* Greater transparency in municipal bond market
* Disclosure idea is in early stages
* Information could be on board's website
(Adds details, Moody's data on state pension liabilities)
By Lisa Lambert
WASHINGTON, Jan 31 Prompted by huge state and
local government pension liabilities, the group that oversees
the U.S. municipal bond market has begun looking into greater
disclosure of the problem to protect investors, its chairman
said on Monday.
The billions of dollars owed to public employees' pensions
is one of the largest problems looming over financially
troubled states following the 2007-2009 recession and years of
low returns on investments by the pension systems.
Underfunded pensions have caught the attention of
regulators and members of Congress, and have led to questions
about the credit-worthiness of the states with the largest
The Municipal Securities Rulemaking Board, which writes the
rules for the $2.8 trillion municipal bond market, is in the
early stages of discussions on expanded disclosure
requirements, Chairman Michael Bartolotta told reporters in a
In interests of greater transparency in the municipal bond
market, the board will consider what information an investor
might need to understand the risks some bonds pose, the board's
executive director Lynnette Kelly Hotchkiss said on the call.
"The securities laws require disclosure of all material
facts," she said. "If there is a pension liability that could
impact the budget or the finances or the credit quality (of a
state or local government) that is a material fact that needs
to be disclosed."
Take a Look-Distressed States of America [ID:nN14158511]
Special Report-Tax cut backfires [ID:nN26127516]
Graphic-State pension/debt r.reuters.com/wed77r
FACTBOX-Debt and pension levels [ID:nN27238898]
While the total shortfall states face for their pension
liabilities is unknown, estimates range from $700 billion to $3
trillion. Many states have unfunded pension liabilities in the
billions of dollars after their funds' investments suffered
large losses in the financial crisis.
Also, many states and local governments cut back their
pension contributions when the recession devastated their
Illinois has an unfunded pension liability of $62.4 billion
and California $49.6 billion, while New Jersey's liability is
$30.7 billion, according to Moody's Investors Services. For
more on individual states, please see: [ID:nN27238898]
The Securities and Exchange Commission, which enforces the
rules the MSRB writes, last year rapped the state of New Jersey
for not properly disclosing its pension liability to its bond
buyers. More recently, the regulator has opened up an inquiry
Bartolotta said that the board could ultimately require
public pension information be posted on its disclosure website
known as EMMA, for Electronic Municipal Market Access. But the
board would need to determine which common types of information
must be disclosed.
"We're trying to figure out where we are in as far as
municipal bonds and public pensions," Bartolotta said, while
emphasizing the board is in the "preliminary stages" of
discussing the implications of pension obligation disclosure.
Republicans in Congress are considering introducing
legislation that would allow states to declare bankruptcy,
which would provide an avenue for them to renege on pension
promises and renegotiate contracts with unionized employees.
(Editing by Jackie Frank)