BIRMINGHAM, Ala. — The Securities and Exchange Commission will issue a wide-ranging staff report about the municipal securities market, including recommendations for legislative change, commissioner Elisse Walter said Friday.
Walter’s remarks came in an interview as SEC officials and market participants converged here for a one-day hearing on the state of the municipal securities industry. She declined to say when the SEC will release the report, but said it will address a range of issues, including lessons learned from Jefferson County, Ala., where officials last week averted — at least temporarily — filing the largest municipal bankruptcy in history.
The SEC’s report will also address legislative changes to increase the agency’s disclosure authority and voluntary industry efforts to boost disclosure in the municipal market. “I think it’s headed everywhere,” said Walter, who for the past year has led a commission-wide muni market review slated to culminate in a report with recommendations for changes in legislation, regulation and industry practice. “There are obviously limits on what we can do without legislation.”
Walter also said the SEC’s Birmingham field hearing will be the last in a series that was once planned to convene in several cities nationwide to scrutinize the muni market. The SEC held muni hearings in Washington and San Francisco last year. Budgetary uncertainties forced the remaining hearings into hiatus until Friday.
On Thursday, Jefferson County commissioners agreed to a wait until Aug. 4 before deciding whether to file for bankruptcy, so negotiations could continue between sewer-system creditors and the Alabama governor’s office. Late Wednesday, creditors offered a counterproposal to settle a restructuring deal over $3.14 billion of sewer warrants on which the county has defaulted.
Walter referred to Jefferson County’s fiscal straits in her opening remarks, saying “the confluence of events” illustrates the importance of municipal bonds to investors, taxpayers and communities.
“We are here to explore whether investors need additional tools so that they can make better decisions and whether regulators need additional tools to do their best to enhance the soundness of, and investor confidence in, the municipal securities market,” Walter said.
Rep. Spencer Bachus, R-Ala., who chairs the House Financial Services Committee and whose district includes Birmingham, echoed those concerns in his opening statement, which was read by Larry Lavender, majority staff director of the Financial Services Committee.
Bachus, who had originally planned to attend the hearing, remained in Washington, where lawmakers maneuvered to resolve the impasse on the federal debt ceiling.
In his statement, Bachus said Jefferson County reflected “an extreme case in municipal finance gone wrong.” He also said he is ready to work with the SEC to ensure “necessary reforms” are made to the municipal market.
Still, on a panel entitled “Looking at Disclosures: Issuer and Investor Perspectives,” an issuer resisted the notion of bolstering the agency’s disclosure authority, saying any additional oversight could be intrusive.
“In my opinion, the current regulatory regime in the municipal market has worked and worked very well in the municipal market for the past 30 years,” said Ben Watkins, director of Florida’s Division of Bond Finance.
A municipal investor on the panel disagreed. “It’s what you don’t know that can hurt you,” said Edward Mudd Jr., who lives in Birmingham. “More data is good.”
Walter, who earlier this year called for giving the SEC authority to set “baseline standards” of disclosure, said in an interview that she understands issuers have anxiety about so-called one-size-fits all disclosure, given the varying levels of sophistication among small and large issuers. She also said the SEC could build on voluntary industry efforts, such as public sector pension-disclosure guidance floated earlier this year by the National Association of Bond Lawyers.
“You correct if there’s a problem,” she said. “You use what’s good.”
Even Watkins seemed to signal support for this approach.
During a question and answer session at the end of the disclosure panel, Walter asked him if the SEC had authority to set baseline disclosure and avoided a one-size-fits-all approach, couldn’t there be a public-private partnership, rather then purely voluntary industry efforts?
“I am always a big believer in self-help,” Watkins said. “If that falls short, intervention in the form of regulation may be warranted.”