We read with interest the comments of the Government Finance Officers Association's debt committee, reported in The Bond Buyer article "GFOA Shifts on Muni Disclosure" in the June 30 edition.
In particular, we note the statements by an unnamed panel member that "most issuers are in [disclosure] compliance, but their submissions were misfiled and lost by the NRMSIRs," as well as the assertion by Ben Watkins, director of Florida's Division of Bond Finance, that last year's DPC Data study on the state of issuer and obligor compliance was "a total pile of garbage."
The level of vitriol here makes us wonder if the committee blames DPC Data for the current interest of the regulators in increasing municipal market transparency, just as the nationally recognized municipal security information repository system was a handy scapegoat in the past for transparency problems that were actually caused by rampant failure to file disclosures by issuers and obligors.
This problem will continue under EMMA. Happily, it appears the Securities and Exchange Commission is escalating this issue, seeking more regulatory powers and higher standards for municipal disclosure.
Getting back to the article, does the GFOA really imagine that the $7.6 billion in bond defaults, recently cited by SEC chairman Mary Schapiro, don't have anything to do with them if they originate with conduit borrowers rather than direct issuers, as suggested by Frank Hoadley, chairman of the debt committee and Wisconsin's capital finance director?
Or do they seriously believe Hoadley's statement that "virtually everyone who issues bonds" is using higher reporting standards than corporate America? If that were true, why would the buy side of the market be so assiduous in their pursuit of better disclosure practices for so many years?
As the entire world makes enormous progress in transparency in securities markets, the municipal issuer community, to the extent that members of the GFOA debt committee speak for them, has apparently dug in and positioned itself squarely against enforced investor protection. All they offer by way of defense are self-serving myths about the putative risklessness of municipal securities, and claims about disclosure compliance that fly in the face of factual evidence.
A rapidly growing number of defaulted bondholders know better. DPC Data is not alone in observing that the more resistance issuers mount against improvements in disclosure practice, the more acute is the need for enforced regulations.
We stand by our research findings on shortfalls in muni bond disclosure filings. If some GFOA members find the research so embarrassing that they resort to discrediting the former NRMSIRs' operations to get out from under the glare of its findings, so be it.
We're proud of our long service in meticulous processing of official filings. We're also proud of our efforts to inform investors of the real risks created by the current state of municipal disclosure. And finally, we are deeply grateful to Mary Schapiro for her courage in taking on the difficult task of seeking more federal oversight of municipal disclosure practices.
Peter J. Schmitt, CEO
DPC Data Inc.