* Illinois most tardy state
* Average reporting time dipped slightly last year
* Regulators becoming more focused on timely disclosure
By Lisa Lambert
WASHINGTON, Oct 7 States, cities, counties and
others who sell debt in the $3.7 trillion U.S. municipal bond
market continue to struggle with providing prompt financial
information to the public.
A report by Merritt Research Services released on Thursday
found it took an average of 141.3 days for municipal bond
issuers to complete audited financial reports for fiscal 2010,
which ended for most in June 2010. That was only a slight dip
from the average of 141.6 days in fiscal 2009.
Municipal bond investors, whose ranks have historically
been dominated by individuals, do not have to rely solely on
disclosures to learn if borrowers are in bad shape, as three
rating agencies monitor states' credit and the news media
regularly report on their financial conditions.
Still, with anxiety rising in the last year from news
reports of struggling cities and states, and the financial
crisis sparking skepticism about credit ratings, many rely on
the audited reports when they buy debt.
States were the slowest to report in the muni market and,
among them, Illinois was the most laggard, taking 365 days to
complete its audited report, Merritt found.
Counties and cities followed, needing more than 160 days to
finish their reports. The slowest city, San Diego, California
took 427 days, and the most remiss county, Santa Cruz, Arizona,
Merritt did not analyze the reasons for such a slow pace,
but noted that "being a small municipal borrower does not seem
to inherently handicap an issuer's ability to gets audits
signed in a timely manner."
Regulators and investor advocates have posited that one
reason annual reports, along with other municipal bond
disclosures, are late is because there are few penalties for
Strict federal oversight state and local finance could
invite accusations of interference, and so the U.S. government
has tread carefully in regulating the market.
Corporations that issue bonds must usually file their
audited reports 60 days to 90 days after the end of their
fiscal years. The Municipal Securities Rulemaking Board
requires muni issuers post their annual financial reports on
its site, known as EMMA, within 120 days of the close of the
Few muni issuers, though, could meet that requirement.
Merritt found that only tollways and wholesale electric
utilities completed their financial audits under 120 days on
average from fiscal 2007 through fiscal 2010.
DISCLOSURE BECOMING BIGGER ISSUE
The federal government has recently turned its attention to
making more thorough and accurate information about the
municipal market available to investors in a timely manner.
At one point, issuers sent disclosures to a handful of
repositories that mailed investors hard copies for a fee. Now,
they post annual statements, bond offering documents and some
continuing disclosures to EMMA, or Electronic Municipal
Marketplace Access, which also tracks trades.
But the tools for pushing issuers to post information are
often difficult to wield.
The rulemaking board has called on the federal government
to penalize issuers who do not provide information about their
debt investors deem crucial. It noted in a recent letter to the
Securities and Exchange Commission, which enforces the rules it
writes, that there "seem to be no significant regulatory
repercussions for non-compliance."
Last week, Commissioner Elisse Walter said the SEC would
soon release its plan to beef up the timeliness and quality of
financial disclosures in the market. But Walter said that if
disclosure standards are set, the SEC would need some kind of
authority to enforce them.
The Financial Industry Regulatory Authority, an independent
regulator, can execute some MSRB regulations because it has
oversight of securities firms. But cases can take a while to
work through FINRA's systems.
A Reuters survey of FINRA's settlements related to MSRB
rules over the last six months found seven firms faced
sanctions for not delivering official statements to customers
by the settlement dates of new bond issues. All bonds involved
were issued well before 2010, with one firm paying a $25,000
fine this August for infractions in April and May of 2008.
Altogether, the seven firms paid $270,000.
Out of the approximate 42 firms fined for breaking an MSRB
rule in the last six months, three settled cases related to the
auction-rate securities meltdown that dominated 2007.