enforcement

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SEC Censures 71 Governments for Lack of Fiscal Transparency

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Financial timeliness is a problem that's 'widespread and pervasive,' the SEC said.
BY  | AUGUST 25, 2016

More than 70 state and local governments have been censured for failing to disclose certain financial information about bonds they sold to investors, the U.S. Securities and Exchange Commission announced Wednesday.

The SEC reached settlements with 71 governments across 45 states as part of a voluntary self-reporting program called the Municipalities Continuing Disclosure Cooperation Initiative (MCDC). Only five states -- Arizona, Florida, Nevada, Oregon and Rhode Island -- had no governments or government entities censured.

The number of citations show the problem is “widespread and pervasive,” said SEC Enforcement Director Andrew Ceresney in a statement.

MCDC is part of the commission's push for better transparency in the municipal market. Under the program, governments had to review documents associated with bonds they issued over the past five years. If they found anything amiss -- be it that they failed to disclose a previous annual financial report or didn't notify investors of a credit rating downgrade after the sale -- they could voluntarily come forward and obtain favorable settlement terms.

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Who Should Police Municipal Markets?

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A questionable bond sale in Illinois has left some wondering why there's no one to stop financially troubled governments from borrowing.
BY  | JUNE 30, 2016

Borrowers have long assumed that banks and other traditional lenders will only loan them as much money as they can responsibly afford. Almost a decade ago, the subprime mortgage crisis shattered that belief. But it might still persist in the municipal market.

Take Illinois, whose fiscal woes are no secret. It has the lowest credit rating (BBB+) -- by far -- of all 50 states, its pensions are among the worst-funded in the country and it's entering its second fiscal year without a budget. Yet earlier this month, Illinois borrowed more than a half-billion dollars from municipal market investors with relative ease.

The state paid a higher interest rate for its troubles. But thanks to the high demand for municipal bonds these days, the rate was actually lower than the one Illinois paid on its last bond issuance in January.

"That's the biggest weakness of the municipal market," said Matt Fabian, managing director for Municipal Market Analytics. "We will help issuers borrow as much as they say they want, whether or not they can afford it."