WASHINGTON -- There is no immediate need for new federal legislation or regulation in the wake of Orange County, Calif.'s billions of dollars in derivatives losses, state and local government representatives and federal regulators concluded here this week.
Instead, the officials who met at the Treasury Department concentrated on what states and localities have been doing to develop investment guidelines and model investment laws to prevent communities from suffering similar losses.
The closed-door meeting included the President's Working Group on Financial Markets -- which contains officials of the Treasury, the Securities and Exchange Commission, and the Commodity Futures Trading Commission -- as well as representatives of several state and local government associations.
Officials who attended the meeting said participants agreed to work together to promote sound investment policies and establish safeguards.
"Indeed, significant attention has been paid by many governmental entities in enacting state legislation and developing investment guidelines, but recent losses by certain communities, while not indicative of systemic problems, indicate that further attention is warranted" the working group and state and local government representatives said in a joint statement.
But the group maintained that more review of the Orange County situation needs to take place before any regulatory or legislative measures are considered.
"I think the sense of the meeting was that we don't want to overreact and put things in place that may not address whatever problems are out there," said Betsy Dotson, assistant director for the federal liaison center of the Government Finance Officers Association.
Mary Schapiro, chairman of the Commodity Futures Trading Commission, agreed that there wasn't a drive among the meeting participants toward crafting new laws or stiffer regulations.
"We didn't really focus on that, we really focussed on what their concerns were," Schapiro said.
"We talked about what they've all been doing as associations in terms of providing investment guidelines and model investment laws," Schapiro said, adding that the meeting was more informational -- to put federal regulators up to speed on what state and local governments are doing.
"They reported more on what they've been doing so that we could all be up to speed,." Schapiro said. "I think it was a very constructive opportunity for us to talk to state and local officials about what concerns them."
The meeting comes just two weeks before regulators from the Treasury Department, the Securities and Exchange Commission, and the Commodity Futures Trading Commission are scheduled to testify before the Senate Banking Committee on the Orange County debacle.
State and local government representatives including the Government Finance Officers Association are also expected to testify before the committee.
"There are things [regulators] want to be able to cite at that time about existing practices and guidelines that are available," said Ralph Tabor, director of public policy for the National Association of Counties.
Tabor said the group's efforts will continue.
"There is no time set for another meeting, but we are going to continue meeting," Tabor said, "Things are moving so fast on the hill, we might have to call a meeting very quickly after ... the beginning of the session."
Meanwhile, many of the participants agreed that Orange County's problems were, if not isolated, at least an extreme case.
"The view is that this is not a systemic problem," said Reggie Todd, the National Association of County's legislative director. "Orange County is an individual situation and doesn't necessarly reflect what's going on in the country as a whole."
"The working group is aware of state's concerns in maintaining independence and making investment decisions, and hesitant to jump on the bandwagon for knee-jerk legislation," added Milton Wells, director of federal relations for the National Association of State Treasurers.
After addressing issues surrounding Orange County and state and local government initiatives at the meeting this week, regulators were pleased with efforts state and local governments have taken.
"Overall, I think the folks were pleased that we had already been aware, had issued guidelines," said Ron Tillett, treasurer of Virginia, who attended the meeting. "I do not think they will be quick to jump."
"One of the purposes of [the meeting] was to make [regulators] aware of all those things that are out there," Tabor said. "There are a lot of guidelines out there already and the [Orange County] problem is a small part of all the transactions that are going on," Tabor added.
For example, the National Association of Counties last week announced that it has established an advisory committee to survey what investment practices its member counties use. A report on that study is expected by early March.
In addition, a number of other organizations, including the Government Finance Officers Association and the National Association of State Treasurers, had released investment guidelines to their members prior to the Orange County crisis.
After the meeting, the federal government representatives "felt better about what state and local governments were doing," Tillet said adding that many attendees distributed copies of their investment policies or guidelines.
Next on the working group's agenda will be to get a sense of how widely these guidlines are being followed. "Orange County took place at the county level. There was a lack of oversight in the Orange County" situation, Tillet said.
The subject of bankruptcy is another area that may be addressed among the federal regulators and state and local government representatives.
Frank Shafroth, director of policy and federal relations of the National League of Cities, suggested that a subgroup of the committee be established to examine Chapter 9 of the U.S. Bankruptcy Code, which covers bankruptcies of municipalities.
"We've never really had a test of [Chapter 9] before" said Shafroth. He added that the code had been established to ensure that municipalities could continue to provide public services while sorting out financial difficulties.
Shafroth said the subgroup could investigate the Orange County bankruptcy to determine whether Chapter 9 operates as it was intended.
