Key Highlights this Week!
- $714 Billion Reasons Why – The value of getting (and keeping) tax-exempt bonds
- MSRB Eases Rules for Bank Loans with Issuers – but voluntary EMMA reporting urged
- Download “A Taxing Dilemma” – Debbie’s nationally published Post Issuance Compliance article
- Solving the Compliance Puzzle – Line 7 this week is Laws!
So…here goes…today’s Monday Muni Minutes!
Enjoy and have a great week! Deb
CURRENT EVENTS
714 Billion Reasons Why Muni Exemption is Critical to Issuers
In the last four years (2010-2014), state and local governments have saved $714 billion in debt service by being able to issue (and keep) tax-exempt bonds…
That is a lot of money…
Money that can be used to fund other vital services, reduce strained budgets or be set aside in rainy day funds for future public needs.
Justin Marlowe, a professor at the University of Washington researched and prepared a paper on the public policy and value of tax-exempt bonds titled Municipal Bonds and Infrastructure Development – Past, Present and Future, covering the period 2010 to 2014.
Here are key points Mr Marlowe noted:
- There are >1 million bonds in the market
- Over 50,000 issuers with > $3.6 trillion in debt outstanding
- Virtually all state and local infrastructure is financed through TE bonds
- 2014 capital spending was nearly $400 billion – a significant slowdown
- Roughly 90% of state and local capital spending is debt financed
- Pay-Go and P3 financing are alternatives, but not as robust as traditional TE debt
Recently, there has been a lot of talk at the federal level of reducing or even eliminating the tax-exemption – that would result in a cost of nearly $80-$120 in additional interest expense per $1,000 of bonds, according to the report.
Again, that is a lot of money.
In addition to budgetary policy discussions about reducing tax-exempt financing, we are also facing ongoing scrutiny from both the IRS and SEC on bond issuer post issuance compliance effectiveness.
We, as issuers, can help shape policy on tax-exempt bonds.
Meeting that compliance and demonstrating to our bondholders and the taxpayers that we are diligent stewards of these public funds will go a long way to impacting public policy for keeping tax-exempt bonds as the primary financing tool for our nation’s infrastructure.
Resolving this issue has been a somewhat sensitive topic…
Over the last several years of recession, municipal finance and compliance team budgets have been
slashed while the regulations and reporting scrutiny have increased many times over. We still had our daily “keeping the doors open” duties to take care of and bond compliance became “other duties as assigned”…that we could simply never get to.
You are welcome to download my nationally published 2013 AFP article, “A Taxing Dilemma.” In it, I share how we, as issuers, can systematically do a better job of understanding and managing our compliance programs.
Yes, it takes a bit of time, but it can (and needs to) be done.
After all, your interest expense budget depends on it!
[Editor’s Note: We have covered the trials of infrastructure funding, including the HTF woes in many past issues of the Muni Minutes. It is a big deal. You can read the full ICMA article here as well as download the white paper Municipal Bonds and Infrastructure Development – Past, Present and Future here.]
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!)
MSRB: Voluntary Disclosure on Bank Loans on EMMA – Yes!
The MSRB issued a press release encouraging bond issuers to voluntarily disclose information on the 
EMMA regarding their bank loans – to increase transparency about the well-being of their overall financial condition and resources to back their muni securities.
As rates have become more competitive and banks have stepped up to the plate in providing private bank loans for municipal issuers, the MSRB and rating agencies have become more focused on what the terms of those loans – which are currently not required reporting – are.
Although the National Association of Municipal Advisors, MSRB, rating agencies and other key market participants are supportive of this increased voluntary disclosure, it is the individual issuer’s responsibility and decision to decide if and what to include in their EMMA reporting on their bank loans.
[Editor’s Note: Bank loans have been an issue for several years, and with more and more such loans being made, issuers can expect more and more public sentiment and expectation of such disclosures. You can read the full press release here. Stay tuned…]
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, our focus narrows on the seventh line of our puzzle – Laws.
Back in week 2, we shared several key sections of Code, which impact us as bond issuers. As I reviewed the articles above and pondered what to write this week, two short, but powerful quotes come to mind:
“Writing laws is easy, but governing is difficult.”
– Leo Tolstoy, War & Peace
and then,
“Error of omission begets new rules.”
– Toba Beta, Master of Stupidity
Statutes (Laws) are generally enacted by a governing body, such as the legislature. Laws, as binding 
rules of conduct, are designed to regulate the actions of its citizenry – with associated penalties for either willful or negligent failure to comply.
If you take the MCDC Initiative as an example, it falls under Rule 15c2-12, which governs continuing disclosure for municipal securities reportable to the Municipal Securities Rulemaking Board. Both Rule 15c2-12 and the MSRB get their origin from the Securities Exchange Act of 1934.
Now, take a quick (just kidding) look at the SEC’s website.
In addition to the SECs 1934 Act, you will note these decades-old laws which provided the framework for public finance and your bonds:
Securities Act of 1933
Trust Indenture Act of 1939 , and
Investment Company Act of 1940
Although these laws were designed broadly to protect the financial marketplace while remaining efficient, it proved difficult to govern all the players. Omissions in reporting increased, oversight decreased, and in several cases, laws were completely ignored.
Some would say chaos was simply running amuck.
In the words of Tolstoy – governing is difficult.
After the market collapse in 2008, the resulting credit crunch and liquidity crisis led to further regulations, namely the Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank).
Many thought this law primarily dealt with mortgages and what appeared to be predatory lending practices in the housing market.
On closer inspection, this sweeping law impacted:
- Our banking partners – making letters of credit or other enhancements more expensive
- Added regulations to our swaps
- Regulating investment and municipal advisors
- Enhanced regulation and oversight of credit rating agencies
- Providing SEC and GAO authority for stronger enforcement – and the MCDC Initiative!
- Established the Bureau of Consumer Financial Protection and Consumer Advisory Board
Talk about errors of omission begetting new rules!
Professionally or personally – you are impacted by these Laws in some way.
Whether it’s the IRS, SEC or Dodd-Frank, let’s come squarely back to what you, as a bond issuer, want 
to focus on regarding your debt portfolio. If you have tax exempt bonds outstanding, you also have continuing disclosure and other post issuance compliance requirements to deal with – in many instances, as part of your “other duties as assigned.”
Sound familiar? Yep – I’ve been there too.
That’s what Issuer 2 Issuer was designed for.
Key topics we have reviewed over the last year of Monday Muni Minutes include:
- Form 8038 – a check-the-box means issuer attests to having an approved compliance policy AND attests to being in compliance with its provisions
- In 2012, the IRS TEB Division expressed concern regarding issuer’s compliance effectiveness
- In late 2012, the SEC also announced its concern regarding the adequacy of continuing disclosure submissions via EMMA as well as how well underwriters were monitoring and auditing the thousands of deals outstanding via the Continuing Disclosure Agreements with their issuers – this likely led to the 2014 MCDC Initiative and subsequent enforcement actions in recent months.
We hope you found this segment helpful! Stay tuned – next week, we’ll explore the next item in our series – it’s line 8 of the puzzle – Standards.
Remember, take small bites. For more information or other “Laws” 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, trainings 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!
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. Enjoy reading the Monday Muni Minutes each week? Invite your issuer friends to join us on Issuer 2 Issuer and so they can get their free online training, PIC Basics! They will also get the Monday Muni Minutes delivered directly to their inbox as well as receive a special “new member” discount offer on the PIC Essentials training!
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” 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.