ATLANTA - In a strongly worded letter sent last week to Securities and Exchange Commission Chairman Arthur Levitt Jr., North Carolina's longlime Treasurer Harlan Boyles denounced proposed federal regulations governing municipal market disclosure and campaign contributions as an infringement on issuers' rights.
Boyles' letter follows spirited objections earlier this month from a number of issuer groups - including the National Association of State Treasurers, the National League of Cities, and the Florida Association of Counties - to a proposed rule by the Municipal Securities Rulemaking Board that would severely limit bond dealers' political contributions to local officials. Before the MSRB proposal can be applied, it must first be approved by the SEC. Many issuer groups have also objected to a proposal being discussed at the Securities and Exchange Commission that would bar dealers from recommending outstanding bonds unless an issuer makes available ongoing information about its financial condition.
For some months now, we in public finance in state and local governments across the nation have been listening quietly and patiently to spokespersons from the SEC and the MSRB as they have bashed and tarred us all about perceived problems in the municipal bond industry," Boyles wrote Levitt in a five-page letter dated Dec. 7.
"These people, albeit with honorable intentions, are unquestionably creating measurable unrest and uncertainty in the municipal securities market - something that should not be permitted to continue," he wrote.
A spokesperson for the SEC chairman said yesterday that Levitt was traveling outside of the country and would not be available for comment, but that the letter had been received by the agency.
Boyles said yesterday in an interview that Levitt had not yet responded to his letter.
In his letter, Boyles described the proposal regarding campaign contributions as "little more than the reverse of special interest legislation."
"An attempt to ban political contributions by singling out state and local finance officers leaves much to be desired, particularly when the entire subject of political contributions is in dire need of serious attention," Boyles' letter continued. "Neither the SEC nor the MSRB have a role in regulating state elections."
Speaking of the proposal regarding disclosure, Boyles wrote: "To suggest that the issuer will covenant to provide continuing disclosure information about the issuer's finances and about ~activities' that might affect the value of its outstanding securities simply borders on total recklessness.
"The convenant is without workable definition and it overlooks the market risk that are association with all securities - including the securities of the U.S. Government," he continued.
Boyles also insisted that the Tower Amendment of the Securities and Exchange Act of 1934 "bars the SEC and MSRB from requiring public entities to file any documents whatsoever before the sale of the their securities; and it further prohibits mandating secondary market disclosure."
The treasurer then urged Levitt to seek a "clarifying opinion from the U.S. Attorney General" to remove "confusion' about the SEC and MSRB's authority over disclosure.
Boyles said in the interview that he had written the letter to Levitt because he felt that the proposals of the regulators "were becoming increasingly counterproductive and that it was important for me to make my views known."
But at the same time, the treasurer said that he strongly supports reform of both campaign donation laws and disclosure guidelines. "But I believe that the rules should not - must not - be imposed on us from without," he said.
Boyles said that he seeks "cooperation rather than confrontation with" the regulators. In this respect, he said, Boyles distinguishes his stance from that taken, for example, by the Florida Association of Counties.
The Florida Association of Counties distributed a sample letter calling for a boycott of the 17 large securities firms that have called for a voluntary ban on local campaign contributions. The group also said it was looking into the possibility of suing the federal regulators if the proposed rule become law.
Boyles said that he would not be in favor of a boycott of firms backing the regulators' proposals or of a lawsuit to contest a finalized set of regulations.
He said that the MSRB should be encouraged to continue its work on campaign contributions - but that plan should be developed in conjunction with the approach being put together by the National Association of State Treasurers.
As for disclosure, Boyles said that he advocates a four-point approach in lieu of the current proposals from the SEC and the MSRB.
He said that all issuers of tax-exempts should be encouraged to keep up credit ratings with at least two nationally recognized bond rating agencies. If such ratings are not maintained - or credit enhancement is not included with the bond issue - the MSRB should then limit sales of the securities to in-state buyers.
Furthermore, issuers should agree after Jan. 1, 1994, to provide secondary market information as prescribed by the national ratings agencies or other credit reporting organizations, as certified by the MSRB.
Thirdly, in lieu of the establishment of a new repository of secondary market information, the three nationally recognized bond ratings agencies should be urged to maintain summary reports to bond buyers in accordance with guidelines approved by the MSRB.
Finally, Boyles said that in developing published standards of secondary market disclosure, the MSRB should distinguish between the traditional public purpose debt and private activity debt created by conduit issuers.
"In looking at the conduit issues, we need to pay more attention to finances of those who are the recipients" of bond proceeds, he said.
Boyles has been North Carolina's treasurer since 1976.