2000 - 2001 Debt Committee Activities
Legislative and Regulatory ActivitiesThroughout the past year, the Committee, in concert with the GFOA's Federal Liaison Center (FLC), promoted changes in the tax code that would benefit all GFOA members who are dependent upon tax-exempt bond financing. The Committee, working with the FLC's Director, advocates simplification in the arbitrage rebate rules, additional opportunities for advance refunding, and liberalization of the $10 million exemption to the pro-rata rule. Additionally, the Committee tracks activity in the Senate Finance, House Ways and Means, and Joint Tax Committees.
Two members of the Committee, John Hearn and Tom Glaser, serve on a GFOA remote sales tax working group. The group will assist GFOA in composing a policy for the upcoming legislative debate about how to allow state and local governments to collect sales tax on purchases made over the Internet. This issue will be hotly debated in the 1st session of the 107th Congress because the Internet tax moratorium expires on October 1, 2001.
The Committee has been active throughout the year, attending working group meetings and one-on-one meetings with the Municipal Securities Rulemaking Board (MSRB), the National Association of Bond Lawyers (NABL), the Council of Infrastructure Financing Authorities (CIFA), the Internal Revenue Service (IRS), the Department of Treasury, and the Securities and Exchange Commission (SEC). Members of the Committee work closely with these groups on issues of mutual interest including: primary and secondary market disclosure, electronic issuance and disclosure, IRS enforcement rules, and the tax code, and tax exempt bond financing.
Recommended Practices and Policy Discussions
One of the primary ways the committee can help to develop sound financial practices is to study emerging issues and to propose recommended practices. In the past year, the Committee conducted the following activities:
- Issued a recommended practice, Record Retention for Arbitrage. The Recommended Practices Subcommittee drafted a proposed recommended practice, instructing governments who issue debt on the types of documents they should retain for arbitrage purposes and the length of time they should keep them. The recommended practice was presented to committee members at the winter meeting. The full committee recommended presenting the draft to the IRS to allow them to comment before formally adopting the recommended practice. The subcommittee will revise accordingly and the full committee will consider adoption at the June meeting.
- The Disclosure Subcommittee considered revising GFOA's 1991 text on Disclosure Guidelines for State and Local Securities. The Subcommittee accepted an invitation form the National Federation of Municipal Analysts (NFMA) to participate on a Task Force on General Obligation Bond Disclosure and consider recommended practices that build on the 1991 guidelines. Paul Fulton, Disclosure Subcommittee Chair and Mary Margaret Collier, Debt Committee member have been active participants on the NFMA Task Force representing the Committee. The NFMA is expected to release an exposure draft of its Task Force's work in May and the Disclosure Subcommittee plans to finalize a comment letter at the June meeting.
- The Recommended Practices Subcommittee reviewed the Budget Committee's three Financial Policies recommended practices and forwarded minor changes onto the Budget Committee.
- The committee urged members who issue debt to include cover sheets containing CUSIP numbers (the unique identification number assigned to each maturity of a bond issue) when they send their secondary market disclosure information to the Nationally Recognized Municipal Securities Information Repositories (NRMSIRs). According to the NRMSIRs, most issuers have not been including CUSIP numbers with their disclosure documents, making it difficult for the repositories to link disclosure documents to specific bond issues. The committee issued a notice encouraging members to do so in the March 9, 2001, GFOA newsletter and will post a sample cover sheet on the GFOA web site.
- The Committee's working group on IRS audits wrote a joint letter with the National Association of Bond Lawyers to the IRS, asking that the Service specify the reason for bond audits (e.g. random vs. targeted) and provide issuers with a timeframe for the audit process. The working group will also be writing an article for Government Finance Review that advises issuers on their options for disclosing a notice of audit. They are also considering recommending intermediate sanctions (instead of simply declaring the bonds taxable when there are violations) as an option to the IRS.
- The Committee's GASB 34 working group has investigated how Official Statements and the bond disclosure process will change after the implementation of GASB 34. They developed a list of considerations for disclosure under GASB 34. This list will be distributed to members via the GFOA web site.
- The Committee worked with author Dean Pope to review and, at the 2001 conference, release the book, Making Good Disclosure: The Role and Responsibilities of State and Local Officials Under the Federal Securities Laws.
- The Disclosure Subcommittee has continued its review of practices and issues relating to Electronic and Selective Disclosure. The full Committee and staff will continue to advise issuers about their responsibilities and regulations when disclosing financial information electronically to bondholders via the GFOA newsletter, the magazine and on the Committee's new web site.
- At the winter meetings, the committee approved two resolutions. The first advocates exemption of state revolving fund programs from arbitrage rebate restrictions. The committee concluded that the statements concur with the Debt Committee's efforts to reduce restrictions, and as such, approved the following resolution:
A resolution supporting CIFA's legislative initiative to exempt state revolving funds (SRFs) reserve fund earnings from the arbitrage rebate requirements because of the unique federal funding/support provided for SRFs and the increased
funding for projects provided by issuers retaining reserve fund earnings.
- The committee also addressed the American Bar Association's intermediate sanctions proposal that states, among other things, that the penalty for arbitrage violations should not begin with a revocation of a bonds tax-exempt status. The committee approved the following resolution:
A resolution supporting the conceptual framework and principles set forth in the American Bar Association and National Association of Bond Lawyers proposals on intermediate sanctions and requesting staff to participate with other market participants in efforts to improve the Internal Revenue Service audit process.
The committee will continue to analyze policy issues and monitor developments in state and local debt management. In the coming year, the committee will examine the National Association of Bond Lawyers' proposed qualified opinion for bond lawyers; rebate exemptions on reserve funds; web site maintenance; and secondary market disclosure. In addition, the committee will continue monitoring the National Federation of Municipal Analysts' proposal on general obligation disclosure and prepare a comment letter. It will also continue exploring how GASB 34 relates to bond disclosure and how to best advise issuers who receive a notice of audit from the IRS. The committee will also take an active role in advising staff on training materials, and in particular, the curriculum of the Advanced Topics in Debt Management training course. The committee will develop publications, policy statements, and recommended practices in the debt management specialty, and will work closely with the Federal Liaison Center on the organization's legislative and regulatory agenda.
The committee on Governmental Debt and Fiscal Policy is pleased to submit this annual report and looks forward to working with the GFOA Executive Committee to continue providing meaningful materials for the GFOA membership.
Alan Anders, Chair
Committee on Governmental Debt and Fiscal Policy
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