GFOA Rebuffs SEC Bid to Oversee Accounting Standards and Mandate Disclosures for Issuers of Municipal Debt
Gaffney, Susan, Government Finance Review
The GFOA and other state and local government associations vigorously oppose any unnecessary federal regulation.
The GFOA will vigorously oppose a drive by the securities and Exchange Commission (sec) to obtain a mandate from Congress to regulate issuers of tax-exempt bonds and the Governmental Accounting Standards Board (GASB).
In a July speech, the sec's chair, former Congressman Christopher Cox, outlined his vision of a significantly expanded role for the sec in accounting standards and disclosure for state and local governments that issue debt. He asserts that an expansion in the sec's role is needed to protect investors in the $2.4 trillion municipal securities market. ' Two weeks later, Chairman Cox sent a white paper, Disclosure and Accounting Practices in the Municipal securities Market, to the chairmen of the Senate Banking, Housing and Urban Affairs Committee and the House Financial Services Committee, Senator Christopher Dodd (IXT) and Congressman Barney Frank (D-MA) respectively, suggesting sweeping legislative and regulatory changes to long-standing governmental accounting and disclosure practice.
In a statement posted on the GFOAs Web site, Is More Regulation the Right Rx for the Muni Market?, the GFOAs Executive Director Jeff Esser, together with the executive directors of the National League of Cities, the U.S. Conference of Mayors, the National Governors Association, the National Association of Counties, the National Conference of State Legislatures, and the International City/County Management Association, argue that there is no need for an expanded federal role in the municipal securities market.Their statement underscores the fundamental strength of the municipal securities market, which currently is characterized by extensive disclosure, timely notification of material events, credit ratings, and, in many cases, the full backing of an issuer's taxing power. Thanks to these structures, already in place, defaults on municipal securities are, for all practical purposes, virtually unknown with a default rate of less than a 0.1 percent over the past 36 years.2
In his white paper, Chairman Cox recommends that Congress enact legislation to expand the sec's authority over both the municipal securities market and the process used to set accounting and financial reporting standards for state and local governments. Specifically, he offers the following proposals to "provide investors and other participants in the municipal securities market with information and protections comparable to those available in many other U.S. capital markets:3
* Mandate the use of generally accepted accounting principles (GAAP).
* Provide for an independent funding mechanism for the GASB.
* Establish sec oversight of the GASB.
* Make available to investors an issuer's offering document and periodic reports that contain information similar to that required by issuers and offerings of corporate securities.
* Create a system to allow investors access without charge to issuer offering documents and continuing disclosure filings on a timely basis.
* Clarify the legal responsibilities of issuer officials for the disclosure documents that they authorize, the responsibilities of underwriters with respect to the offering statements they use in underwriting municipal offerings, and the securities law responsibilities of bond counsel and other participants in offerings.
CAUSES FOR CONCERN
The GFOA has consistently supported national accounting standards established by an independent standard-setting body (i.e., GASB or the Financial Accounting Standards Board - FASB). This commitment remains unshaken, even in the midst of the GFOAs current dispute with the GASB. The GFOA opposes SEC involvement with standard-setting for two reasons. First, such involvement violates the basic tenet of federalism, given that the power to set accounting standards for state and local governments ultimately belongs to the states, which alone have the right to delegate that power to the appropriate national standard-setting body. …