WASHINGTON -- In the latest round of an escalating turf battle, Rep. John Dingell has cautioned that proposed legislation aimed at curbing influence peddling and improving disclosure in the municipal market is "fatally flawed."
The Michigan Democrat, chairman of the House Energy and Commerce Committee, fired this warning shot in an Aug. 5 letter to House Speaker Thomas Foley that was released yesterday.
Dingell said his panel will ignore the legislation introduced on June 18 by Rep. Henry Gonzalez, D-Texas, the chairman of the House Banking Committee, and Rep. Jim Leach, R-Iowa, the top Republican member of the panel.
Dingell said the proposed measure that would repeal the so-called Tower amendment takes a "meat-axe" approach to problems in the municipal market and could lead to "enormous" costs for the American taxpayer.
The Tower amendment to the Securities Act Amendments of 1875 bars the Securities and Exchange Commission and the Municipal Securities Rulemaking Board from requiring issuers to file any documents prior to the sale of their securities. Further, it prohibits the MSRB from mandating secondary market disclosure by issuers.
The Gonzalez-Leach bill, H.R. 2464, would also require underwriters, bond counsel, and dealers to disclose all political contributions "made for the benefit of the issuer."
In his letter, Dingell wrote, "The Committee on Energy and Commerce is engaged in an ongoing comprehensive examination of the municipal securities market and the current scheme of regulation, along with the need for remedial legislation.
Dingell's panel also plans to conduct hearings in September on whether new legislation is needed in the municipal arena, including whether Tower needs to be repealed in whole or in part.
"We intend to work with federal and state regulators and market participants in order to achieve reasonable, balanced, and targeted reforms," the letter says. "A meat-axe approach is unwarranted and unwise. The costs to municipal issuers, and therefore to the American taxpayer, could be enormous,"
Dingell said that if the panel's review points to the need for the remedies focused specifically on bank dealers, then the committee will ask for the Banking Committee's advice.
"However, all indications are that most of what needs to be done can be accomplished within the current regulatory structures. We will seek only such changes concerning issuer disclosures, for example, as are specifically targeted to addressing those problems that are identified and documented on the record," Dingell said.
Dingell's letter marks the latest round in a jurisdictional fight between the panels that began last year over government securities legislation. The fight continued this year when Leach and Gonzalez introduced the municipal securities measure and House officials referred it to both the House Banking and the House Energy and Commerce committees for review.
The energy and commerce panel chairman's refusal to take up the banking panel's bill diminishes considerably its chances of being cleared for a vote on the House floor.
But the move could spell similar difficulties for any bill Dingell may introduce -- if such a measure gets jointly referred to Gonzalez's panel. Gonzalez can, like Dingell, refuse to review the bill, leaving its future prospects up to House parliamentarians.
A rift between Gonzalez and Rep. Edward Markey, D-Mass., chairman of the House Energy and Commerce Committee's securities subpanel, resulted in the last-minute abandonment last year of proposed reforms in the government securities market. The panels battled over whether bank regulators or the SEC should have authority over bank dealers in the Treasury market.
"I don't know if there's a jurisdictional [problem] because I haven't seen" Rep. Dingell's letter on municipal bond jurisdiction yet, a Gonzalez aide said when asked about the latest exchange between the panels.
"But municipal securities are bank eligible. That's why the leadership made a joint referral" of the Gonzalez-Leach bill covering the municipal securities market to both committees, the aide said.
Dingell's letter charges that the disclosure requirements in the Gonzalez bill would be "mistargeted." Requiring the SEC and bank regulators to set up a processing system just for municipal securities-connected political contributions would be "burdensome," Dingell said.
Also, H.R. 2464 would require disclosures of political contributions to be filed only with the SEC and the bank regulators. "To make this disclosure generally available, it should be included in municipal securities offering documents, and thus publicized to investors" and included in the MSRB's Municipal Securities Information Library, Dingell continued.
He said the disclosure provisions in the Gonzalez-Leach bill would be too narrow since they would require underwriters, bond counsel, and their affiliates to disclose their gifts to issuer candidates, but not financial advisers. Also, the amount of information to be disclosed under the bill is "excessive," Dingell said.
For instance, he said, the bill would require disclosure of any provision of services of value to the issuer, officials, and employees of the issuer, their affiliates, and their political parties.
"These requirements would cover, for instance, any insurance policy to be carried by Equitable for any state of California employees if Donaldson, Lufkin & Jenrette Securities Corp. underwrote any California municipal bonds," Dingell charged.
Heather Ruth, president of the Public Securities Association, said she had no comment on the Dingell letter.