BRADENTON, Fla. - Tennessee comptroller Justin Wilson yesterday proposed that local governments in the state be required to adopt debt management and derivatives policies, have clean financial reports, and use independent advisers in order to issue variable-rate debt and enter into swaps.

Wilson presented those draft recommendations, among others, to the State Funding Board, the state's top elected officials who ultimately will adopt new guidelines that local governments will be required to follow.

The board will take another 30 days to solicit public comment as part of the process aimed at refining local issuers' use of variable-rate debt and swaps in Tennessee.

Revisions to the guidelines are under way because a number of small issuers encountered difficulty and huge unanticipated expenses earlier this year as the bond market came under pressure due to the subprime mortgage debacle.

The comptroller's proposed guidelines establish a new focus "designed to assure that any governmental entity that enters into these types of transactions does so only after making informed decisions on information that is also made available to its taxpayers," Wilson said in prepared remarks for yesterday's board meeting.

"The guidelines are not designed to prevent the entity from making a financial decision that may lose money," Wilson said. "The guidelines are designed to assure transactional transparency to the governing body, to the taxpayers, and to the investors."

Wilson's proposed guidelines also impose disclosure and reporting requirements aimed at prohibiting conflicts of interest and for providing adequate public notice of the contemplated transactions.

Most small issuers would be required to appear before the comptroller to demonstrate basic understanding of the contemplated transactions and the risks under the comptroller's latest proposal.

They would also be required to submit an analysis showing that the transaction would reduce interest costs or hedge interest rate risk. And the issuer must have staff or professionals to abide by new continuing monitoring and reporting requirements.

But Wilson also said there would be exceptions from some of those requirements largely for issuers with outstanding debt of at least $50 million who have other controls in place and who are proposing to enter a swap with a counterparty that is rated double-A or better.

Wilson first proposed changes to the state's guidelines May 1, after which his office took public comments. The revisions he proposed yesterday were in response to the comments his office received, he said.

"It's not my intent to prevent cities and counties from entering into these types of transactions if they choose to do so," Wilson said. "It is my intent to be certain that local governments have the training and expertise to understand what they're getting into with these deals."

Wilson said he will take public comments for another 30 days and then he will present his final recommendations to the State Funding Board for consideration.

"I know this may seem like a slow process, but we're actually moving very quickly," Wilson said. "And it's important to get this right."

In a separate but related process, Wilson has also requested public comment on model debt and derivative management policies for local governments.

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