In 1991, several members of the National Association of State Treasurers met in Nashville and decided to form a group designed to improve debt management for its membership.
Although most of the interested members were uncertain about the composition and goals of the group, they did agree that it was becoming increasingly important to have open lines of communication among the states.
Under the leadership of former Texas Treasurer Kay Bailey Hutchison and the current treasurer of Louisiana, Mary C. Landrieu, NAST's State Debt Management Network was established.
"The group was established and grew out of a perceived need to get more people involved in the debt management of a state," said Milton T. Wells, director of the association's office of federal relations. "It was designed to help state issuers or entities that issue for states to communicate with one another."
The network, now with a membership of about 55 state and local finance officers, dominated the early part of this year's national conference of the association, which began Saturday and runs through Wednesday in New Orleans.
The debt network is the second such group within the national treasurers association. The other is the College Savings Plan Network.
Wells said that the association's relationship with the networks is similar to that of a parent company with its subsidiary.
"We don't really act as a regulatory commission overseeing the network," he said. "NAST is there to advise the network and improve the communication between the debt-issuing entities in the states."
Wells said that if the network were strong enough to branch out into a separate association someday, NAST would be supportive.
Currently, the association provides the network with staffing and support, as well as a national forum where state financial officers can communicate their feelings and concerns about the municipal arena.
NAST also gives the state leaders a centralized repository and sounding board for what they see as the dominant trends in the municipal market.
"The Government Finance Officers Association does an excellent job of addressing the concerns of the local and smaller issuers," said Sally Thompson, Oklahoma's state treasurer. "The need for [the debt management network] arose out of the fact that the treasurers and lead debt people needed a place they could vent their concerns."
The network's membership is broken down into three sections. The first is made up of 37 voting representatives from 29 states. This group includes the one person from each participating state that is ultimately responsible for issuing the state's debt.
The network also has a group of nonvoting associate members and a group composed of corporate sponsors and academics.
The voting group, which has grown from 16 states in 1991, is almost evenly divided between state treasurers and state debt officials. The current president of the group is Ann V. Butterworth, director of bond finance for Tennessee.
"States have not been particularly proactive in the way they handle the issuance of debt," Butterworth said in an interview last week. "The network will help create debt managers that are more willing to change their states' issuing techniques."
Butterworth said that in Tennessee the appointed and elected officials have always attempted to have a good and open relationship and that has helped communication on debt sales.
But she acknowledged that in several states, an outside network of advisers on the municipal finance industry could be an invaluable asset to selling bonds.
Thompson agreed and said that the difficulty of knowing what elected officials will do makes it hard to predict what choices will be made in regard to the issuance of state-supported debt.
The fees for joining the network are negligible. For voting and corporate members, the fee is $200 per year. For associate members, the fee is $50 per year.
Thompson said that before 1991, the debt management network was only a small group within the larger body of NAST, similar to the groups the association has on property retrieval, banking, and pensions.
But, she said, although all the states did not voice a need for expanding the role of those committees, it was almost unanimously decided that debt management required more attention.
"There were a lot of issues that were not being addressed and could not properly be addressed, given the financial constraints of different states," Butterworth said. "This gives everyone a chance."
She said that one of the main problems facing debt managers before the creation of the network was accessibility to other finance professionals.
She said that it is difficult to justify sending a member of a state finance staff to a conference where only two or three panels were applicable to that staff member's responsibility.
"We would love to be able to go to a lot of conferences," Butterworth said. "But, in 1991, when we started this system, there was not a lot of extra money floating around for conferences."
She said that the network has attempted to schedule its meetings over a weekend to save money on airfares. They also held last year's annual network meeting over the Veterans Day holiday weekend so people would miss less work.
Every other year, the network's annual meeting coincides with the national meeting of NAST. Last year's network meeting was held in Overland Park, Kan., and this year's session ran last Friday through yesterday at the Hotel Intercontinental in New Orleans.
According to Thompson, one of the chief roles of the network is to provide debt managers with a forum to voice their concerns and gripes about the municipal market.
"One of the items that we are concerned about is ratings," Thompson said. "Sometimes a meeting with a rating agency official is not the time to voice concerns about costs and how credits are evaluated."
She said that the network has allowed debt managers the opportunity to discuss among themselves how ratings are chosen and what individual issuers might do to improve their ratings.
Issues for Discussion
"Why is it that a highway authority or a school authority or even a state that appears to have similar strengths is rated differently from another?" she asked. "The network has allowed us to compare and contrast."
Thompson said state debt managers' biggest concern is to know what lies behind their ratings.
"Is there one person who ultimately decides on a rating?" she said. "Who is handling general obligation issues, or transportation issues, or schools? Many times we aren't told at all."
She said the network has also been an effective tool in deciding which rating agencies an issuer can and cannot bargain with on pricing.
The other topic that has been discussed is the prevalence and importance of bond insurance in the issuance of state debt. Thompson said the insurance side of the market is being constantly assessed by the network.
This year, the focus of the network's meetings is squarely on educating the masses.
Earlier this year, Securities and Exchange Commission Chairman Arthur Levitt Jr. said that one of his concerns about the industry is the general lack of basic knowledge in the issuer community.
"The majority of the people in state government gained experience with bonds in the public finance arena," said Janet Rzewnicki, treasurer of Delaware and head of the network's education committee. "That is not a sufficient way to learn about what a state needs to do to properly issue debt."
All of the senior members of the network said that education was the most important duty for 1994.
"So far, the network has served a very important role by getting governors, treasurers, and other finance people together on important issues in municipal finance," said Marshall G. Bennett, treasurer of Mississippi and the president of NAST for 1994. "As the Municipal Securities Rulemaking Board and the SEC get more involved in the day-to-day workings of the municipal industry, we will all have to be aware of changes in the rules."
This year, the members will be treated to seminars including the pricing of issues and the proliferation of derivatives.
"The amount of time we are spending on derivatives should tell you how important this issue is for us," said Rzewnicki. "Every public finance official needs to know this information."
Rzewnicki said that the future role for the network is education. She said she would like to see the network help create an accredited program at a university that would give credits to state officials who complete course work on municipal finance.
An Education Mission
Bennett of Mississippi agreed that such a program has a great deal of potential.
"I want people at all levels of state government to be as well prepared as possible for the changes in the industry," he said. "I recommend we start a public finance institute at some university."
Wells of NAST said that the more education there is, the more "the network moves toward full bloom."
Rzewnicki will be joined by Virginia Treasurer Ronald L. Tillett in investigating the establishment of an educational institute.
"The technical programs established by the network have all been fairly exciting successes," Tillett said last week. "I'm very excited about bringing these programs to more states' officials."
Another method currently employed by the network to improve the communication and get their message out is through a newsletter. In it, different states report on their experiences with bond sales and provide phone numbers for other state leaders to contact a person involved with structuring the deal.
For example, the most recent issue, published last March, discussed a $431 million advance refunding undertaken by the District of Columbia, California's recent selection process for its negotiated financings, and Louisiana's recent refunding of debt for the Superdome in New Orleans.
Each listing described the sale and provided the name and number of a senior contact person in that state's debt management office for questions.
"Through these contacts, we in Mississippi have been able to get information on improving our depository and repository relationships and also gained insight about how to better invest the proceeds from our bond sales," Bennett said.
Ideally, if the group's membership continues to grow, it could splinter off into another association. For now though, the network works best with the help and staffing of NAST.
"It would not be possible for us to be a vital and growing organization without NAST's help," Tillett said. "But, if we continue to grow at this rate, I can see us eventually branching off."
