.

The draft paper comes on the heels of a letter NFMA sent to the Securities and Exchange Commission in May asking for interpretive guidance clarifying its stance on continuing disclosure by issuers. Issuers were offended by the May letter. Timely disclosure has long been talked about and some have argued that if issuers are producing audit reports as quickly as possible, it should be considered timely.

NFMA Chair Scott Andreson said in May that disclosure hadn’t gotten better and had in fact gotten worse, and said Wednesday that he sticks by that.

“It’s (NFMA’s RBP) just part of our ongoing effort to encourage issuers to have more robust secondary disclosure,” Andreson said.

Dedicated tax bonds lend themselves better to secondary market disclosure, said William Oliver, NFMA’s industry and media liaison, though much of the data is buried in comprehensive annual financial reports. NFMA considers dedicated tax bonds to include those secured by future receipts of tax and assessment revenues, not levied by real property.

“This is the sector that will probably lend itself better to secondary market disclosure because a lot of it is sales taxes, gas taxes, taxes that are collected probably monthly so there’s probably better data on these sectors than normal,” Oliver said.

Information in the interim disclosure document would need to only include items that have changed since the last disclosure document ,such as in the official statement or annual report.

NFMA would also ideally want issuers to post their documents on the Municipal Securities Rulemaking Board’s EMMA site.

Interim information would give analysts a good idea of the fiscal direction of the entity by where their taxes are coming in, Andreson said. Sales taxes in particular could be an economic indicator.

“It (sales tax) does give you a better idea of what’s happening at the time,” Oliver said. “So if you can watch sales taxes that usually gives you some sense as to where the economy is going and where the finances are going.”

NFMA is still advocating for annual information such as CAFRs to be submitted within 120 days after the fiscal year ends.

Oliver mentioned California’s tardy CAFR. It took California 333 days past the end of its fiscal year, compared to a median 174 days for states.

However, Oliver said the state had its own website to divulge financial information, had interim financials, posted to EMMA and talked to stakeholders in the market at the same time.

“That’s one of the better ways to deal with the fact that we’re just not going to get a lot of this information faster,” Oliver said.

He added that late CAFRs makes interim disclosure that much more critical.

In NFMA’s RBP, the group emphasized that materially impactful information that could impact an analyst’s view of the credit quality and should be provided on an interim basis once the information is public.

In primary market disclosure, the official statement should include a summary of the agreement by the issuer to provide secondary market disclosure to the investing public and say how often it will provide the interim data.

Comments on the draft RBP are due Nov. 30.