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Municipalities Need to Ensure Proper Management, Disclosure of Bond Sales

August 19, 2016

Vanessa E. Rossitto, CPA

A critical resource for building new and maintaining existing infrastructure for most municipalities is the issuing of municipal bonds. Most municipalities do not have the funds available in their budgets for these major projects, the issuance of bonds allow for improvement and repair work to get done in a timely matter and paid back over time. It has become a fairly routine funding methodology for cities and towns across the country.

Problems can ensue, however, when municipalities fail to properly manage bond sales, particularly regarding disclosing information to investors. The consequences of this can be severe, including censure, fines and even a downgrade in the municipality’s bond rating. There is at least one recent instance of a town in Maine running into trouble with the federal government over this exact issue, and the results can be damaging.

Cities and towns across the country should prioritize filing disclosures in a timely manner, and need to have procedures in place to ensure proper disclosure and management structures exist concerning all municipal bonds that are issued. Doing so can allow them to avoid serious problems down the road while maintaining the municipality’s fiscal strength for the long-term.

So what can municipalities do to ensure they are properly managing any and all bonds they have issued?

  • For starters, cities and towns need to have written policies in place to train all pertinent staff on disclosure obligations. The proper training can make the task of understanding disclosure requirements much less daunting—municipal financial employees who are well-versed in the day-to-day budget management of their town can be just as adept at understanding municipal bond management. The two should go hand in hand, and doing so will place the municipality on solid fiscal ground.
  • It is important that the municipalities work closely with their bond counsel and their financial advisor to ensure that they are meeting all of the requirements.
  • As most information is filed together with the entity’s financial statements, it is extremely important that very strong policies and procedures exist with respect to the financial close process and timely filing of the audited financial statement.

Municipal bonds are vital funding mechanisms for cities and towns. By having procedures in place to manage these bonds and protocols for proper disclosure, sound fiscal policy can be assured for years to come, which will be welcome news to taxpayers.

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