Last week, Representative Devin Nunes, along with Reps. Paul Ryan and Darrell Issa, introduced HR 1628, the Public Pension Transparency Act. The bill would provide that a state or local government would lose certain "federal tax benefits," including the federal tax exemption on interest on the government's bonds, unless certain specified annual disclosures were made to the Treasury Department related to public pension obligations.
As a member of the House Financial Services Committee, I understand the vital role of disclosure in financial markets. Unfortunately, I think HR 1628 proceeds from a false premise, which causes the bill to introduce opacity rather than transparency of disclosure into the market, and intrudes on state sovereignty and policy preferences in order to attack public workers and pensions.
It is my opinion, therefore, that the legislation distorts and harms the municipal market.
Municipal bonds are a means for state and local governments to access capital markets to fund critical infrastructure projects. If state and local governments meet certain federal tax law requirements, the federal government agrees to forgo federal tax on the interest earned by bondholders, which permits issuers to borrow at lower interest rates.
The bill incorrectly finds that issuers do not provide meaningful disclosure regarding the liabilities and risks of public pensions.
It fails to take into account the new Government Accounting Standards Board requirements relating to the accounting treatment for pensions, ignores the important work of issuer groups and market participants in developing best practices in public pension disclosure, and does not take into account the seriousness with which the market has responded to the recent Securities and Exchange Commission enforcement actions against New Jersey and Illinois regarding their pension disclosures.
Commentators have expressed concern that the legislation seems to be a collateral attack on public pensions rather than a serious attempt at transparency and disclosure. I agree. Among the many factors the market uses to determine the creditworthiness of an issuer, public pension obligations are just one.
By elevating public pensions over other factors that market participants consider, such as sufficient tax revenue to repay principal and interest, the bill substitutes the federal Tea Party austerity and anti-public worker preferences for local policy preferences by issuers. This bias will only serve to distort the municipal market, while usurping local political preferences.
Public pension disclosure is an important issue that this legislation unfortunately muddles. The premise that meaningful disclosure is now lacking is incorrect, as is the belief that the regime envisioned by this measure would be better than what is now in place.
In fact, this bill would introduce duplication and confusion in public pension disclosure and would not take into consideration important new market participant- based reforms in pension disclosure.
It is ironic that the proponents of this legislation are willing to insert themselves into a situation where market participants, without the need for federal intervention, have comprehensively addressed public pension disclosure.
Rep. Gwen Moore represents the 4th Congressional District of Wisconsin and serves on the House Committee on Financial Services and the House Committee on the Budget.