Regulations Gearing Up: Many Federal Government Agencies, Including the SEC, the MSRB, and the IRS, Have Proposed or Finalized Regulations That Also Affect State and Local Governments
Gaffney, Susan, Government Finance Review
This Fall, many federal government agencies, including the Securities and Exchange Commission (SEC), the Municipal Securities Rulemaking Board (MSRB), and the Internal Revenue Service (IRS), have proposed or finalized regulations that also affect state and local governments. Highlights of these initiatives are listed below, and additional information may be found on the GFONs Federal Government Relations Web site.
SEC SEEKS COMMENTS ON MUTUAL FUND REPORT
The SEC has requested comments on an October report, The President's Working Group Report on Money Market Reform Options. The report suggests money market mutual funds are susceptible to runs, which could contribute to systemic risks to the financial system. It weighs the pros and cons of possible rule changes the SEC could adopt, notably requiring the use of a floating net asset value (NAV) rather than the current stable NAV.
In June, the Government Finance Officers Association's membership approved a new public policy statement, Maintaining the Stable Net Asset Value Feature of Money Market Funds. In that statement, the GFOA opposed the idea of mandating that money market funds use a floating NAV, rather than a stable NAV, by eliminating the use of the amortized cost method of valuation. The GFOA has written to the SEC on this matter in the past and will again comment that the change would strip away a key safety trait of the funds for investors: a dollar in-dollar out investment tool. As state and local governments are large investors in stable NAV money market funds, and these funds are the largest purchaser of short-term municipal bonds, a move to a floating NAV would have a significantly negative impact on state and local governments.
The GFOA will work with other state and local government organizations on a response to the report of the President's Working Group on Financial Markets. While the SEC has not yet proposed specific changes to the rules governing money market funds, it is seeking public comment on the report by January 10, 2010.
IRS ISSUES UPDATED COST-OF-LIVING ADJUSTMENTS
The 2011 IRS dollar limits for qualified plans, other tax-favored retirement plans, and Social Security payments are determined using Consumer Price Index (CPI) data released October 15, 2010. Because the CPI increased just 0.1 percent from September 2009 to September 2010, the IRS dollar limits and the taxable Social Security wage base will not change in 2011, for the second consecutive year. The Social Security taxable wage base will remain at $106,800. The contribution limit for employees who participate in 401(k), 403(b), or 457(b) plans remains unchanged at $16,500. The catch-up contribution limit under those plans for those aged 50 and older remains $5,500. More information on pension plan limitations is available at http://www.irs.gov/newsroom/article/0,,id=229975,00.html. Information on the Social Security wage base is available at http://www. ssa.gov/pressoffice/factsheets/colafacts2011.pdf.
SEC FOCUSES ON MUNICIPAL SECURITIES
The SEC held its first field hearing on the "State of Municipal Securities" in San Francisco. The 2010-2011 series of hearings is an SEC effort being led by SEC Commissioner Elise Walter to learn more about all aspects of the municipal securities industry and issuer disclosure practices. When the hearings are over, the SEC will develop a staff report containing information learned and will make recommendations for regulatory changes and industry best practices, as well as legislative changes, if any. The GFOA has continued to express opposition to the idea that the SEC should have authority over state and local governments that issue debt, and the GFOA opposes any actions that would mandate specific disclosure practices on issuers.
Ed Harringon, general manager of the San Francisco Public Utilities Commission and former GFOA president, testified on behalf of the GFOA about the internal controls in San Francisco, California. …