Disclosure and Accounting Practices in the Municipal Securities Market
Introduction
Many critically important aspects of American life, from airports to sewers and schools to hospitals, depend on the municipal securities market for financing. All bonds, notes and other debt securities issued by states and local governments and their respective agencies and instrumentalities are “municipal securities.” They are issued by such government entities to pay for a variety of public projects, cash flow and other governmental needs and, by acting as a conduit on behalf of private organizations who wish to obtain tax-exempt interest rates, to fund non-governmental private projects.1 Maintaining the health of this key component of our capital markets is important to every resident of the United States not least to the millions of individuals who invest in municipal bonds. To this end, staff of the Divisions of Corporation Finance, Enforcement and Market Regulation and of the Office of Chief Accountant of the Securities and Exchange Commission would like to bring to your attention some of our ongoing concerns about investor access to full and accurate information regarding municipal issuers and their securities.
A number of Commission enforcement actions have highlighted continued disclosure weaknesses, raised concerns about governmental accounting, and suggested the need for improvements to disclosure practices. These enforcement actions involved allegations that in disclosure documents used in offerings or other information provided to investors:
• the City of San Diego, California failed to disclose the gravity of its enormous pension and retiree health liabilities or that those liabilities had placed the City in serious financial jeopardy;2
• the Cit ...