SANTA FE, N.M. -- Western state treasurers arriving here for their annual meeting are expressing both support and disdain for a proposal by the Securities and Exchange Commission to increase municipal market disclosure.
While some treasurers favor the proposed rule change, others believe the SEC could become involved in state and local government bond issuance practices beyond what is necessary to fulfill the agency's investor protection and antifraud responsibilities.
As a result, most treasurers are responding forcefully to the proposal for amending Rule 15c2-12 of the Securities Exchange Act of 1934.
The SEC is proposing to bar dealers from underwriting bonds unless the issuer has pledged in writing to provide ongoing disclosure to a national repository. The commission has also proposed prohibiting dealers from recommending bonds to customers unless they have reviewed an issuer's financial statements.
"Disclosure for a state treasurer is not a difficult issue because we issue debt and financial statements all the time," said Nevada Treasurer Robert Seale, who on Dec. I begins a one-year term as president of the National Association of State Treasurers.
Disclosure "is an issue of key concern to Nevada because there are a lot of small government districts that would have a very difficult time" providing continued disclosure to a recognized repository as proposed by. the SEC because of the cost and other factors, Seale said.
"It is the smaller entities that will be crushed by this," Seale said. "We believe in disclosure, but there have to be exceptions that don't bankrupt some of the smaller entities."
Because of their concerns, the treasurers of California, Oregon, Utah, and Washington State, -- four of the 13 state treasurers who belong to the Western State Treasurers Association -- submitted detailed comments on the proposed rule changes to the SEC before its July 15 deadline. Other Western state treasurers wrote their congressional delegations, and some said their views were represented in comments to the SEC by their national association's office of federal relations in Washington, D.C.
"We would like to be more proactive than reactive with these issues," Scale said. "The SEC is putting us in the reactive mode."
Disclosure is "going to be a huge issue" for Western state treasurers at their four-day annual conference which began Sunday at the Eldorado Hotel here, Seale said.
At its annual meeting in New Orleans in July, the National Association of State Treasurers passed a resolution urging the federal government to adhere to the prohibition on regulation of state and local government issuers that is contained in Section 15B(d) of the Securities Exchange Act, also called the Tower Amendment. The amendment limits the regulatory authority of the SEC and the Municipal Securities Rulemaking Board, the industry's self-regulatory and rule-making body.
The national treasurers' resolution said "form and content of municipal disclosure, as well as decisions on appropriate information repositories, shall continue to be the primary jurisdiction of state and local governments, with a limited role for the federal government."
Earlier this month, the national treasurers group declined to add its name to a joint letter to the SEC that was signed by 10 public and private interest groups, which included the Government Finance Officers Association and the Public Securities Association.
However, Milton T. Wells, director of the office of federal relations of the National Association of State Treasurers, said the treasurers association "probably will endorse items" in the 27-page comment letter that the so-called Group of 10 sent to the SEC Aug. 11.
"We want to emphasize the costs for local governments" to implement a system that would provide bond-related information, he said. States already do the things being talked about by the SEC, Wells added.
A number of Western state treasurers said they support the SEC disclosure rule as it now stands.
Some state treasurers view disclosure "as a cumbersome thing," said Lydia Justice Edwards, Idaho's state treasurer. "I don't think they [the SEC] are an enemy. I've taken their suggestions to heart."
Idaho has had a repository since 1988, and the state has "adopted all of the suggestions of the SEC" contained in Rule 15c2-12, Edwards said. "I have been out in front, pretending it is a parade," she said.
Eugene Imai, director of finance for Hawaii's budget and finance department, said his department looked at the SEC proposal and "we thought, on a theoretical basis, it is a reasonable request." The finance director serves as state treasurer in Hawaii.
"It is like motherhood," Imai said. "It is very hard to be opposed to it. I don't think we could speak against the issue of whether there should be disclosure."
Gail Schoettler, Colorado's treasurer, said she believes the National Association of State Treasurers was too "vociferous in opposing the SEC rule. I thought the assumptions on which the rule is based are pretty accurate. I think the SEC is on the right track."
Schoettler said she was one of the treasurers who did not send a comment letter to the SEC. "I thought the issue had been debated endlessly and that the issue has been resolved. My two bits wouldn't make much difference one way or the other."
The state treasurers association was one of 12 associations last December that sent a joint statement to the SEC recommending changes in primary and secondary market disclosure. The statement served as a blueprint for the rules and legal interpretation issued for comment by the SEC in March.
In an effort to help investors by getting local and state governments to disclose facts about municipal bond issuance in greater detail and with more speed, the SEC on March 9 formally proposed amendments to Rule 15c2-12. The rule, approved by the SEC in June 1989, brought a new emphasis to underwriter responsibilities in municipal securities offerings and encouraged the voluntary creation of private central repositories to provide marketplace information.
The SEC's deadline for comments on the amendments expired July 15, and hundreds of comments were sent to the commission by that deadline. But SEC spokesman John Heine said last Friday that the SEC staff remains receptive to additional market suggestions on its proposal.
"I don't think anybody has a feel for when that [rule] will be finalized," Heine said.
