Some bond issuers are not keen on disclosure, comments pouring in to the Securities and Exchange Commission made clear last week. They don't want to make public all the information that the commission thinks they should, and, to us, their reluctance is regrettable.
Publishing all the data and information that the commission has deemed appropriate for interested investors will be costly and will chill political debate, officials from local issuers warn. Others think that disclosure should be analyzed more carefully and the costs and benefits understood more precisely. The arguments against change go on and on.
These cries of distress seem excessive. How can a city or county or authority be big enough to borrow millions of dollars in the bond market and not have financial procedures in place adequate to run that government? If a city keeps books, it ought to be able to publish annual financial statements for municipal bond investors without too much trouble. Of course there will be some added expense -- but don't cry wolf.
If an issuer is reluctant to disclose information, it should stay within a state's borders and not participate in the interstate securities market. The secondary market for the bonds would have to be intrastate, too, and the limitation would probably crimp demand for the securities. But the point is, if a bond issuer wants to play in the big game, it must play by the rules, and fundamental rules of modern capital markets require disclosure of information. Corporations have understood the reason behind this rule for half a century (although they had to be forced to disclose, also), and it's time governments grasped its importance.
The argument that disclosure will hamper political debate is specious. Sharpe James, mayor of Newark, N.J., and president of the National League of Cities this year, argues that the SEC ought to distinguish between standard political rhetoric and language specifically designed to mislead investors. By this odd standard it would be okay to defraud voters but not investors.
These arguments make too much of potential difficulties. It's 1994 and time for municipal bond issuers to join the modern capital market. When issuers sell bonds, they should publish annual financial reports while the bonds are outstanding, and they should disclose any "material events" affecting those bonds. That's not too much to ask borrowers.