The Treasury
Department has confirmed that it is creating a new “Office of State and Local
Finance” that will broadly monitor the municipal bond market, according to
press reports. A Treasury spokesperson
is quoted as saying that “"The office will serve as Treasury's liaison to
state and municipal officials and associations, monitor developments in
municipal bond markets, support policies to improve the management of public
pensions and other liabilities, and develop potential federal policy responses
to issues that emerge in municipal financing markets."
According to
The Bond Buyer, the new unit was
created as a response to repeated requests from “troubled local governments,”
including Detroit, seeking White House assistance, but there was no centralized
group capable of coordinating a Federal response. Puerto Rico’s financial challenges are also
cited as another reason for the new unit’s creation. It is reported that the new office will not have
authority to write and enforce rules and regulations for the market like the
Securities and Exchange Commission (SEC).
Treasury's existing tax-exempt bond group will also remain separate from
the new office.
"This
office will centralize a lot of the work that is already happening across the
building," said Matthew Rutherford, the Treasury's assistant secretary for
financial markets, to whom the new unit will report. "It can look at various issues that
arise in the municipal marketplace and make sure we understand what's driving
them," Rutherford has been quoted as saying.
Kent
Hiteshew, who currently oversees public finance for the Northeast region and
the housing finance group at JPMorgan, where he has been since 2008, will head
up the new operation. Before that, Mr.
Hiteshaw worked at Bear, Stearns & Co. for 18 years, and earlier at Morgan Stanley
Inc. and the former Drexel Burnham Lambert. He is also reported as having previously
worked for New York City in various positions, as well as at the U.S.
Department of Housing and Urban Development from 1978 to 1980. Hiteshaw will
reportedly take over his new role in mid-May.
Response to
the Treasury’s actions has been generally positive so far. For example, Lynnette Kelly, executive
director of the Municipal Securities Rulemaking Board (MSRB), which conducts
muni research and serves as the repository for issuer disclosures about their
bonds and finances through its EMMA website, said she welcomed the creation of the
new unit within the U.S. Treasury Department.
Alan Anders, deputy director for finance of New York City's Office of
Management and Budget, also told The Bond
Buyer that the new office will be very good for issuers. "The fact that there's a point person at
Treasury that we can all contact is very valuable," he is reported as
saying.
Hiteshaw’s
selection to lead the new unit has also received praise. He is described by some as a good choice due
to his long experience as a public finance banker, as well as someone who has an
appreciation for the viewpoints of local governments and financing authorities
with which he has worked closely in his career. The Bond Dealers of America has also
expressed support for him, calling his market perspective a complement to
existing Treasury staff knowledge about muni tax issues.
However,
others have expressed concern. For
example, Frank Shafroth, director of the State and Local Leadership Center at
George Mason University in Virginia, is reported as saying the selection of a banker
from a major Wall Street firm sends the wrong message, making it appear that the
office will look out for Wall Street's interests and not necessarily those of state
and local governments. While a Federal
outreach team could provide good resources for local governments, Shafroth told
The Bond Buyer, having a Treasury
official viewing state and local governments as problematic could eventually
lead to what he referred to as damaging overregulation by other regulators. (Shafroth has been Director of Legislative
Affairs and Intergovernmental Relations for the MSRB and was also Director of State
and Federal Relations at the National Association of Governors and the National
League of Cities.)
On that
note, it is well to remember that the SEC, which is the municipal-bond market's
primary regulator, also has increased its scrutiny of this sector. This has resulted in two major consent
decrees entered into between the SEC and the States of New Jersey and Illinois
involving disclosures in the States’ bond offerings related to their pension
plans. Two, so far. The SEC is continuing its investigations to
determine if investors have been misled about the financial condition of
municipal bond issuers in other jurisdictions.
“I must
admit that I am somewhat concerned with this development,” said Meredith
Williams, NCTR’s Executive Director.
“While I think that the Treasury Department’s interest in providing a
better means of coordinating Federal actions in this area, where such Federal
involvement may be appropriate and necessary, is probably a good one,”
Williams explained, “I share Mr. Shafroth’s concerns with the potential for Federal
overregulation.” Williams said that he
has directed NCTR’s Director of Federal Relations, to meet with
other interested State and local government organizations in Washington, DC,
concerning this new unit, and to seek a group meeting with Treasury Department
officials, and Mr. Hiteshaw, as soon as is possible to learn more about the
planned activities of this new office.
