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Tax Increment Finance
According to the Council of
Development Finance Agencies (CDFA), forty-two states currently permit
the use of Tax Increment Financing. CDFA is in the process of
establishing itself as national clearinghouse that would offer
education, resources, networking and information sharing in the Tax
Increment Financing industry. For more information see the Tax Increment
Finance Coalition GFOA Adopts Recommended Practice for Tax Increment Financing The Government Finance Officers Association (GFOA) approved three new recommended practices in February 2006. One of the new recommended practices pertains to the use of "Tax Increment Financing as a Fiscal Tool." In particular, GFOA recommends that local governments adopt a Tax Increment Financing policy that includes statements regarding when Tax Increment Financing is appropriate. The GFOA's recommended practices including the practice relating to Tax Increment Financing are available at the GFOA's website. Legislation to Restrict Tax Increment Financing in Missouri
Last year several bills proposing changes to
the Missouri Tax Increment Financing statutes were introduced in the
Missouri General Assembly that were all defeated. Once again
legislation is being introduced that would restrict the use of TIF.
Three bills have been introduced that contain various restrictions
ranging from more stringent definitions of blight to voter approval of
TIFs when a petition is filed to do so. The bills are S.B. 20, S.B.
176 and H.B. 103.
[1/20/2007]
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Switching Role from Financial Advisor to Underwriter Rule G-23 of the Municipal Securities Rulemaking Board ("MSRB") prohibits broker-dealers (underwriters) from serving as both underwriter and financial advisor for the same transaction. Subject to certain restrictions, however, Rule G-23 permits a broker-dealer serving as financial advisor to terminate this role and then serve as underwriter for the same transaction. Last year the National Association of Independent Public Finance Advisors (an association of financial advisors that do not underwrite bonds) recommended that changes be made to Rule G-23 to limit this practice. The MSRB (a self-regulatory agency whose board is comprised primarily of broker-dealers) made no changes to the rule. In March 2006, the Government Finance Officers Association ("GFOA") responded with a statement titled "MSRB's Rule G-23: Who's Protecting Whom" that suggested that the MSRB may not have adequately reviewed the adequacy of Rule G-23 as presently written. According to "The Bond Buyer," on January 18, 2007 the GFOA's governmental debt management committee decided to address the issue through a future revision to its recommended practice called "Selecting and Managing the Method of Sale of State and Local Government Bonds". "The Bond Buyer" also reported that some of the GFOA members said the draft should "urge issuers not to allow dealers to switch roles in the same deals, state that issuers should not decide on the method of sale based solely on the underwriter's recommendation, acknowledge that issuers and underwriters have competing interests and state that the issuer’s overall objective should be getting the lowest cost of funds for taxpayers." [1/22/2007] Once again, the National Association of Independent Public Finance Advisors is requesting that the MSRB consider changes to Rule G-23. The request was made public last week with the release of a letter and exhibits. The National Association of Independent Public Finance Advisors has requested that the amendments to Rule G-23 include the following: a broker-dealer that switches from an advisory role to underwriter must (i) disclose that conflicts of interest do exist, (ii) must obtain explicit approval from policy makers to make the change, and (iii) completely terminate its role as financial advisor to the issuer. [6/09/2007] Martha Mahan Haines, Chief of the Securities and Exchange Commission's Office of Municipal Securities, warned dealers to comply with Rule G-23 when switching roles from financial advisor to underwriter. The statements were made this week, at the annual Fixed Income Legal and Compliance Conference in New York. In a June 14 article in The Bond Buyer, Haines was quoted as saying, with respect to issuers, that "they are the seller, the underwriter is the buyer, and like any other sales transaction, the buyer is not representing the seller". [6/14/2007] The Government Finance Officers Association (GFOA) is developing a new recommended practice regarding competitive and negotiated bond sales. The document, approved by the debt committee on June 9th, includes recommendations on the use of financial advisors including that financial advisors should not be broker/dealers. In a June 15 Bloomberg column, Joe Mysak discusses the recommended practice. [6/15/2007] The Government Finance Officers Association (GFOA) debt committee will propose a "recommended practice" to the GFOA executive board that strongly discourages an issuer from allowing a broker dealer from switching roles as a financial advisor to an underwriter. The proposed recommended practice is intended to go further than the MSRB's rule G-23 due to concerns regarding "inherent conflicts of interest." [11/08/2008]
On October 17, 2008, the Government Finance
Officers Association (GFOA) adopted two new "Recommended
Practices" relating to "Selecting Financial Advisors" and
"Selecting Underwriters for Negotiated Bond Sales." As part of the
Recommended Practices, "GFOA recommends that a firm hired as a financial
advisor should not be allowed to resign in order to underwrite the
proposed negotiated sale of bonds." GFOA also noted that "In
considering the roles of underwriter and financial advisor, it is the
intent of the Recommended Practice to set a higher standard than is
required under MSRB Rule G-23, because disclosure and consent are not
sufficient to cure the inherent conflict of interest." SEC Recommends Changing Rule G-23
On May 7, 2010, Mary Schapiro,
chairman of the Securities and Exchange Commission, said "Financial
Advisers should be prohibited from resigning as financial advisor to an
issuer, and then underwriting that issuer's bonds, as they are currently
allowed to do under MSRB rule G-23. Right now, a financial professional
advising a municipality can guide the municipality towards securities
tailored to his firm's advantage, then resign and act as underwriter.
This is a classic example of conflict of interest."
In addition, she indicated that the MSRB should change G-23 to forbid
this practice.
[5/07/2010]
MSRB Amends Rule G-23 |
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Shrewsbury's Capital Appreciation Bonds Sold Competitively On
July 24, Shrewsbury completed the sale of $2,060,000 of General
Obligation Capital Appreciation Bonds. This was the first capital
appreciation bond issue sold by competitive bidding in the State of
Missouri. See the article "City
Completes First Competitive Bond Sale."
[7/24/2007]
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DisclosureUSA May be Forced to Close Digital Assurance Certification (DAC), a web-based disclosure and information dissemination service provider, was recently granted a patent for its system. On January 19, DAC filed a lawsuit against the Municipal Advisory Council of Texas, the operator of DisclosureUSA for patent infringement. DisclosureUSA is a Central Post Office for continuing disclosure documents which offers free filing and dissemination services to issuers. In contrast to DisclosureUSA, DAC charges fees for its services. Since DisclosureUSA operates at no change there is speculation that DisclosureUSA may not have the funds to fight the suit or to obtain some sort of license from DAC. [1/26/2007]
On January 31 the Municipal Advisory Council
of Texas announced that it plans to fight the patent infringement
lawsuit filed against it by DAC. Sidley Austin LLP will represent
the Municipal Advisory Council of Texas on a pro bono basis.
The Municipal Advisory Council of Texas and
DAC have reached an agreement that eliminates the patent infringement
suit. Under the terms of the settlement DisclosureUSA will no longer
provide receipts indicating that the documents have been received by the
national and state information repositories, DisclosureUSA will no
longer enable users to create cover sheets for filings, issuers will not
be able to download their documents for 30 days after they are filed and
issuers will not receive email alerts regarding their filing deadlines. [6/13/2007]
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Credit Rating Agency Duopoly Relief Act On November 29, 2005, The House Committee on Financial Services held a field hearing on the Credit Rating Agency Duopoly Relief Act of 2005 (H.R. 2990). The Bill, introduced by Rep. Michael Fitzpatick in June 2005, is intended to improve the quality of ratings by fostering competition, transparency, and accountability in the credit rating agency industry. The Act would amend the Securities Exchange Act of 1934 and replace the designation of "Nationally Recognized Statistical Rating Organization" with "Nationally Registered Statistical Rating Organizations." In order to qualify as a Statistical Rating Organization under the Act, the organization's primary business must be the issuance of publicly available ratings for at least the most recent three consecutive years and the organization must employ either a quantitative or qualitative model, or both, to determine its publicly available ratings. Nationally Registered Statistical Rating Organizations would be subject to SEC oversight. (For further information see Municipal Bond Ratings on this site, the Bond Market Association's testimony, Standard & Poor's commentary and the Library of Congress for the status of the Act and full text. [11/30/2005] Further legislation is being explored for the regulation of rating agencies. On March 7, the U.S. Senate Banking Committee held a hearing on the regulation of credit rating agencies. The credit-rating agencies were among the parties blamed by lawmakers for the accounting failures at Enron Corp. Critics of the rating agencies' business practices are calling for legislation to implement Securities and Exchange Commission oversight. [3/11/2006] Last week the House Financial Services Committee approved the Credit Rating Agency Duopoly Relief Act with an amendment that exempts rating agencies that do not want to be NRSROs from registering with the SEC. If enacted, the measure would become effective on January 1, 2008. The bill would eliminate the SEC's current NRSRO designation process. As a result, the rating agencies that are presently NRSRO would lose their NRSRO status and would have to register with the SEC. A time schedule has not be set for action by the full House and there is no comparable legislation in the Senate. [6/26/2006] On Thursday, July 13, the House approved the Credit Rating Agency Duopoly Relief Act. The Act is intended to foster competition among rating agencies and improve transparency in ratings. The Senate Banking Committee is drafting a similar bill that could be introduced as early as next week. [7/15/2006] On Wednesday, August 2, the Senate Banking Committee approved the Credit Rating Agency Duopoly Relief Act with certain amendments. The amendments included a provision that makes it clear that the Securities and Exchange Commission will have no enforcement authority over rating criteria and methodologies used by rating agencies and a provision to clarify that rating agencies are not waiving their First Amendment free speech protections. The Act is expected to be approved by Congress later this year. [8/5/2006]
On September 27, 2006 the final bill to modify the regulation of rating agencies
was adopted and now awaits the president's signature. The bill establishes a
system under which rating agencies that have been in business for at least three
years could voluntarily register with the SEC as statistical ratings
organizations. The rating agencies that are presently NRSROs would lose their
status and would have to reregister. Registration would require filing
information on the methodologies used in assigning ratings, performance
measurement statistics, any conflicts of interest, and organization structure.
While the SEC would not be able to regulate the substance of the ratings
agencies' methodologies, the SEC would have authority to take actions against a
NRSRO to prohibit abusive or noncompetitive practices or whose ratings
deviated from its procedures, policies, methodologies, or criteria.
[9/30/2006]
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SEC Proposes New Rating
Agency Rules
Proposed Rating Agency
Legislation
Moody's Implements Global
Ratings Scale
Moody's and Fitch Delay Global
Ratings Scale |
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St. Peters, Missouri Receives Rating Upgrade
This week St. Peters' general obligation bonds were upgraded from A1 to Aa3.
The rating makes St. Peters one of only 16 Missouri cities that have ratings
ranked Aa3 or higher. The
following were among the reasons stated by Moody's for assigning the rating:
"the city's financial position will remain strong due to solid management, the
presence of sound reserves and the financial flexibility provided by revenues
generated by the sale of land for the 370 Redevelopment Plan" (A planned
development area created by the City.) The general obligation rating was
assigned in conjunction with the City's upcoming sale of approximately $24.5
million of Certificates of Participation which are rated A2. WM Financial
Strategies, as financial advisor to the City, assisted in the rating process and
is financial advisor to 6 of the 16 Missouri cities rated Aa3 or higher. |
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Telecommunications legislation in pending in the Senate that includes provisions permitting municipalities to build broadband networks. Similar legislation was passed by the house in June 2006. The legislation gives preferential treatment to municipalities whereby they can provide broadband service within their community even if private telecom firms are willing to provide identical or better service. The legislation also prohibits states from preventing municipalities from offering broadband services. There has been a growing interest by cities to provide wireless and wire delivered broadband internet access for the same reasons that cities offer other utility services. Broadband is of interest to public finance professionals since bonds or lease obligations may be required to finance the broadband infrastructure. [6/30/2006]
The Government Finance Officers Association,
National League of Cities and other organizations representing local government
are asking for assistance to defeat the passage of "The Advanced
Telecommunications Opportunities Reform Act" (H.R. 5252). The organizations
believe the bill will harm consumers, cities and
counties. The following link is to their position statement:
www.gfoa.org/documents/ActionAlert0731.pdf
[9/16/2006] |
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Missouri Constitutional Debt Limit Change Considered Senate Joint Resolution 31 is a proposed amendment to the Missouri Constitution that would, subject to statewide voter approval, change the bonding limit for Missouri school districts from 15% to 20% of assessed valuation. The Resolution was approved by the Missouri Senate last week. If approved by the House, the election will be held on the November 7, 2006 [4/17/2006]
The General Assembly adjourned for
the year last week without a vote by the House on SJR 31.
[5/20/2006]
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S&P Reports on Missouri Schools
On May 1, 2006, Standard &
Poor's issued a report on Missouri Schools titled "Missouri School District
Ratings Continue to Exhibit Stable Trend." In its report, S& P indicated
that "since 2000, no district rating has been lowered, while eight have been
raised." The trend remained intact even
when the State's economy was sluggish and state aid to districts was cut in the
2003 fiscal year. S&P noted that Missouri's new state aid formula that will
be phased in over seven years, beginning with the 2006-2007 school year, is not
expected to affect school district ratings, although it could have a positive
rating impact on some districts receiving additional aid.
[5/06/2006]
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Wentzville and Bonne Terre Save from Refunding Wentzville, Missouri to Save $361,000 WM Financial Strategies is serving as financial advisor to the City of Wentzville, Missouri for the sale of bonds that will refund $1,585,000 of Neighborhood Improvement District Bonds (NID Bonds). The refunding will result in approximately $361,000 of savings representing over 22% of the principal amount of the bonds refunded. On a present value basis, the savings equal approximately $175,833 or 11% of the principal refunded. NID Bonds are paid by special assessments from the property owners of the City's Bear Creek Neighborhood Improvement District. The property owners will be the beneficiaries of the savings. UMB Bank was selected as the underwriter of the bonds through a competitive proposal process. Bonne Terre, Missouri to Save $328,000
WM Financial Strategies is serving
as financial advisor to the City of Bonne Terre for the sale of Certificates of
Participation (COPs) that will refund $2,945,000 of certificates of
participation issued in 1999. The refunding will result in approximately
$328,000 of savings representing over 11% of the principal amount of the
certificates refunded. On a present value basis, the savings equal
approximately $255,000 or 8.6% of the principal refunded. Commerce Bank was
selected as the underwriter of the COPs through a competitive proposal process.
[See
article in the Daily Journal]
[3/31/2006]
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Tax Reform Panel Recommends Detrimental Bond Provisions On November 1, 2005, the President's Advisory Panel on Tax Reform released its final tax change recommendations. The Advisory Panel's recommendations include the elimination of the tax-exemption of interest on municipal bonds purchased by corporations. The Advisory Panel recommends that "because of the flexibility businesses have to deduct interest, the exclusion from business income for state and local tax-exempt bond interest be eliminated." According to the Bond Market Association more than 30% of municipal bonds are purchased by corporations. On a more positive note, the Advisory Panel did not include a provision to eliminate advance refundings and proposes the repeal of the alternative minimum tax. For further information see the Advisory Panel's full report. [11/13/2005]
President Bush did not mention
overhauling the tax code during his State of the Nation speech. Political
observers believe the plan is on hold at least until November.
[2/11/2006]
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MSRB Requests Comments on Rule G-23 Rule G-23 of the Municipal Securities Rulemaking Board (MSRB) places restrictions on the activities of broker-dealers that serve as financial advisor and subsequently serve as underwriter for the same transaction. In recent months the National Association of Independent Public Finance Advisors (NAIPFA) has asserted that the rule is outdated and is being abused or circumvented to the determent of issuers. Although the MSRB has not proposed any changes to the rule, the MSRB has announced that it will seek comments on the rule for a period of 60 days, ending January 17, 2006. In its statement to the press, the MSRB indicated that it is particularly interested in obtaining comments from issuers regarding the impact any change in the rule might have on them. [11/19/2005]
MSRB Receives Comments on Rule
G-23
MSRB Leaves Rule G-23
Unchanged |
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Peculiar Predicament With Chapter 100 Bonds Under the Act, municipalities can issue bonds, without voter approval, to finance industrial development projects. The Act defines industrial projects as, the purchase, construction, extension and improvement of warehouses, distribution facilities, research and development facilities, office industries, agricultural processing industries, service facilities which provide interstate commerce, and industrial plants, including buildings, fixtures, and machinery. The municipality holds title to the bond-financed property and leases the property to a corporation. As a result, corporations are exempt from property taxation on the bond-financed property. Last year, a citizens group, StopAquila.Org, filed a law-suit with the Cass County Circuit Court to halt the sale of the bonds to Aquila, Inc., StopAquila argued that the bonds could not be issued under the Act and required voter approval under the Missouri Constitution. The Circuit Court ruled in favor of the City rather than StopAquila. The appellate court reversed the ruling.
In its
ruling, the Appellate Court determined that the bonds could not be issued under
the Act because the power plant is not an industrial development project that
can be financed under the Act. (See the full
Court Opinion.)
[11/03/2005]
Earlier this week, by a 5-to-2
vote, the Missouri Supreme Court found that the City of Peculiar acted
within its authority in authorizing the bonds. The Supreme Court, upheld the
trial court's decision which had determined that the bonds did not require
voter approval because the project was being leased to a corporation for
commercial purposes. The finding by the Missouri Supreme Court that the
plant qualifies as "commercial" reduces the possibility that future
financings will come into question. [12/24/2006]
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The Illinois Association of Park Districts engaged Economics Research Associates (ERA) to research literature relating to the real estate impact generated by parks. ERA found that neighborhood and community parks have a potentially positive impact on surrounding residential communities. ERA noted the following:
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Olivette Missouri Receives First Bond Rating
The City of Olivette, Missouri has received a "Aa3" rating from Moody's
Investors Service. The rating was obtained in connection with the
City's sale of $1,855,000 Neighborhood Improvement District Refunding
Bonds. The bond proceeds will be used to refinance a 1997
Neighborhood Improvement District bond issue that was used to construct
streets. The refunding will result in
over $105,000 of savings. WM Financial Strategies is serving as the City's
financial advisor. [9/09/2005]
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Wildwood, Missouri Receives First Bond Rating
The City of Wildwood has
received a "Aa2" rating from Moody's Investors Service. The City,
established in 1995, will go to market with its first bond issue in
August 2005. The estimated $3,850,000, Neighborhood Improvement,
Limited General Obligation Bonds will be used to finance the
construction of a sewer system in portion of Wildwood. WM
Financial Strategies is serving as the City's financial advisor.
[7/24/2005]
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Missouri Regional River Library Selects WM
Financial Strategies |
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On March 14, 2005, the Municipal
Securities Rule Making Board ("MSRB") announced that it will seek SEC
approval of a new Rule G-38 that will prohibit dealers from payments to
persons who are not affiliated with the dealer firm for soliciting municipal
securities business on their behalf.
Rule G-38 now prohibits engaging consultants to obtain municipal securities
business. The full text of the rule is available at the
MSRB's website.
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Contributions for Bond Elections Equate to Pay-to-Play
Rule G-37 of the Municipal Securities Rulemaking Board prohibits firms from
engaging in a practice known as "pay-to-play" whereby broker dealers make
political contributions to issuer officials in order to obtain municipal
securities business. According to an article published in "The Bond Buyer"
on February 2, 2005, at The Bond Market's Association's 10th Legal and
Compliance Conference, Martha Mahan Haines, chief of the SEC's Office of
Municipal Securities, suggested that contributions for bond referenda is a
pay-to-play activity. Although she stressed that she was expressing her
own personal view, she suggested that activities that circumvent rule G-37 could
lead federal regulators to revisit the rule and consider whether it needs
tightening. [2/02/2005]
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WM Financial
Strategies |
Neighborhood parks can provide up to
a 20% increase in housing values for those homes facing the park. Benefits
from a neighborhood park can extend to approximately 600 feet, with houses
nearer to the park receiving the majority of the benefit.
