WASHINGTON — Some municipal issuers and their advocates yesterday came out swinging against the Securities and Exchange Commission.
The furor came after commissioner Elisse Walter said Congress should repeal the Tower Amendment and securities law exemptions for muni issuers so the SEC can require them to comply with certain continuing disclosure requirements as well as generally accepted accounting standards.
“I think the SEC should do a better job of focusing on what it’s supposed to do than trying to find solutions to problems that don’t exist,” said Jeffrey Esser, chief executive officer of the Government Finance Officers Association.
Walter made the remarks at a speech Wednesday night at the Fordham University School of Law in Manhattan. But Esser said that if the SEC had done more to prevent the financial crisis, then state and local governments — which are significant investors that hold roughly $1 trillion in short-term assets and $3 trillion in pension investments — would not have lost as much money.
He and others, however, were not opposed to Walter’s suggestion that the SEC be given authority to require nongovernmental borrowers in conduit deals to meet the same corporate-style registration and disclosure requirements that would have applied if they directly sold bonds to the market.
And a few market participants said it may be time for stakeholders in the muni market — issuers, investors, lawyers, dealers, and regulators — to get together and see if they can agree on some improvements that can be made to the secondary market disclosure regime.
Lynnette Hotchkiss, the Municipal Securities Rulemaking Board’s executive director, said Walter’s call for combining muni rulemaking and enforcement is in line with a plan the MSRB made earlier at a Senate Banking Committee hearing. The board urged Congress to expand its authority so it could provide support in enforcement and examinations.
Walter “raised a number of important issues,” the MSRB said in a written statement. “We look forward to having a dialogue with commissioner Walter and other interested parties about these issues, including expanded enforcement authority for the MSRB.”
Esser was not alone in expressing dismay about Walter’s remarks. “There are some people that feel that municipals are a 'soft target’ and [say,] 'Let’s go after them,’” said Frank Hoadley, chairman of GFOA’s debt committee and Wisconsin’s capital finance director. “Next to U.S. Treasuries, they are the safest securities you can buy, although anybody can always pull a wart off here and there.”
Esser said SEC officials “have put on blinders and are totally unaware of the wealth of information that is available from state and local governments.” He said he and other GFOA officials met with SEC chairman Mary Schapiro and some of the commissioners in recent weeks and told them that state and local governments’ comprehensive annual financial reports and Web sites “contain a significant amount of information that you never get in the private sector.”
In contrast, former MSRB executive director Christopher Taylor said issuers should pre-file their offering documents with the SEC so that the terms of deals are broadly written and widely known. “The major dealers try to run their own little sub-markets” and favor certain customers, he said.
Walter stressed she was not urging that muni issuers be required to obtain pre-approval for their offerings from the SEC.
Officials at both the Securities Industry and Financial Markets Association and the National Federation of Municipal Analysts said if legislation is pursued, they want to be constructive and helpful. “I think there’s a value to an issuer in providing good disclosure. I think the market pays for that,” said SIFMA’s Michael Decker, adding that Build America Bonds are “a good test market for that.”
While the changes sought by Walter have been suggested before, lawmakers thus far have shown little interest in giving the SEC direct authority over municipal issuers.
“I’ve been working with Congress for over 30 years,” and don’t see any interest in this issue from House or Senate leaders, Esser said.