WASHINGTON Information about debt sold in the $2.8 trillion U.S. municipal bond market is frequently not made available to investors, or is posted well after it could have any meaning for those buying bonds, according to a study released on Thursday by a leading municipal data provider.
Using a large sampling of issuers, the study by DPC Data, Inc. found that the time it took to file financial statements had lengthened as concerns about states and local governments' fiscal health grew. That means that when investors are demanding more information, less is becoming available.
"Clearly, there is a pervasive laxness in filing that obstructs the dependable and timely flow of meaningful financial information to investors and those that serve their interests," the study found.
While concerns about disclosure are not new, they are growing as states and local governments struggle to recover from the economic recession that began in 2007 and caused a collapse in their revenues.
"The dangers for investors is implicit when disclosure behavior worsens while underlying economic and financial stresses mount, as is the case now," DPC said.
The survey found that prior to the economic recession, in the years 2005 to 2007, one-third of issuers required to make disclosures failed to do so. But during the recession years of 2008 and 2009, that proportion rose to 36 percent and 40 percent, respectively.
DPC surveyed 18,913 new municipal issues during 2008, 2009 and 2010 and found that each year issuers had increased the window of time they pledged to make their financial statements available in their disclosure covenants.
On a positive note, DPC could not find a correlation between disclosure and default, meaning that those who were most negligent in posting information had no greater risk of default than those who submitted information in a timely way.
Still, it said, investors who are told about the threat of default have "the best defense against surprises."
Spooked by the possibility of defaults and pervasive fiscal problems, municipal bond investors have fled the market in recent months.
"Because of this economic climate and the fragile financial circumstances it has wrought for many entities, access to disclosure documents has never been more important," DPC said.
For those who did file financial statements, 5 percent of issuers took more than one year after the close of their fiscal year to make the financial statements available, and DPC said the trend for most issuers is to file statements more than 180 days after the end of their fiscal years.
For many years, state and local government debt issuers sent their disclosures to DPC and other companies, which then provided the information for a fee.
Following concerns from federal regulators and municipal bond buyers about transparency, the Municipal Securities Rulemaking Board began to provide information for free in 2008 on its website. The board, which writes the rules for the market that the Securities Exchange Commission enforces, also began requiring issuers to file more comprehensive data in a timely manner.
DPC said it used its expertise to study the MSRB's data. (Editing by Leslie Adler)