WASHINGTON - The Financial Accounting Foundation is trying to obtain support from issuer groups for a revised proposal to bridge the Governmental Accounting Standards Board's funding gap by imposing a new bond fee on broker-dealers that underwrite state and local bond issues.
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FAF, the organization that oversees both GASB and the Financial Accounting Standards Board, has taken the lead in pushing the funding plan, as Relmond Van Daniker, the sponsor of two earlier, more controversial GASB funding proposals, prepares to leave the municipal bond market.
Van Daniker, who has been executive director of the Louisville, Ky.-based National Association of State Auditors, Comptrollers & Treasurers for 18 years, is leaving NASACT on Oct. 1 to become executive director of the Association of Government Accountants, which is based in Alexandria, Va.
Van Daniker confirmed the move on Friday, saying he had reached agreement with NASACT to step down from his post at the end of 2004, but decided to move to the AGA earlier this year when that position opened up.
"This was the agreement we cut," he said in a brief interview. "You can't go on forever."
Robert McKinney "Kinney" Poynter, who has served as NASACT's deputy executive director for the last few years, is expected to succeed Van Daniker as executive director.
Van Daniker created controversy in the municipal market earlier this year when he proposed bridging a GASB funding gap of about $450,000 by imposing a bond fee on state -- but not local -- bond issuances. Under his initial proposal, the new bond fee would have been tied to a plan to establish a nonprofit organization to collect bond fees to finance both the GASB gap and a new disclosure facility -- something the National Association of State Treasurers and other issuer groups opposed.
In the face of such opposition, Van Daniker reworked the proposal so that it was no longer tied to the new disclosure facility. Under his new proposal, The Bond Market Association would collect a fee of about one cent per $1000 par value of bonds from broker-dealers that underwrite state bonds and give the proceeds to a new nonprofit group that NASACT would establish to distribute the money to GASB.
Van Daniker said the impetus for the proposal was to stabilize funding for GASB and to make sure that the board remained independent from the Securities and Exchange Commission. He feared that the SEC would step in to try to provide money to GASB, eventually becoming involved in setting state and local government accounting standards.
But issuer groups still had concerns about Van Daniker's proposal, especially the idea of NASACT creating a new nonprofit group to handle the bond fees.
Van Daniker's departure from NASACT raised questions about the fate of his GASB funding proposal.
"That's been taken over by the FAF," Van Daniker said Friday. "It's basically out of my hands now."
Douglas Ellsworth, the director of finance for Schaumburg, Ill. who also serves as a FAF trustee, said Friday that FAF has revised the GASB funding proposal and is trying to obtain support from state and local groups for the new plan.
"We're looking at a voluntary payment program where a fee would be assessed against broker-dealers for state and local debt," Ellsworth said, stressing that the revised proposal would cover local as well as state bond issues. "This would be done through the FAF," he said, explaining that the idea of creating a new nonprofit organization has been abandoned.
Ellsworth said that while FAF would like to hold the new bond fee to one cent per $1000 of state and local bonds, the proposal technically would provide for the collection of bond fees of up to one-and-a-half cents from new bond issuances.
"Right now we're working with the Government Finance Officers Association, the National Association of State Treasurers, and NASACT to try to get their support for the program," he said.
The new bond fee would raise about $2.5 million for GASB, Ellsworth said. Historically, GASB has obtained about 40% of its $4 million budget from the sale of its publications. The remaining 60% has come from contributions -- about $1 million from the states, $600,000 from certified public accounting firms, and the balance from the GFOA and businesses, according to GASB officials.
The board ended up with a budget gap of about $450,000 this year, partly because corporate contributions have dried up as a result of the prohibitions in the Sarbanes-Oxley Act. That act imposed mandatory fees on corporations to pay for the FASB and the SEC's recently created Public Company Accounting Oversight Board. As a result, corporations' voluntary contributions to the FAF dried up, and some of those had been used for GASB.
In addition, the states' contribution to GASB has dropped, and is expected to continue to decline, with state and local finances having hit hard times.
Ellsworth said other factors also have created budget problems for GASB. For one thing, the FAF has decided it will no longer accept any money from the accounting industry, he said.
In addition, FAF has readjusted the sharing of administrative expenses between FASB and GASB. As a result, GASB will have to pick up more of those expenses, he said. Historically, FASB has paid about 93% of the administrative expenses, while GASB has paid only 7%. Under the readjusted sharing levels, GASB would pay about 20%, an increase of 13 percentage points or roughly $400,000 to $500,000, Ellsworth said.
Ellsworth said that if the FAF can get issuer groups to support the new proposed bond fee, it will then hold talks with TBMA.
