WASHINGTON - The National Association of State Auditors, Comptrollers and Treasurers announced Friday the creation of a blue ribbon panel to improve the collection of secondary market disclosure information within states.
The panel includes officials representing states, rating agencies, dealers, major buyers, and issuers, according to the group, which made its announcement at a press briefing where it released a 20-month study of 14 states' disclosure practices.
Association officials said the panel is needed because state agencies collect a "tremendous" amount of ongoing information that is not assembled in a central place and is often not comprehensive or timely.
The panel will explore the possibility of states passing legislation that would require issuers to file specific reports to a central location in their state.
An association official said the group's announcement Friday was not intended to upstage the Municipal Securities Rulemaking Board's pilot system for continuing disclosure information, which is tentatively set to be launched this Friday. "CDI" will collect three-page disclosure notices on a voluntary basis from bank trustees electronically, by facsimile machine, or through the mail.
"It's totally coincidental that CDI is coming on-stream," said group executive director Relmond Van Daniker. His group opposes CDI on the grounds that it will preempt state efforts to upgrade secondary market disclosure and that it will not work because it is not mandatory.
Association officials said they are announcing the panel and releasing the study in time for the group's annual convention next week in Louisville, Ky.
One market observer said the state-by-state system will not sit well with issuers because it will give comptrollers and other state financial officials new leverage over locals. "They will have muscle over issuers," the source said.
But Catherine Spain, director of the Government Finance Officers Association's federal center in Washington, said the group's project will help identify where disclosure problems really exist.
"Many government officials were surprised to learn that there are concerns in Washington about disclosure," she said, noting that many states already require locals to submit audited financial reports. "But there are some segments where the practice is not quite that good. [This] may focus the attention on where the problems are rather than where they are not."
"NASACT should be applauded," Christopher Taylor, executive director of the MSRB, said. "I do not think that it is in competition with us. I think the objective everybody has is to get more secondary market information out there. "I'm not going to comment on [what] 50 states should do. The board is of the view that voluntary efforts should be given a chance. That's what CDI is based on. If others choose to come to the conclusion that it will not work unless mandatory, that's for them to decide," he said.
Moody's Investors Service and Fitch Investors Service underwrote the costs of the association's study, which examines data collection in Arizona, California, Colorado, Florida, Indiana, Massachusetts, Michigan, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, and Washington.
"The study found that a considerable amount of information is collected by various state agencies concerning state and local governments and their securities," the group said in a statement. And while much of the information is used by the marketplace, "state information sources are often overlooked," the group said.
Many states have taken the initiative to make the information available to the marketplace through mailing lists, responses to telephone inquiries, and open access to records and data, the association said.
But more information appears to be available for general-purpose units of government and their operations than for special-purpose units, institutions without general purpose government oversight, and conduit issuers.
The group said there is sufficient information for 90% to 95% of the dollar volume of trades in the secondary market. Large and frequent issuers typically have official statements within one year available at any time and provide timely audited financial reports, press releases, and market advisories.
But small and infrequent issuers provide less timely audits, reports, and other information, and are less capable of providing continuing current information. For such issuers who come to market infrequently, the group warns that the costs of collecting benefits may outweigh the benefits.
The study identifies eight types of government agencies where information typically can be found, including the comptroller; the treasurer; auditors; departments of health, education, community affairs, and revenue; and state university data centers.
But it concludes that "state and local government financial officials must take greater responsibility in meeting statutory, regulatory, and market information requirements by providing accurate, timely, and relevant information."
"Some reports, such as audited financial statements ... are often not available until at least 60 days, sometimes as long as six months, after the close of the fiscal year," the association said, citing staff shortages as the culprit.
As for completeness of reports, "while cash basis reports may be available earlier than audited financial statements, these may not include important accruals and have not been independently examined for accuracy, completeness, and conformance with reporting requirements." Moreover, interim reports typically do not include accruals, may not include information on all component units, and are not audited, the group said.
"In some instances, state agencies which collect local government financial reports do not receive a complete collection until almost a year after the close of the unit's fiscal year," the association said. "This delinquency delays or prevents the release of comprehensive, comparable, and complete reports for categories or reporting units. Occasionally, some units fail to file reports with state agencies."
The association said there is generally no single state agency that maintains issuer information in a centralized manner. People need to poll several state agencies to obtain the information they want, the group said.