WASHINGTON - What should be done to improve the regulation of the municipal market and what actually will be done are two very different matters.

As discussed in this column last week, the ideal way to protect investors and maintain confidence in the entire market would be to set up a system of mandatory disclosure that applies to all issuers and that subjects all market participants to a tough negligence standard.

But when faced with political reality, Congress and federal regulators will only apply a bandage to the current system.

Here's why.

First of all, not enough investors and taxpayers have been hurt by the current problems of insufficient disclosure and political influence peddling for Congress and regulators to take radical steps.

Secondly, there has not been enough publicity about problems in the market to convince rank-and-file members of Congress to repeal the Tower amendment, which prohibits the Securities and Exchange Commission from requiring registration of municipal securities and generally protects issuers from being told what to disclose. Even the slightly sensationalized cover story on munis last week in Business Week is unlikely to goad Congress to act.

The third and biggest reason for inaction will be the issuers themselves. Whatever volume of phone calls Congress gets from investors will be shouted down by calls from thousands of issuers who will argue that any form of mandatory disclosure will only drive up costs and impose a greater burden on taxpayers.

The likelihood of those calls has already had an effect.

Rep. John Dingell, D-Mich., the chairman of the House Energy and Commerce Committee, which controls securities legislation in the House, said on Aug. 5 that repealing Tower would impose "enormous" costs on issuers and "most of what needs to be done can be accomplished within the current regulatory structure."

Richard Roberts, an SEC commissioner who has become the champion of improving municipal disclosure, indicated two weeks ago that the SEC won't push for a repeal of Tower and, at best, may ask Congress to clarify that the commission has authority over municipal bond issues through its regulation of dealers.

At the same time, he said the SEC is likely to try to use its existing authority over dealers to indirectly force issuers to improve their disclosure practices. The commission would prohibit dealers from selling bonds to investors if they don't have current financial information about an issuer.

Meanwhile, the SEC and Congress are unlikely to try to do anything about political contributions and probably will stop at backing the Municipal Securities Rulemaking Board's proposals to control dealers' contributions to bond issuers.

In the end, the SEC, through the MSRB, is likely to tighten the regulation of dealers a little more and require them to do the job of forcing issuers to improve their disclosure.

Beyond that, probably not much will be done.

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