Seeking to avoid the implementation of further continuing disclosure rules, the National Association of State Auditors, Comptrollers, and Treasurers has released new best practices urging state governments to voluntarily disclose nearly all financial and economic data at least quarterly.
The best practices, 10 in all, were developed by NASACT's continuing disclosures task force and approved by the group's executive committee at a meeting on Aug. 11. They are not standards or requirements, and NASACT's report makes clear that the recommendations should be considered by state governments with respect to each state's own circumstances.
Under the Securities and Exchange Commission's Rule 15c2-12 on disclosure, most issuers must agree to file annual financial and operating information as well as notices of material events to the Municipal Securities Rulemaking Board's EMMA website in order for dealers to underwrite their bonds. But the SEC, MSRB, and now NASACT, worried the information may be stale by the time it's posted, are urging it be filed more often.
A recent run of SEC enforcement actions against issuers who allegedly failed to live up to their continuing disclosure agreements has put increased focus on the issue, but NASACT president Martin Benison, who is also the state comptroller of Massachusetts, said disclosure deficiencies should be addressed without more regulations.
"Improving continuing disclosure is a progressive process," Benison said. "We recognize that each state is different and will have varying levels of capacity to fully implement the best practices we approved."
"However," he added, "we strongly believe that it is important for states to address disclosure concerns raised by the investor community and regulatory authorities. And we strongly believe that this can be accomplished without statutory changes."
The additional disclosures should be done at least quarterly and posted to a website available to the general public, the NASACT paper recommends. The information should include tax revenues collected during that period, as well as changes in tax rates and legislative updates affecting tax allocations. Investors should be able to see unaudited budget updates, as well as cash flow forecasts or reports, summaries of all outstanding debt, economic forecasts, and pension and post-employment benefits summaries. The disclosures should also include updates to a state's interest rate swap portfolio, a report detailing the state's investment holdings, any updates to debt management policies, and the most recent EMMA filings.
"These voluntary enhancements to state disclosure efforts will maximize the potential for information that is already gathered by states for other purposes in many instances," said Kim Wallin, state controller of Nevada and co-chair of the task force. "Putting the information online in a central, easily-accessible location will benefit the entire investor community and enhance the market overall."
Colin McNaught, the task force's other chair and assistant treasurer for debt management in Massachusetts, said the recommendations should help states strengthen their disclosure policies.
"Our hope for the best practices is that they will enable states, over time, to continually enhance their existing disclosure programs," he said. "The ultimate aim is a transparent and efficiently operating bond market."
NASACT said that while not all state governments will be immediately able to meet this level of transparency, the group anticipates more and more information becoming available to the investor community as time passes. The recommendations got the strong support of the National Federation of Municipal Analysts, which served in an advisory role.