Key Highlights this Week!
- IRS & Treasury Priority Guidance Plan for 2016 – What is the Muni Focus?
- Municipal Advisors – What the growth and New Rules may mean for issuers…
- Solving the Compliance Puzzle – Line 5 this week is Transparency!
- Ending Soon! A bonus gift for new PIC Essentials members…
So…here goes…today’s Monday Muni Minutes!
Enjoy and have a great week! Deb
CURRENT EVENTS
Muni Advisors – What Growth, Change and More Rules Means…
There has been explosive growth in the Municipal Advisor (MA) arena (often referred to as Financial Advisors or FAs) over the last 30 years – but with that growth comes change along with increased focus on regulations and rules.
Growth and Change
This transformation really kicked into high gear with the adoption of Dodd-Frank in 2010, when MAs were first subjected to having a “fiduciary duty.” This escalated when the SEC adopted its 
final MA Rules in 2013. MAs were also caught in the net with the MCDC.
Why has the MA industry grown so much?
One suggestion is that the Tax Reform Act of 1986 started it. Why? In the rush to get to market before the law changed, MA use in bond deals increased from $9.7 billion to $86.3 billion – a 9x increase in one year. Talk about explosive growth.
Here are a few more interesting facts:
- MA use has trended upward since 1991
- $104.8 billion in 2000 to $331.8 billion in 2010
- 21.4% of issuers used FAs in 1980
- 81.8% of issuers used FAs in 2014
- The Internet changed the game – and opened the market held by investment banks
- Economics, the size and complexity of deals increased
- Variable rate debt
- Swaps and other facilities
- Complex refundings and conduit deals
- Attitude changes of issuers helped fuel the growth as well
- Top three FAs by par are
- PFM
- Public Resources Advisory Group
- FirstSouthwest
More Rules
Conflict of interest has led to many changes – and likely more to come.
Rule G-23, now prohibits deals where the dealer acted as the FA then resigned the role to subsequently act as the underwriter.
Robert Doty, a lawyer and former FA, shared the following about upcoming and changing regulations:
- “I hope in my lifetime to see this go into effect.”
- “It’s going to be up to the regulators to bring these unruly advisors along.”
- “Often times, one of the least competent members of the team is in charge.”
- “There are so many issuers that need competent advice from competent advisors.”
Another big one – Rule G-42, brought about by Dodd-Frank – is geared to increase regulation and scrutiny on the core conduct of muni advisors (including contingent fees). Delays to the rules were announced last week.
Those delays are also getting everyone’s attention – wondering what is coming next. Stay tuned!
[Editor’s Note: As issuers, we need to know what these rules are as they will directly impact our deals. Our FA/MA is typically one of our most trusted “go-to” members on the finance team. I also wonder how the new rules will impact the fees issuers pay.]
OUT & ABOUT
Conferences:
There are about 30 conferences and regional events for the second half of 2015…
You can go to this Bond Buyer link to review what’s coming up and register!
Resources:
IRS Interim Guidance on BABs and Other Direct-Pay Bonds
IRS 39-Page Memo TE/GE-04-0715-0019
See the full article in the August 3rd Edition of the Muni Minutes!
Replay: Webinar: MCDC – What Comes Next for Muni Underwriters
By: DIVER by Lumesis and hosted by the Bond Buyer
IT was AWESOME! In case you missed it…
Here is the replay link and the slides.
Check out the “muni deal of the week”…try if for FREE and look at it from the bondholder’s perspective.
On-Demand Post Issuance Compliance Training for Issuers
“Compliance Basics” – a FREE, 3-part video Compliance Framework training, plus the Monday Muni Minutes.
Just Released – with a valuable and amazingly cost-effective “team learning” option! NEW In-Depth Training, PIC Essentials: The Audit-Proven Blueprint – covering, The IDR – Form 4564, Project Accounting Boot Camp and our hot-button friend, PBU!
On-Demand Webinar
Resource: On Demand Replay of Continuing Disclosure after MCDC
Slides: Final Slide Deck for Continuing Disclosure after MCDC
Muni Market Minute Updates
(Quick news bits on topics we’ve covered in earlier MMM editions!)
IRS and Treasury: Two New Muni Projects in our 2016 Plan
This fall, you can expect to see two new IRS & Treasury Guidance projects for munis…along with a few of our old favorites.
Two projects which have been added to the list are:
- Remedial action for change of use of the bonds
- Guidance on when a bond issuance is considered a reissuance
The remedial action guidance is of particular importance for water and wastewater projects and is really getting attention as more issuers explore P3s – which are causing concern around private business use and private activity bond rules.
Reissuance has been a hot topic for NABL, particularly for private placements with banks. In certain instances, events such as bond tenders, changes in interest rates, extension of maturities or debt service forbearance can trigger special provisions in bond documents. Those triggers can lead to a re-issuance of the bonds.
Other “old” favorites we can expect to see as a priority:
- The definition of a political subdivision (Village Center CDC in 2013)
- Regulations on allocation and accounting principles (2006)
- Updating Rev Proc 97-13 for Management Contracts and PBU
- Finalizing public approval for PABS (2008)
- Finalizing Arbitrage Investment Restrictions (2007, 2013 and 2015 respectively)
[Editor’s Note: We will keep you posted as more information is available. This article dovetails very nicely with the Compliance Puzzle pieces this week and next though….]
Back by Popular Demand….
Given the recent settlements by the SEC and focus on “what might be coming next” for issuers, let’s make sure we are all…
Solving the Compliance Puzzle!
I have to say that this is still one of my favorites – I fell in love with this graphic as it so clearly and brilliantly represents the puzzling complexity we are dealing with, as issuers, in meeting our compliance needs.
We also know that both the IRS and SEC are paying much closer attention to it these days – and that it is our obligation as issuers to understand (and have fully complied with) our respective bond covenants.
As part of this effort, each week for ten weeks, we will focus on providing tips, insights and resources for one new line of our compliance puzzle.
So, are you ready?
Today, we are going to zoom in on the fifth line of our puzzle – Rules.
Remember hearing that word when we were kids? Mom would always remind us to: Brush our teeth, take our lunch to school, get our homework done on time, and….
Always remember to play by the rules.
Ah, those were the easy days…when all we had to do was obey the “kid rules”…right?
Then we grew up. We matured. The rules changed too. Playing by the rules also got a lot more complicated – and life became more hectic – in a hurry.
We had to think of the rules in the context of finances, work, communications, family, health & wellness, faster technology, increasing globalization & regulation, environmental impacts and even what was considered socially acceptable.
And that’s just the tip of the “life rules” iceberg.
For now, we’ll look at rules in compliance & business. Business rules are typically generated from inside the organization and are detailed in nature.
They can be developed to execute high level strategies adopted by the Board or Executive Team, but new rules can also be prompted by regulations (week 2 of our puzzle), laws (week 7) or requirements (week 10).
At its core, business rules define key attributes and structure of the business. If we proactively adopt and consistently follow them, rules can become our play book for success by:
Our Rules Playbook:
- Describing operations, policies and systems used
- Defining actions of people, processes and constraining behavior
- Helping the organization achieve its goals
- Minimizing costly mistakes and obstacles to growth
- Improving communications with key stakeholders
- Equipping us to comply with regulations, laws and other legal requirements
Now, what happens when a few (or many) people don’t want to follow the business rules? Or worse yet, when rules should be in place, but aren’t? Things can go from interesting – to downright pandemonium – in a hurry, right?
Let me share a quick professional story (which occurred after my first IRS audit)…
I was working on developing the initial compliance program documentation on a fairly complicated bond series. It was for a conduit borrower for bonds which were issued as part of a legislative action for a high profile program, with par well over $100 million.
While the bonds were originally being issued (about 8 years earlier), the conduit borrower underwent a complete computer system upgrade as well.
Fast forward 8 years…
While pulling the project pieces together that I know would be required in the event of another audit, I noticed large gaps in certain series of invoices on top of missing several contracts.
When meeting with the payables teams as well as the facilities folks, I discovered that original invoices older than 7 years were destroyed, as per state records retention rules.
Uh oh.
Additionally, some of the contracts had not been properly labeled, and were misfiled as operational as opposed to capital. The amount of bonds we needed to clear up was well over $30 million…WAY in excess of our 5% bad use bogie. Ouch.
So…we pulled trustee statements, bank records, budget binders, and spreadsheet microfiche from the earlier system and combed through boxes and boxes of old contracts to locate the documentation we needed to properly demonstrate how the bond proceeds were spent.
It was a great team effort solving this puzzle…but it was VERY PAINFUL!
What could have prevented this unnecessary fire drill?
Five key tips
1) Keeping abreast of regulations and laws impacting your bonds
2) Adopting a proactive post issuance compliance policy and procedures
3) Communicating with key stakeholders by bringing them into the compliance process – early
4) Assuring that record retention for the life of the bonds are addressed in policies (AP & Contracts)
5) Developing a PIC team and specific workflow system for bond documentation items
Hmmm…this list looks a lot like the “playbook for success” described earlier, doesn’t it? As a side note, I share several helpful tips on how to avoid this pain in PIC Essentials: The Audit-Proven Blueprint!
Here’s the really sad part: What happened in my workplace story is not unique.
We talk to underwriters, bond counsel and issuers and find this same pattern still frequently exists. Have you experienced this too? If so, were rules like #1-5 above put into place to prevent it from happening again? I hope so!
We now have the MCDC and the continued IRS and SEC scrutiny…
In closing, business rules, while we sometimes think they complicate our lives – in reality, provide key mechanisms so everyone in the group knows what’s expected, when it’s expected and 
assures processes and systems are working to achieve business goals (including compliance) effectively and efficiently.
A little regular, well-planned care will go a long way to avoiding pain.
And…just like brushing our teeth daily prevents cavities and gives us a beautiful smile, regularly brushing up on our post issuance compliance processes eliminates unnecessary stress because we have confidence knowing we are on top of our compliance game if and when our bonds are ever audited.
Now that’s something to smile about!
We hope you found this segment helpful! Stay tuned – next week, we’ll explore the next item in our series – it’s line 6 of the puzzle –Guidelines.
Remember, take small bites. For more information or other “rules” resources, check out our Knowledge Library. You can also ask a question in the comments section or reach out to us privately via e-mail and we’ll do our best to help.
We really do look forward to your feedback – and to provide the best content possible.
Based on recent requests, I will be working with a couple of “finance team experts” who will provide guest articles on selected topics in muni finance, including the new rules for MAs and the investor view. Are there other topics of interest?
Just shoot me an e-mail or drop us a line in the comments below and let us know, OK?
In closing, we are so excited that PIC Essentials: the Audit-Proven Blueprint is now available! A special welcome to members who joined us. We look forward to your comments, questions and chatting with you in the Private Facebook Group – Club PIC!
NOTE: You can still join the learning group here: PIC Essentials: the Audit-Proven Blueprint.
Plus, as we believe so strongly in the team approach to success, we are offering a tremendous “team discount,” where you and four additional compliance members within your agency or company can join the series right along with you…for only $70 more!
FINAL WEEK of the SECRET OFFER: As we celebrated my birthday this weekend, you only have a few more days to get a secret present – for you!
For any issuer who enrolls in PIC Essentials: The Audit-Proven Blueprint between today and August 14th, you will also receive a FREE 30 minute one-on-one consultation with me as part of your program! If a “team” signs up, I’ll make it an hour…
Is that cool or what?
I had several GREAT chats last week with issuers who took me up on the offer…and what fun we had! Policy questions, database reviews, accounting and arbitrage streamlining, strategizing on conference presentations and issuers just talking bond compliance – it ROCKED!
This surprise present won’t be advertised on the registration page as this is a very limited offer, but be rest assured, when you enroll in PIC Essentials: The Audit-Proven Blueprint, you’ll get A FREE 30 minute or FREE one hour session…where you can ask me anything you want about YOUR post issuance compliance program. And yes, the 100% satisfaction guarantee still applies…so there is zero risk to you!
Once you enroll, I will send you an e-mail and a few questions to help us both make your session as productive and valuable as possible.
Here’s how it works…
It can be via phone or video chat (the most popular option so far), over-the-shoulder problem solving or just reviewing your policies or checklists – you name it. Confidential, secure and issuer 2 issuer straight talk.
The one-on-ones have been amazing so far…and I really do love helping you make your program rock-solid!
So grab this FREE one-on-one consultation offer with PIC Essentials: The Audit-Proven Blueprint – it will end at 11:59 PM PST on Friday, 8/14/15.
We hope you found this week’s edition of the Monday Muni Minutes valuable and informative.
Chat soon!
As always, your comments are welcome…scroll down and let us know what you think about any of the articles!
To your compliance success,
Debbie
The greatest compliment you can pay us is to share this newsletter with your issuer friends….
P.S. Remember, invite your issuer friends to join us on Issuer 2 Issuer and to get their free online training, PIC Basics!
P.P.S. PIC Essentials: the Audit-Proven Blueprint is now available! You can sign up for the informative, on-demand webinar series by clicking above! Read about the “Team Discount” and also see my special “Birthday Present” above! It’s truly a great deal.
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 during the week. Join our private LinkedIn Group Page, and follow us on our Company Page.