BRADENTON, Fla. — Tennessee is moving toward implementing comprehensive debt-management practices to be used by the state and its agencies, local governments, and other authorities that issue debt.
Comptroller Justin Wilson is seeking comments on his proposal that all issuers be required to adopt a debt-management policy by Jan. 1, 2012, and establish best practices, including plans for the use of professionals and public disclosure of transaction costs.
Wilson said his proposed draft policy is based on four guiding principles: understanding transactions, explaining to citizens what is being considered, avoiding conflicts of interest, and disclosing costs and risks. The principles would guide issuers in developing their own policies.
“Cities and counties throughout our state have different needs and different challenges relating to debt management,” Wilson said. “Once the basics are met, I believe it is best to create a general framework for sound debt management, but give governmental debt issuers the flexibility to adopt policies tailored to their specific needs.”
Draft documents outlining a proposed policy, best practices, resources, and a checklist are posted at tn.gov/comptroller/lf/lfDebtManagement.htm.
Comments are due to the comptroller’s office by Sept. 15.
A public forum on debt management practices for Tennessee issuers is tentatively scheduled to take place Sept. 22 in Nashville.
After receiving comments, Wilson is expected to make recommendations to the State Funding Board, which has authority to adopt a model debt-management policy for Tennessee issuers.
Shortly after taking office in January 2009, Wilson began spearheading sweeping changes to the way issuers in Tennessee sell debt after some issuers — particularly smaller cities and counties,— experienced difficulties with derivatives as a result of the market meltdown.
Wilson’s office is charged with issuing compliance letters after receiving proof that local governments complied with the state guidelines in order to enter derivative transactions.
Last November, the State Funding Board adopted new state guidelines governing cities and counties that want to enter into interest rate swaps and other exotic financial transactions.
The guidelines are designed to eliminate conflicts of interest by prohibiting individuals or companies from representing more than one side in derivative transactions.
They require that issuers employ experts and impose reporting requirements about derivatives transactions, including the disclosure of fees that are paid.
Issuers that do not meet all the requirements laid out in the guidelines have the option of appearing before the comptroller to explain how they can comply with the guidelines.
Wilson said the latest effort is designed to promote sound debt-management practices.