WASHINGTON -- Five groups representing municipal bond issuers groups said yesterday that regulators should take a "measured and targeted approach" if they call for new legislation or rules to protect municipal investors.
The plea was made in a four-page letter to the Municipal Securities Rulemaking Board, the Securities and Exchange Commission, and the National Association of Securities Dealers by executive directors of the Government Finance Officers Association, the National League of Cities, the National Association of Counties, the U.S. Conference of Mayors, and the American Public Power Association.
Accompanying the letter was an 11-page background paper outlining the groups' concerns about increased federal regulation of the municipal market.
The municipal market is not in "a chaotic condition" that would warrant "radical change, " the groups told regulators.
Regulators are studying whether new rules or legislation are needed in the municipal arena at the request of Rep. John D. Dingell. D-Mich., and Rep. Edward J. Markey. D-Mass., who were prompted by recent scandals over the selection of politically connected underwriters.
Dingell, who chairs the House Energy and Commerce Committee, and Markey. who heads the panel's subcommittee on telecommunications and finance, are expected to schedule oversight hearings this fall on the municipal market.
One issue being studied by Congress is whether it should repeal the Tower amendment to the Securities Act Amendments of 1975. The Tower measure bars the SEC and Municipal Securities Rulemaking Board from requiring issuers to file any documents before the sale of their securities and further prohibits the MSRB from mandating secondary market disclosure by issuers.
"These appeals to modify the Tower amendment as a response to concerns about underwriting and marketing activities confound us." the groups said. "The Tower amendment deals with disclosure of financial ... information to investors about the issuer, not the disclosure of political contributions."
"Repeal of Tower would simply clear the way for Washington to impose complicated federal standards for every aspect of the municipal disclosure process and impose new federally mandated costs on state and local governments," the letter says.
Repeal also would raise a hornets' nest of implementation problems. the groups said. noting that the composition and mission of the Municipal Securities Rulemaking Board might have to be reexamined by Congress. It also raises questions whether other market participants should be regulated, such as bond counsel and financial advisers, the groups said.
Repealing Tower also raises "serious concerns" about states' right to govern their own affairs, the issuers said.
The groups said regulators are considering whether to ban contributions to officials involved in the debt issuance process, require certain market participants to file information about contributions with the SEC or bank regulators, require underwriters and brokers and dealers to report contributions to the MSRB, and require disclosure of political contributions in an official statement.
But, like a repeal of Tower, these approaches are riddled with problems, the groups said. Banning contributions could violate the First Amendment guarantee of free speech. they said.
And how do regulators define which elected officials should be subject to the ban?. they asked. "For example, in a city financing, should the ban apply to the mayor. elected treasurer, elected comptroller, and all members of the city counsel?" the letter asks.
The groups said 25 states already place limits on campaign contributions in some form. And 25 states require statewide, county, and municipal candidates to report to a state agency about their contributions. Forty-eight states require political action committees to report to a state agency. "Why should this information be duplicated at the federal level?" the groups asked.
They also noted that New Jersey and Florida already have bans in place concerning political contributions.
But public interest groups contend that while states have laws requiring the disclosure of political contributions to state agencies, it would be a Herculean effort to wade through widely differing state collection procedures to pull the information together. For instance, they say, states frequently do not require those individuals giving contributions to record their occupation and employer.
The five issuer groups said, however, that the purpose of municipal bond disclosure is to provide information to the market in connection with the sale of bonds. "Campaign contribution data may be relevant to the local press and to taxpayers of the jurisdiction, but its relevance to investors is dubious." the groups' letter says.
The groups said that before regulators propose limits on negotiated sales they should consider the effects on small issuers who may not have sufficient access to the market to sell their offerings competitively.
The groups conceded that negotiated offerings represented 80.9% of the dollar volume of the market in 1992 -- a figure that suggests "that the pendulum may have swung too far."
They added that the "extent to which the role of political influence contributed to the large increase in negotiated sales is not known."
But the groups said that if the information is compiled by the total number of issues rather than dollar volume. the percentage of negotiated deals would be smaller and would represent only 66.3% of the deals in 1992. For general obligation deals only, total number of negotiated issues in 1992 declined to 48.9%.
Despite their concerns about all of these issues, the groups said they support the effort by Congress to study the adequacy of current laws.
