There will be plenty of Issuer activity as today is the Due Date for the MCDC Initiative. In today’s edition, we discuss “lessons learned”…and much more….
CURRENT EVENTS
SEC News this Week…
SEC Seeking Comments on Disclosure Rule (B Buyer, November 24, 2014)
On November 18th, the SEC posted a request for comments on “collection of information”, including the number of respondents, their individual burden and the total burden involved for collecting required information.
The request for comments is required by the Paperwork Reduction Act of 1995.
The SEC included the following estimates for meeting the requirements of Rule 15c2-12:
- 20,000 issuers, 250 dealers and the MSRB would spend 115,000 hours on it
- Issuers would spend 45 minutes preparing and submitting a material events notice and 30 minutes preparing notices regarding earlier failures to file
- 65% of Issuers use designated agents for this reporting, at a cost of $9.75 million annually
- Broker-dealers spend 300 hours annually on 15c2-12 compliance, or 1.2 hours per dealer
Given the Intense scrutiny and effort required by both underwriters and issuers since March for the MCDC under Rule 15c2-12, these time estimates may seem a bit light.
Since continuing disclosure became a requirement of 15c2-12 in 1994, it has been amended twice – with the last revision making EMMA the sole information repository.
However, the SECs 2012 Report on the Municipal Securities Market recommended increased information in Official Statements as well as agreements requiring expanded continuing disclosure items. These are still on the table…
Comments can be made on the estimates, whether the information being collected is necessary for the SEC to fulfill its mission or on ways to improve the process.
More IRS Audit News…
IRS Auditing East Bay Municipal Utility District Bonds (Fidelity.com, November 26, 2014)
In two separate IRS Notices, East Bay Municipal Utility District, which is located in the San Francisco-Oakland metropolitan area, was notified that three separate series of their water bonds, totaling $666.73 million, and issued between 2003 and 2005 respectively, are being audited.
The 2003 Bonds for $41.73 million, which were fully retired in April 2014, were originally authorized in 1970 – and were used to refund bonds in 1993.
The second notice covers the 2005AB Bonds. $300 million in new money bonds were issued as 2005As and financed water system improvements, while the $325 million 2005B Bonds, which were issued as VRDBs, refunded 1996 and 1998 bonds. The 2005B Bonds were retired in full in 2008.
In the notice filed on EMMA, the District disclosed that this is a routine IRS audit and that it does not have any reason to believe there are any tax problems with the bonds under audit.
OUT & ABOUT
Lawyers Group Warns SEC Charges Will Hurt All Muni Officials (BBuyer, November 21, 2014)
The International Municipal Lawyers Association (IMLA), a non-profit group representing governments, has filed a friend-of-the-court brief on behalf of Mr. Boudreaux, their budget director and the City of Miami in the case where the SEC charged them with securities fraud last year.
In the suit, the SEC alleged that the city made “numerous material misrepresentations and omissions to investors” in 2009 bond offering documents and financial statements and that Boudreaux facilitated further “wrongdoing” by masking budget deficits.
Boudreaux is claiming “qualified immunity” in his role as a government official and both he and the City vow to clear their names.
IMLA’s executive director and chief counsel, Charles Thompson, signed the letter urging that the SEC ruling be reversed, warning it is an “overly broad and ill-advised conclusion that will have severe effects on the ability of municipalities to recruit talented candidates into municipal service, and on the ability of municipal employees to make discretionary decisions, without hesitation, especially when the law is not clearly established.”
The case against Boudreaux and the City are on hold, pending the appeal.
Conferences/Events for the rest of 2014: No conferences or events in December 2014
Conferences in early 2015:
The Bond Buyer’s National Outlook 2015 Conference, January 27, 2015
Metropolitan Club, New York, NY
The Bond Buyer’s Texas Public Finance Conference, February 9-11, 2015
Omni Barton Creek Resort & Spa, Austin, TX
Today is the Day… the MCDC Initiative Filing Deadline is Here
After months of headlines, requests for clarification, participant effort and, in many cases, a huge amount of frustration and chagrin, the Issuer deadline for voluntary reporting under the MCDC Initiative is here.
As shared in prior weekly MMM issues, the entire tax exempt bond community has rallied and worked diligently to review their disclosure. NABL, GFOA, numerous professional firms as well as the Bond Buyer and other financial news organizations have been right there beside us.
A big unknown I keep hearing is what to expect going forward as the SEC crosschecks and compares filings from both the underwriter and issuer….it’s a great question and one I will keep watching closely for you.
So, what are the key takeaways and possible next steps?
~Key Takeaways~
- First, post issuance compliance and continuing disclosure needs to be a priority
- Did you work with your underwriter and determine what they reported?
- Did you also review independently for misstatements – and did you report?
- How functional is your compliance program?
- What pieces, if any, of your program need to be updated and improved?
- How can you best accomplish these goals, while meeting workflow needs?
- The SEC, along with the IRS, will continue to scrutinize our bond compliance
- Dodd-Frank provided mandates for increased municipal bond transparency
- A couple of key cases have already been highlighted in prior MMM issues
- Increased enforcement has already been announced for 2015
- Several interesting and key IRS audits are making the news – many in the 2005 to 2009 issue date timeframe
- A smarter, team approach may be the best solution to achieving long-term success
- Working with your underwriters, bond counsel and other professionals
- Education will also be crucial as rules and requirements continue to change
- Streamlining, monitoring and automating processes where possible
~Next Steps~
- Take a deep breath…
- Determine, what improvements, if any, you need to make in your program
- Prioritize these improvements – with timelines
- Update your post issuance compliance policies and procedures
- Teamwork: gather key stakeholders and develop a workplan to implement them
- Meet regularly until the workplan is complete
- Bring in experts as needed – including your bond and tax counsel if issues are uncovered
- REMEMBER: Use the issuer 2 issuer e-library to tap into key resources and tools
Next Steps Survey Results Update
First, thank you for your amazing responses to the survey! In that today is the due date for the MCDC Initiative, the timing is perfect to focus and transition to next steps.
Regis (our IT guru), although he does not understand exactly what bond compliance is (just that it is obviously really important stuff), was pretty surprised by the volume and thoroughness of your comments…because you are just that good!
Due to the sensitive nature of some of your responses (and to protect your privacy), I will be sending a special, private “Next Steps Survey Results” e-mail tomorrow to current Issuer 2 Issuer members only with aggregated key findings, including what areas you want to improve and our next steps….
Call me overly cautious, but I still worry about the dreaded e-mail gremlins. If you are an Issuer member and do not receive an e-mail from me on Tuesday, please reach out to me directly, OK?
Again, thank you for being so candid about your compliance needs – together, we can make your program stronger and more efficient, while dramatically reducing your audit risk.
We hope you enjoyed this week’s edition of the Monday Muni Minutes. As always your comments are welcome…
To your compliance success,
Debbie
The greatest compliment you can pay us is to share this newsletter with your issuer friends….
P.S. For Issuer 2 Issuer members, check your e-mail tomorrow for exclusive results to our next steps survey….and find out the key next steps!
P.P. S. Want a one-click way to get faster information? If you are on LinkedIn, you can get access to breaking muni news articles as well as interesting compliance tips and resources, posted by us several times a week. Join our private Group Page, and follow us on our Company Page.