CHICAGO -- Ohio Auditor David Yost warned local governments to tread carefully when talking about their financial conditions, calling this week’s Securities and Exchange Commission’s charges against Harrisburg, Pa. a “watershed moment” for local politicians.
“The SEC hasn’t traditionally looked at politicians’ public comments,” Yost said Wednesday in a telephone interview with The Bond Buyer. “In the private sector, that’s long been understood, and that’s why CEOs have lawyers read their speeches. The fact that in their report the SEC specifically refers to the mayor’s state of the city address is a watershed moment.”
The SEC Monday charged Harrisburg with securities fraud for providing misleading information about its financial condition. It’s the first time that the SEC has charged a municipality for misleading statements made outside of its securities disclosure documents.
The charges said the city violated the Securities and Exchange Act of 1934 with material misstatements and omissions in its public statements and financial information. The agency singled out a 2009 state of the city address by then-Mayor Stephen Reed as containing misleading comments about the debt of the Harrisburg Authority, which ultimately drove the city into state receivership.
Harrisburg on Monday settled with the SEC by agreeing to fully disclose financial information in the future. The agreement involved no fines or jail time.
A day after the charges were disclosed, Yost sent a letter to all Ohio local governments, which he oversees, urging them to review disclosure practices and ensure the accuracy of all public comments about their financial condition.
“Any politician wants to put the best possible spin on the condition of their stewardship, and that’s not surprising or evil,” Yost said. “I think now going forward, every politician needs to take a very careful look at this with their fiscal and legal staff to make sure their official statements are conforming to what the balance sheets say.”
Ohio as of April has declared fiscal emergencies in 25 local governments and six school districts.
Yost said municipalities are facing their first full year of cuts in state aid and tax revenue, which could drive more jurisdictions into fiscal stress over the next year. “I think we’ll see more governments go into fiscal distress designation in the next 12 months,” Yost said. “Then it’s a question for local voters about resources as well as the governments themselves about what they’re going to be able to cut.”
State law requires approval from the state tax commissioner -- a gubernatorial appointee -- to file for Chapter 9 bankruptcy.