State Treasurer Steven Grossman

BOSTON — While talking points at the third annual Massachusetts investor conference ranged from the state's economy to transportation to swap deals, another — disclosure — was at the crux of the event itself.

Massachusetts under Steven Grossman's watch as state treasurer has emphasized its disclosure enhancements, which include the conference itself, frequent investor calls and a new data-driven website.

The 10 discussion groups for the conference at the Boston Convention & Exhibition Center even included "next steps in disclosure" as a topic.

"We needed to make Massachusetts number one in disclosure," Grossman said in an interview, emphasizing initiatives he and assistant treasurer for debt management Colin MacNaught have undertaken since Grossman took office in 2011.

Grossman, a Democratic candidate in the 2014 race for governor, said openness breeds investor confidence, which in turn upholds bond ratings. Moody's Investors Service rates the Bay State's general obligation bonds Aa1, while Fitch Ratings and Standard & Poor's assign AA ratings.

"People respect the discipline and consistency of the commonwealth's budgeting process," Grossman said at the conference. "Long-term planning is a key ingredient in investor perception."

Comments among the roughly 200 investors and banking industry officials at the sprawling convention center, which sits along a once-barren South Boston waterfront, ranged from "this is pioneering" to "every state should do this."

But while Massachusetts can claim good public relations and possibly a moral high ground, its efforts also beg the question of just how tangible is better disclosure.

"Will it save 25 basis points a year? It's more difficult to quantify that, but all things being equal, disclosure is essential to making a sound credit assessment," said Thalia Meehan, a managing director at Putnam Investments. "This is true even with the higher credits. Not all AAs are created equal. For lower credits, it's essential, especially the secondary issues. It helps those in the investor universe recognize who does good things."

Philip Condon, head of head of municipal bond portfolio management for Deutsche Asset & Wealth Management, said openness helps foster the right culture. "If you're disclosing publicly that you're balancing a budget and explaining things to taxpayers, that will extend the comfort level."

Transparency "is just good business, really," said Walter St. Onge, a Boston-based partner with Edwards Wildman Palmer LLP and a conference disclosure panelist. "Rating agencies and investors realize that not everything goes swimmingly. But no one likes surprises."

The Massachusetts message that day was generally upbeat. Michael Goodman, a University of Massachusetts Dartmouth public policy professor, said Massachusetts has recovered its pre-recession employment levels, housing conditions are improving and the markets expect inflation to remain low for the foreseeable future.

In addition, Massachusetts had a contingency or rainy-day fund of roughly $1.6 billion as of June 30, placing it third behind oil-producing states Alaska and Texas.

Massachusetts is vulnerable to reliance on federal spending. According to the UMass Donahue Institute, 2,500 Massachusetts companies and institutions in 2011 received nearly $14 billion in contracts from the U.S. Department of Defense. But the White House has estimated that sequestration will reduce science and research funding by 8.2% annually, and new federal policies taking effect will significantly reduce reimbursements to hospitals and providers that accept Medicare.

In addition, the Massachusetts recovery has been highly imbalanced both regionally and occupationally, with the housing recovery concentrated more around Greater Boston than around other regions of the Bay State.

"The defining issue of our time is the rampant increase of inequality. Sometimes it seems as though we have a tale of two commonwealths," said Grossman. "We have to find ways to enhance education, train our young people and build for the future."

Moody's, in a report that preceded Massachusetts' $525 million GO sale in mid-December, praised state officials for "strong financial management practices." Challenges, according to the rating company, included debt ratios that are among the nation's highest and large unfunded pension liabilities.

A disclosure panel discussion, meanwhile, found a familiar and easy target — Harrisburg, Pa. — as an example of how not to do it.

In May, the U.S. Securities and Exchange Commission charged Pennsylvania's capital city with securities fraud for providing misleading information about its deteriorating finances. The commission fined neither the city nor individuals, and city officials signed a cease-and-desist order.

Among other accusations, the SEC said that even though Moody's had lowered Harrisburg's general obligation bond rating to Baa1 by December 2008, Harrisburg listed the GO rating in budget documents as Aaa, based on its insurance. The City Council ratified the budget that month.

The SEC also charged that the budget did not reveal payments for which Harrisburg was probably on the hook as guarantor of $455 million of outstanding debt of subsidiary agencies, including the Harrisburg Authority, which owned the incinerator until its recent purchase by the Lancaster County Solid Waste Management Authority.

Harrisburg on Dec. 23 closed on a financial recovery plan that included a sale of the incinerator.

Some legal experts have posited that without formal disclosure documents, such as postings on the Municipal Securities Rulemaking Board's EMMA website, the SEC could determine that budgets on municipality websites and even political debate — for example, a back-and-forth about whether a city is a bankruptcy risk — are de-facto disclosures.

Mark Schwartz, a Bryn Mawr, Pa., solo practitioner who represented the Harrisburg City Council in its failed bankruptcy attempt in 2011, said the SEC went too soft on Harrisburg. "Telling Harrisburg not to do it again is like telling Bernie Madoff not to do it again. At least Bernie is behind bars while those who profited in Harrisburg are alive, well and still doing deals.

"Disclosure is something fundamentally important," said Schwartz. "Massachusetts and other state governments have the ability and desire to do adequate disclosure. However, there are a host of issuers that have neither."

Schwartz, a former bond lawyer and investment banker, said that when he started in the bond business, official statements were merely three pages and came off a mimeograph machine.

"Disclosure by definition involves providing information that a potential investor would deem to be important to know in terms of whether to invest. Unfortunately, most official statements I read now go well beyond a hundred pages and one finishes reading wondering what if anything has been disclosed," he said. "My review of the Harrisburg incinerator bond issue [official statements] revealed masterpieces in obfuscation. Too often this is the model."

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