The State Budget Crisis Task Force issued its final report on January 14, and part of it was devoted to urging more transparency in state and local levels of financial reporting and budgeting. One of the heralded initiatives -- particularly vocalized by the chairmen of the Task Force -- was the need to review the Tower Amendment and authorize the Securities and Exchange Commission to require proper disclosure from issuers of municipal bonds.
The Tower Amendment -- enacted in 1975 to amend the Securities Exchange Act of 1934 -- disables the SEC from mandating that issuers of municipal bonds file securities documents before selling the bonds. The report from the Task Force states that the Amendment should be "revisited so the SEC can require issuers to comply with sensible disclosure requirements as well as with robust accounting standards."
The emphasis of the report was ensuring clear reporting and fleshed-out documentation so state budgeting can be improved: "The convoluted, sprawling nature of state financial statements make them of limited use for all but individuals with extensive training. Both budgetary and asset-based financial reporting should be easily accessible."
Reuters reports that former Federal Reserve Chairman Paul Volcker and New York Lieutenant Governor Richard Ravitch -- the two economic bigwigs that led the Task Force -- have called for more aggressive regulation on local and state-level municipal bonds in order to encourage proper documentation, budgeting, and reporting on state and local levels. They insist that disclosure requirements would improve states' accountability and make the terms and conditions of the municipal bonds more clear.
Ravitch told Reuters: "I don't think the SEC is God's answer to every problem, but I think the more disclosure the more the public is protected."