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SEC's Cox Missing in Action?This week there was a four-hour hearing before a Congressional panel on the role the federal agencies played in the credit crisis. During the hearing, former Federal Reserve Chairman Alan Greenspan referred to recent economic events as a “Credit Tsunami.” So where was Christopher Cox, chairman of the Securities and Exchange Commission, during the Tsunami? He was “Missing in action” according to the Bloomberg article “Cox ‘Asleep at Switch’ as Paulson, Bernanke Encroach.”
Cox wasn’t missing in action,
he was working on his major initiative for the coming year – more municipal
disclosure. Even though municipal bonds default far less than corporate bonds
(less than 1% for general obligation and utility revenue bonds) as early as
March 2007 Cox began pushing for more municipal disclosure rules including the
possibility of repealing the Tower Amendment. (Under the Tower Amendment that
was adopted in 1975 as an amendment to the Securities Exchange Act of 1934, the
SEC is essentially prohibited from regulating municipal bond issues.) Although
Cox was missing during many meetings relating to the recent bailout initiatives put in place by
Federal Reserve Chairman Bernanke and Treasury Secretary Paulson, he was present
at the October 23 Congressional hearing. At the hearing, Cox urged Congress to
give the SEC authority over municipal bond disclosure so that the SEC can
require municipal borrowers to provide the same kind of disclosure as corporate
borrowers. While more disclosure may by desirable, doesn’t the SEC have more
pressing issues to address?
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SEC's Cox Missing in Action? - 10/26/2008
Bonds
Gone Wild
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9/28/2008
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Bonds Gone Wild
These guys must be a lot younger than me. Does anyone remember the 80s? Yes the bond market has gone wild. For the past two weeks, yields on Aaa municipal bonds ranged from 113% to as much as 120% of US Treasury Bond yields, the highest ratio in history. There is an absence of institutional buyers and approximately $10 billion of issues have been postponed. The market is horrendous, but hardly the worst in history. On January 14, 1982 the 20 Bond Buyer Index was 13.44% compared to 5.23% this week. Although there were sporadic weekly yield declines, from November 3, 1977 until January 14, 1982 yields increased from 5.51% until reaching the 13.44% record high. Yes things may improve, but they could get much worse; consider that in 1982 yields had increased over a period of more than 4 years before they began to decline. Timing to the market is a gamble. For many bond issues, there are still bond buyers and a postponement is not required. Finding underwriters or buyers for bonds is more difficult now. To get bonds sold, issuers may have to consider establishing new relationships with financial advisors and underwriters with whom they have not previously worked; however, consider the possibilities; isn’t this the year when the public is demanding change? See the 20 Bond Buyer Index-1970 to Present. [9/28/2008]
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Competitive Bond Sales - Is Saving Taxpayers' Money Too Much Work?©
In 1995 State Auditor
Margaret Kelly released the study "Special Review of Bonds Issued by Political Subdivisions."
In 2001 State Auditor Claire McCaskill released the study "Audit of
General Obligation Bond Sale Practices" and a follow-up study by Ms.
McCaskill’s office was just released. Each study (along with other
national and regional studies) has demonstrated that competitive bond
sales result in lower total financing costs. In spite of these
findings, 87% of Missouri’s general obligation bonds are sold through
negotiation. The Auditor’s 2005 follow-up study and recent articles in
the St. Louis Post Dispatch and Bloomberg suggest that many public
officials prefer the negotiated sale method because they are not fully
informed of the competitive sale approach or they believe a competitive
sale will result in a heavier workload. In response to the Auditor’s
2005 follow-up study, on January 6, 2006 Bloomberg’s municipal bond
columnist Joe Mysak wrote "Municipal bond issuers are lazy, when they
aren't entirely clueless."
To inform public officials of the ease of utilizing the
competitive bond sale approach as well as the savings associated with
competitive bidding, WM Financial Strategies has offered to host sessions titled
"Competitive Bond Sales - Is Saving Taxpayers' Money Too Much Work?" at upcoming
conferences of several Missouri associations that represent cities and schools.
WM Financial Strategies is also available to meet with small groups, including
school boards and city council members, to discuss this topic.
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On November 26, 2005 the St. Louis Post Dispatch published the article "For schools, TIF is fight". The article suggests that although there are Tax Increment Financing areas that have favorable outcomes many result in a needless loss of revenues to school districts. Barely mentioned in the November 26th article is the proposed $62 million Tax Increment Financing in Sunset Hills. In this continuing saga, the City of Sunset Hills approved proceeding with the TIF after the project failed to receive approval by the Tax Increment Financing Commission. Now owners of more than 250 residences wait for the planned buyout in the midst of the developer’s inability to obtain financing. Homeowners may find themselves in a TIF purgatory where they are unable to sell there homes to the developer and unable to sell in the open market (who would want to move into an area scheduled for demolition). Not mentioned in the November 26 article is the fact that often a large portion of the Tax Increment revenue is from municipal sales taxes. (In general, 50% of the increase in sales tax after the TIF is formed). That represents a big tax loss to cities, assuming a development could be enticed to the community without TIF. What is mentioned in the November 26 article is the Book “The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation”, by Greg LeRoy that was released in July. (See a description of the book with excerpts.) Also mentioned is the Senate Interim Committee on Tax Increment Financing that is now studying Missouri Tax Increment Financing including the definition of "blight," Tax Increment Financing impacts, potential abuses, and the implementation of TIF in relation to the original intent of the legislation. The committee plans to issue a report and make recommendations to the general assembly for legislative action no later than January 20, 2006.
Maybe the answer to the Tax
Increment Financing controversy is not a matter of new legislation but rather
restraint and caution by municipalities.
[1/08/2006]
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Election Contributions May Equate to Pay-to-Play
Like many states, Missouri presently prohibits the expenditure of public
funds to support elections. While local governments may educate the public
on a referenda, Section 115.646 of the
Missouri Revised Statutes prohibits the expenditure of public funds to advocate,
support, or oppose any ballot measure. Underwriters and bond counsel
firms are also precluded from offering contributions to support bond
elections under Section 409.107 of the Missouri Revised Statutes.
Section 409.107 states "No investment firm, legal firm offering bond
counsel services, or any persons having an interest in any such
firms shall be involved in any manner in the issuance of bonds
authorized by an election in which the firm or person made any
contribution of any kind whatsoever to any campaign in support of
the bond election." 1) Reduce competition. Competition is reduced when an underwriter is selected based on the best bond election campaign rather than selected through competitive bidding. 2) Increase bonding costs. Bond costs are increased when an underwriter is engaged based on election campaign contributions (whether direct or indirect) rather than based on ability to provide lowest fees and interest rates.
To insure the lowest interest costs and best financial terms
for a bond issue, political subdivisions should select the parties to the
transaction that have demonstrated the highest
level of financial or legal expertise rather than firms with the deepest pockets
for election campaigns.
[2006] |
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WM Financial
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