Disclosure and Accounting Practices in the Municipal Securities Market

Essay text:

To this end, staff of the Divisions of Corporation Finance, Enforcement and Market Regulation and of the Office of Chief Accountant of the Securities and Exchange Commission would like to bring to your attention some of our ongoing concerns about investor access to full and accurate information regarding municipal issuers and their securities. A number of Commission enforcement actions have highlighted continued disclosure weaknesses, raised concerns about governmental accounting, and suggested the need for improvements to disclosure practices. These enforcement actions involved allegations that in disclosure documents used in offerings or other information provided to investors: • the City of San Diego, California failed to disclose the gravity of its enormous pension and retiree health liabilities or that those liabilities had placed the City in serious financial jeopardy;2 • the City of Miami, Florida failed to disclose an unprecedented cash flow shortage which it had eased, in part, by spending the proceeds of bonds issued for other purposes for operating costs;3 • Maricopa County, Arizona failed to disclose a material decline in its financial condition and operating cash flow, the substantial deficit in its general fund, and increased deficit in another fund;4 • the City of Syracuse, New York falsely claimed a surplus for its general and debt service funds, materially overstated its ending fund balances in those funds, and misled investors by describing certain financial information as audited;5 1 The Internal Revenue Code delineates the purposes for which tax-exempt municipal bonds may be issued for the benefit of organizations other than states and local governments, i...