• National Federation of Municipal Analysts FDTA Initial Recommendations.
• Introducing the GFOA’s New GAAFR Plus.
• SEC Adopts New Securities Lending Reporting Rule: Proskauer Rose
• SEC Announces 2024 Exam Priorities: Mayer Brown
• S&P: The Evolving Impact Of Environmental And Social Factors On Credit Ratings
• Reminder: BLX/Orrick 2023 Post-Issuance Compliance Workshop – Nov. 16 & 17
• Political Climate Change – Public Finance and the Partisan War on ESG: Bowditch Webinar
• Promise of Free Money Backfires on California Community Colleges.
• Wall Street Worries About Losing Texas Deals Over Ken Paxton’s Green Energy Probe.
• And Finally, HuskerMobile! is brought to us this week by Brown v. State, in which no less an authority than the Freakin’ Supreme Court of Nebraska (which we hereby officially trademark) was needed to inform us – and this time we’re not making it up – that, “a riding lawnmower is not a motor vehicle.”  It had previously been our understanding that Nebraska is the only state in which a riding lawnmower is a motor vehicle. [emphasis perhaps added]  Color us shucked.

School district sued Colorado State Board of Education, challenging decision to remove district’s accreditation and order its reorganization, and asserting violations of procedural due process, equal protection on behalf of its students, local control provisions, and the Administrative Procedures Act (APA).

The District Court granted State Board’s motion to dismiss. School district appealed, and State Board petitioned for certiorari review.

The Supreme Court held that:

• Subordinate state agencies, political subdivisions, and officials raising claims challenging a government entity’s decision are not subject to any specialized standing test; abrogating Martin v. District Court, 550 P.2d 864;
• State Board did not violate the constitutional provision giving local boards of education control of instruction in public schools;
• School district lacked standing under either the Education Accountability Act or APA to bring a procedural due process challenge to the process followed by the State Board when it removed school district’s accreditation and order its reorganization; and
• School district did not have standing to bring an equal protection claim on behalf of its majority-minority students against State Board for the use of cut scores to measure district performance.

County board of supervisors brought takings action against the United States, alleging that actions or inactions by the United States when extending levee project led to flooding that damaged county property, destroyed private property, and reduced economic activity, thereby depriving the county of tax revenue.

The Court of Federal Claims granted the government’s motion to dismiss for failure to state a claim, and county appealed.

The Court of Appeals held that:

• Failure of the United States to build pumps in backwater project area or to construct an alternative drainage system did not constitute a taking;
• Original projects to shore up river levee system did not support takings claim;
• Complaint failed to allege that flooding of property enclosed by levees was greater than would have taken place if the levee project had not been built; and
• Based on arguments on appeal, Court of Appeals would allow county to ask Claims Court to consider an amended takings complaint.

Failure of the United States government to build pumps in backwater project area after levee system was built up, or to construct an alternative drainage system, did not constitute a taking of county property, which flooded after heavy rain, as there was no affirmative government act.

Original United States government projects to shore up river levee system did not support county’s takings claim stemming from flooding of backwater area following later extension of levees, even if original projects were expected to increase flood heights on the river and require additional flood protection for the flooded county backwater area, as county’s complaint made no claim based on a theory involving the flood control measures on the river stemming from the original projects, which were undertaken almost a century earlier, but instead its claim for relief rested entirely on the government’s actions vis-à-vis the backwater levee extension project’s construction and operation.

Based on arguments on appeal, Court of Appeals would allow county to ask Claims Court to consider an amended takings complaint against the United States that would explain how the construction and operation of levee extension project led to increased flooding, even though county did not seek leave from the Claims Court to file an amended complaint and did not expressly ask for a remand for that purpose; while complaint was dismissed for failure to state a claim, and complaint did not allege but-for causation, county had argued on appeal that the United States was systematically increasing flood risk by preventing area enclosed by levee from draining when river was not flooding, but had failed to specifically allege in complaint that the levee project made things worse by blocking water from draining during non-flood periods.

County’s complaint against the United States, based on flood control project which extended levees, failed to allege that flooding of property enclosed by levees was greater than would have taken place if the levee project had not been built, and thus failed to allege causation necessary to state a takings claim; complaint appeared to concede that absent the project, backwater flooding from river would have entered the area and there was no allegation that project made backwater river flooding worse, complaint did not plausibly explain how the construction of the levee project could have led to worse rainwater flooding than would have occurred in its absence.

Visitor at state recreational area brought negligence action against State under State Tort Claims Act (STCA), alleging he was injured at the recreational area when a riding lawnmower struck picnic table at which he was sitting.

The District Court dismissed. Visitor appealed. The Supreme Court reversed and remanded. The District Court granted summary judgment for State. Visitor appealed.

The Supreme Court held that:

• A riding lawnmower is not a “motor vehicle” as exception to weather conditions exemption to waiver of sovereign immunity under STCA, and
• Weather conditions exemption to waiver of sovereign immunity applied.

A riding lawnmower is not a “motor vehicle” for purposes of the State Tort Claims Act (STCA) provision setting forth a motor vehicle exception to the weather conditions exemption to waiver of sovereign immunity.

Negligence claim of visitor at state recreational area arose out of wet grass in recreation area, and therefore State had immunity from suit under the weather conditions exemption to waiver of sovereign immunity in State Tort Claims Act (STCA), for action arising from a riding lawnmower’s collision with picnic table at which visitor was sitting, where mower slipped on wet grass from rain the prior day while being operated by a state employee, mower slid down slope, and mower then collided with picnic table that was at bottom of slope.

Property owners filed article 78 petition against businesses being operated on neighbor’s land and zoning board of appeals to annul grant of neighbor’s second request for use variance, and then amended petition to add neighbor as respondent and moved for judgment.

The Supreme Court granted respondents’ cross-motions to dismiss amended pleading on limitations grounds and for lack of necessary party, and owners appealed. The Supreme Court, Appellate Division, affirmed. Owners petitioned for and were granted leave to appeal.

The Court of Appeals held that:

• If petition was amended to add new party, relation-back doctrine was not limited to cases where amending party’s omission in failing to name party in original petition resulted from doubts regarding omitted party’s identity or status, abrogating Matter of Sullivan v Planning Bd. of the Town of Mamakating, 151 A.D.3d 1518, 58 N.Y.S.3d 692, Branch v Community Coll. of the County of Sullivan, 148 A.D.3d 1410, 48 N.Y.S.3d 861, and Matter of Ayuda Re Funding, LLC v Town of Liberty, 121 A.D.3d 1474, 996 N.Y.S.2d 379;
• Neighbor knew or should have known that, but for owners’ mistaken omission, she would have been named in owners’ article 78 petition to annul variance, as required for amended petition adding neighbor as respondent to relate back to original, timely filed petition;
• Better course was for Court of Appeals to determine whether neighbor shared unity of interest with businesses named as respondents in original petition, as required for amended petition to relate back to originally filed petition, rather than remittal of case; and
• Neighbor shared unity of interest with businesses named in original petition, as required for amended petition to relate back to original, timely filed petition.

Town filed action against developers, seeking order of abatement, a permanent mandatory injunction, and collection of civil penalties, costs, and attorney’s fees after developers failed to maintain subdivision roads.

Town and developers filed cross-motions for summary judgment. The Superior Court granted summary judgment in favor of town, and denied developers’ motion for relief from judgment.

Developers appealed, and the Court of Appeals affirmed in part and reversed in part. Developers appealed based on dissenting opinion.

The Supreme Court held that ordinance authorized town to file suit against subdivision developers for failure to maintain subdivision streets without first obtaining approval of the town council.

Town development ordinance regarding developer maintenance of subdivisions streets not accepted by dedication, which provided that, if a penalty is not paid or settlement not reached “the matter shall be referred to legal counsel,” authorized town to file suit against subdivision developers for failure to maintain subdivision streets without first obtaining approval of the town council.

Personal watercraft riders who were injured when a boat operated by a trooper with the Oklahoma Highway Patrol (OHP) collided with them brought action against OHP for negligence and respondeat superior.

The District Court granted OHP’s motion to dismiss and denied riders’ motion for a new trial. Riders appealed.

The Supreme Court held that letter asking OHP to preserve evidence relating the accident did not substantially comply with notice of claim requirements in the Governmental Tort Claims Act, and thus did not trigger time limits for filing suit under the Act.

Letter sent by attorney asking Oklahoma Highway Patrol (OHP) to preserve any evidence relating to accident that occurred when boat operated by OHP officer collided with personal watercraft, injuring riders, did not substantially comply with notice provisions of the Governmental Tort Claims Act, and thus did not trigger Act’s time limits for filing suit against OHP for negligence and respondeat superior; letter was not addressed or sent to Oklahoma Office of Management & Enterprise Services (OMES) and stated that a claim might be made, but that evidence must be preserved to make such an evaluation, and letter did not state the name of the officer who allegedly caused the accident, or provide details about healthcare providers or injuries sustained, other than to generally list some of them.

Special utility district brought action against city, under § 1983 and provision of Consolidated Farm and Rural Development Act protecting utilities from curtailment and encroachment by municipalities and other public bodies, alleging that city was unlawfully providing water service to customers in competition with district and within district’s service area.

City moved to dismiss, to transfer, and for a more definite statement.

The District Court adopted report and recommendation of United States Magistrate Judge, and held that:

• City’s argument on motion to dismiss for lack of subject matter jurisdiction was properly considered on a motion to dismiss for failure to state a claim;
• First-to-file rule did not apply based on case district filed in another court;
• Stay pending resolution of district’s case filed in another court was warranted;
• District could not state a § 1983 claim;
• District’s allegations were insufficient to state claim for protection under provision protecting utilities from encroachment by municipalities with regard to district’s entire certificate of convenience and necessity (CCN);
• District’s request for declaration of rights concerning effect of city’s annexation of land within district’s territory, actual and threatened water service by city, and city’s interference with potential district water customers failed to state a claim for declaratory judgment; and
• Claim that provision protecting utilities from curtailment and encroachment by municipalities preempted applicable state laws was insufficient to establish federal question jurisdiction.

State and local governments generally use bonds to finance major infrastructure projects. But higher rates won’t bust budgets just yet. Plus, more news to use from around the country in this week’s State and Local Roundup.

It’s Saturday, Oct. 28, and we’d like to welcome you to the weekly State and Local Roundup. There’s plenty to keep tabs on, with a federal court striking down Georgia’s voting maps, the Texas House voting to let state and local law enforcement arrest migrants, and universal school choice voucher programs potentially busting some state budgets.

But first we turn to Wall Street, where U.S. Treasury 10-year bond rates have hit highs not seen since the Great Recession. That’s usually a red flag for state and local governments because they use bonds to finance major infrastructure projects. If the rates on Treasury bonds go up, the rates on all sorts of other bonds go up too.

This year, though, state and local governments are in good shape to withstand the higher costs of issuing debt, according to experts. Thanks to federal pandemic aid and strong revenues over the last few years, one of the biggest things going for states right now is that most of them are flush with cash.

Continue reading.

ROUTE FIFTY

by DANIEL C. VOCK

OCT 28, 2023

Key Takeaways

• Our credit ratings are forward-looking opinions that reflect the ability and willingness of debt issuers, like corporations or governments, to meet their financial obligations on time and in full.
• Our environmental, social, and governance (ESG) factors concern an entity’s effect on and impact from the natural and social environment and the quality of its governance. However, not all of these factors influence creditworthiness and, thus, credit ratings.
• We define ESG credit factors as a subset of ESG factors which, by applying sector-specific criteria, we believe could materially influence the creditworthiness of a rated entity or issue and for which we have sufficient visibility and certainty to include in our credit rating analysis.
• Increasing frequency and severity of climate-related risks could result in environmental and social factors becoming more material, influential, and certain in our credit analysis over time.

Continue reading.. [Free Registration Required.]

25 Oct, 2023

View the S&P Rating Actions.

23 Oct, 2023

Fitch Ratings-London/New York-13 September 2023: Fitch Ratings has published an expanded sector-specific transition and default study for 2022. Transition and default rates are used by a number of participants in the debt capital markets to calibrate credit risk across their portfolios. From an investor with a mandate that includes rating level restrictions to a risk manager running complex quantitative models, reliable transition and default data act as key inputs to financial analysis. They also quantify the stability of ratings over time.

To aid with this analysis and to provide more granular information to market participants, Fitch has expanded its annual rating transition and default report to incorporate a number of key sub-sector and sub-asset-class tables. The new data includes a split out of financial and non-financial corporates including individual sector tables for emerging and developed markets. It also includes a breakdown of key structured finance sub-asset classes such as Autos, Credit Cards, Prime-RMBS and CLOs.

The full dataset includes 427 transition and default matrices, based on track record from 1990.

The dataset is available to Fitch Connect subscribers.

Contacts:

David Li
Criteria Officer
+1 646 582-4512
david.li@fitchratings.com
Fitch Ratings, Inc.
Hearst Tower
300 W. 57th Street
New York, NY 10019

Jake Han
Director, RPA
+ 1 646 582-4808
jake.han@fitchratings.com

Rachel Willis Gutierrez
Senior Director
rachel.willisgutierrez@fitchratings.com
+44 20 3530 1356

Media Relations: Elizabeth Fogerty, New York, Tel: +1 212 908 0526, Email: elizabeth.fogerty@thefitchgroup.com

Additional information is available on www.fitchratings.com

COMMENTARY | Finding and replacing Chinese-made equipment in state and local government networks will be challenging and expensive. But the threat is genuine and must not be ignored.

TikTok, the popular video app that is used by more than 135 million Americans, is facing an increasingly loud chorus of opposition from U.S. officials concerned about the company’s relationship with the Chinese government.

As of April, at least 34 states have issued some sort of prohibition on the app’s use on government-owned and -issued devices by agencies, employees and contractors. Montana, has gone so far as to pass legislation restricting the app on personal devices, though the measure is being challenged in court.

Driving all this action is concern that TikTok’s parent company ByteDance could be forced to share data on U.S. users, such as their profiles, contacts, messages and location information, with the Chinese government under the country’s 2017 National Intelligence Law. That law states that “any organization or citizen shall support, assist, and cooperate with state intelligence work,” and experts say that Chinese companies would have no choice but to hand over data if authorities in Beijing requested it.

Continue reading.

Route Fifty

By Tom Guarente,
Armis

OCT 26, 2023

Key Takeaways

• The Cybersecurity and Infrastructure Security Agency states that K-12 traditional school districts and charter schools (K-12 public schools) tend to be a target of cyber crime due to two primary reasons: They are “target rich and cyber poor.”
• K-12 public schools maintain highly sensitive data and typically have more limited financial and resource allocation to data security, including in-house cyber security expertise, making them high risk for cyber crime.
• To date, for those S&P Global Ratings rated schools that have faced cyber incidents, we have not observed long-term operational or material financial impacts to credit quality due to cyber risk mitigation plans, including cyber insurance.
  Assessing cyber risk in K-12 public schools is part of our ongoing surveillance for these ratings, as we believe that the true number of cyber attacks on these schools is much higher than what was publicly reported.
• S&P Global Ratings’ views cyber security as an aspect of U.S. public finance issuers’ comprehensive risk-mitigation strategies. We consider risk management and mitigation a governance factor under environmental, social, and governance.

Continue reading.

24 Oct, 2023

Eric Kazatsky and Karen Altamirano discuss the recent happenings affecting the muni market.

Watch video.

Bloomberg

October 27th, 2023

Chuck Peck, Wells Fargo’s head of municipal products, discusses the outlook for the municipal bond market with Katie Greifeld and Romaine Bostick on “Bloomberg Markets: The Close.”

Watch video.

Muni Moment – Bloomberg Markets: The Close

October 25th, 2023

• Bloomberg municipal-market panel discusses trends, outlook
• Topics include buyer demand and a changing marketplace

Municipal-bond yields at the highest in more than a decade are spurring optimism on the part of investment managers, who have been dealing with persistent fund outflows this year as the market has struggled along with the rest of fixed income.

The muni market is on track for a second straight year of declines, punished by the Federal Reserve’s interest-rate increases and its message that it intends to keep borrowing costs higher for longer to tame inflation.

Yields have surged across the bond universe, with one measure of rates rising to levels last seen in 2009. For market participants speaking on a Bloomberg muni-market panel Monday evening in New York, the selloff may have reached a point where demand will re-emerge.

Continue reading.

Bloomberg Markets

By Skylar Woodhouse, Nic Querolo, and Eniola Longe

October 24, 2023

• City’s $513 million Midway refunding bonds see good demand
• Chicago schools to sell $600 million but park district on hold

Chicago institutions are borrowing more than $1 billion this week, helped by Wall Street’s improved outlook on the city and a bright spot in a bleak year for the municipal bond market.

The third-largest US city sold $513.5 million in refunding bonds for Midway International Airport on Tuesday after investor interest allowed bankers to reprice the debt at lower yields than initially offered. Next comes the Chicago Board of Education’s sale of $600 million in debt on or about Thursday.

“Both have their credits trending positive with air travel helping Midway International Airport and improved budgeting helping the board of education,” said Daniel Solender, director of tax free fixed income for Lord, Abbett & Co., which holds $30 billion in muni assets. “The first one found strong demand. If the second is priced correctly, it should also do well. Overall, muni bond yields have reached very attractive levels.”

Continue reading.

Bloomberg Markets

By Shruti Singh

October 25, 2023

• Schools terminate deals after funding fails to materialize
• Canadian investment firm says schools didn’t meet requirements

Some community colleges in California are learning a hard lesson about free money.

The schools signed up to sell municipal securities whose debt service would be entirely covered by the loan and whose principal would be forgiven at maturity. They would never have to write a check.

Now at least two schools are facing the legal costs of terminating the transactions as well as pursuing alternative financing for almost $500 million in construction projects ranging from new classrooms to libraries to student housing, at a time when borrowing costs have climbed to the highest levels in decades.

Continue reading.

Bloomberg Markets

By Joseph Mysak Jr

October 24, 2023

Amid ongoing federal government shutdown risks and the close of its fiscal year, the U.S. Securities and Exchange Commission’s (SEC) Division of Examinations (Exams) recently announced its fiscal year (FY) 2024 priorities. According to Exams, “this year’s examinations will prioritize areas that pose emerging risks to investors or the markets in addition to core and perennial risk areas.” In addition to key focus areas outlined based on the types of entities subject to examination, Exams identified the following risks to various market participants as FY 2024 priorities:

• Information Security and Operational Resiliency: Firms need to have systems, policies and people in place to maintain service during volatile events.
• Crypto Assets and Emerging Financial Technology (FinTech): Firms must ensure rigorous compliance with applicable professional standards, statutes, and rules even as their business models involve cutting edge products and technology.
• Regulation Systems Compliance and Integrity (Reg SCI): Firms must ensure they invest in and maintain systems that adequately support key market functions and improve resiliency.
• Anti-Money Laundering (AML): Firms must understand and adhere to the Bank Secrecy Act and tailor programs to meet their particular risk profiles.

Of note, although Exams identified environmental, social and corporate governance (ESG) as a key priority in FY 2022 and FY 2023, it did not explicitly identify it as a priority for FY 2024.

Continue reading.

Holland & Knight LLP – Jessica B. Magee and Scott Mascianica

October 26 2023

On October 16, 2023, the U.S. Securities and Exchange Commission (SEC) Division of Examinations (EXAMS or Division) issued its annual examination priorities, which, for the first time, was published at the start of the SEC’s fiscal year to “better inform investors and registrants of key risks, trends, and examination topics” the Division intends to focus on in the coming year.1

Our Take

The October 16 publication of the priorities represents the earliest publication to date in the 10-year history of the publication of examination priorities, which will help registrants better prepare for upcoming exams. EXAMS acknowledged that the short time period since publication of the 2023 priorities, only eight months ago2, means that “several initiatives and focus areas from last year remain” priorities for 2024. Against that backdrop, the Division focused on the need to demonstrate compliance with all of its new regulations, and we note that many of the areas of examination priorities also align with areas in which additional or amended regulations have been proposed or may be under consideration.

The priorities for the upcoming year underscore that investment advisers are fiduciaries and, therefore, EXAMS will focus on the identification and disclosure of conflicts of interest. Broker-dealers are especially reminded of their obligations under Regulation Best Interest (Reg BI). While EXAMS has focused for several years on duties owed to clients and investors, the fact that next year’s priorities lead with a discussion of EXAMS’ focus on duties owed to clients and investors suggests that registrants should expect even greater focus on this aspect of an examination. Further, as demonstrated by recent enforcement actions for marketing rule and custody rule violations, the SEC staff is providing little, if any, “grace period” for the implementation of new rules; that is, rather than giving registrants an opportunity to correct deficiencies, the SEC is proceeding (at least in some cases) directly to enforcement.3 For both investment advisers and broker-dealers, the Division is also focused on complex, costly, and illiquid products, such as derivatives, leveraged exchange traded funds (ETFs), variable annuities, and nontraded real estate investment trusts (REITs).

In addition, the Division highlighted its general focus on crypto assets and new technology, the need for security, resilience, and systems integrity for registrants and markets, and anti-money-laundering (AML) for broker-dealers and other financial institutions, specifically including compliance with Office of Foreign Asset Control (OFAC) sanctions (including for advisers). Notably missing from the specifically identified risk areas were environmental, social, and governance (ESG)–related issues.

This Sidley Update provides a summary of upcoming examination priorities and perennial issues registrants can anticipate in this year’s examinations. Based on the full scope of EXAMS priorities, registrants should note the following themes for 2024:

i) The Division’s core priorities remain the same as in prior years.

ii) Registrants should be ready to show how they have implemented compliance controls for new rules.

iii) ESG remains a challenging area to both regulate and examine, with ESG not only slipping down, but off, the priority list (although registrants should continue to be mindful of the overlap between the Division’s priorities and ESG-related products and services).

Continue reading.

Sidley Austin LLP – W. Hardy Callcott, Kevin J. Campion, Stephen L. Cohen, Ranah Esmaili, Elizabeth Shea Fries, David M. Katz, Laurin Blumenthal Kleiman and John I. Sakhleh

October 26 2023

The SEC’s Division of Examinations got a head start this fiscal year, announcing its 2024 Examination Priorities (2024 Priorities) at the beginning of the fiscal year for the first time. This novel approach likely signifies the Division’s intent to be very active over the next 12 months and a desire to give registrants and other market participants more time to shore up areas of concern.

Not surprisingly, the 2024 Priorities emphasize that conflicts of interest will remain a priority for the Division’s examiners. For investment advisers, that means examiners will scrutinize not only how advisers identify and disclose conflicts to clients, but also their processes for mitigating or eliminating those conflicts where appropriate. Key areas of focus will include:

• The adviser’s processes and practices for allocating investments to accounts where clients have multiple accounts (e.g., allocating between accounts that are adviser fee-based, brokerage commission-based, and wrap fee, and between taxable and non-taxable accounts)
• Investment advice regarding complex products (derivatives and leveraged ETFs), high-cost and illiquid products (such as variable annuities and non-traded REITs), and unconventional strategies (including ones purporting to address rising interest rates)
• The economic incentives an adviser and its professionals may have to recommend certain products, services, or accounts over others; and
• The adviser’s disclosures of all material facts relating to conflicts of interest.

Continue reading.

Venable LLP – Adrienne Dawn Gurley, Daniel J. Hayes, George Kostolampros, Eric R. Smith and Xochitl S. Strohbehn

October 24 2023

Read the Mayer Brown Legal Update.

Mayer Brown – Leslie S. Cruz , Steffen Hemmerich, Adam D. Kanter, Marc Leong, Timothy B. Nagy and Anna T. Pinedo

October 23 2023

On October 13, 2023, the Securities and Exchange Commission (the “SEC”) adopted new Rule 10c-1a (the “Securities Lending Rule”), requiring the reporting of certain securities lending transactions. Certain material terms of securities lending transactions relating to “reportable securities” are required to be reported to a registered national securities association (“RNSA”) by the end of the day on which the loan is agreed or modified. The RNSA is required to make the information – other than that deemed confidential as defined below – public on the morning of the next business day. The amount of the loan is to be made public on the 20th business day following submission of the report. Of note, currently the Financial Industry Regulatory Authority (“FINRA”) is the only registered RNSA and is expected to accept the securities lending reports once the Securities Lending Rule is effective.

The SEC states that the purpose of the new rule is to increase the transparency and efficiency of the securities lending market. The Securities Lending Rule will provide market participants with access to pricing and other material information in a timely manner, as well as aid regulators in their oversight of the securities lending market.

What Securities Are Covered by the New Rule?

All loans of “reportable securities” (with a few exceptions noted below) are required to be reported to an RNSA. Reportable securities is defined as any security or class of an issuer’s securities for which information is reported or required to be reported to the consolidated audit trail (CAT) as required by Rule 613 and the CAT National Market System Plan, FINRA’s Trade Reporting and Compliance Engine (TRACE), the Municipal Securities Rulemaking Board Real-Time Transaction Reporting System, [emphasis added] or any reporting system that replaces one of these systems. Reportable securities include equity securities (both exchange traded and those traded OTC), debt securities subject to TRACE reporting, and digital asset securities that meet the definition of “reportable security” (each a “Reportable Security”). It is important to note that the definition of Reportable Securities is not limited to U.S. exchange traded securities or securities issued by U.S. public companies, and there may be overlap with EU or UK SFTR reporting requirements.

Continue reading.

Proskauer Rose LLP – Elanit Snow, Frank Zarb and Louis Rambo

October 26 2023

The SEC has adopted new Rule 10c-1a, which will require disclosure to a registered national securities association (“RNSA”)[1] of specified details regarding securities loans on a same day basis. The RNSA will then publish certain information regarding such loans. Rule 10c-1a will become effective 60 days after its publication in the Federal Register, and disclosure will be required on the first business day 24 months after Rule 10c-1a becomes effective.

Who will be required to disclose share lending activity?

Under new Rule 10c-1a, securities loan intermediaries, or, where there are none, lenders themselves, and brokers and dealers where borrowing fully paid or excess margin securities, must disclose any loan of “reportable securities.” “Reportable securities” are defined as any security or class of an issuer’s securities for which information is reported or required to be reported to the consolidated audit trail pursuant to the CAT NMS Plan, the Financial Industry Regulatory Authority’s Trade Reporting and Compliance Engine or the Municipal Securities Rulemaking Board’s Real-Time Transaction Reporting System (or any reporting system that replaces one of these systems). The disclosure requirements do not attach to the use of margin securities by a broker or dealer unless the broker or dealer lends such margin securities to another person.

There are no reporting thresholds – all loans will trigger the disclosure requirement.

What information must be provided?

The following information must be disclosed, and will, as noted below, be mostly subject to publication by the RNSA:

Modifications to any of these terms will also need to be communicated on a same day basis.

When must the information be reported?

Loan participants must provide this information on a same day basis to the RNSA. The RNSA must publicize the required information (see above) by morning of the following business day, except for the amount of the loan, which must be publicized by the 20th business day. The RNSA must also publicize aggregate transaction activity and distribution of loan rates for those securities it determines appropriate.

When will these disclosure requirements become effective?

Rule 10c-1a will become effective 60 days after the release is published in the Federal Register. Rules to implement Rule 10c-1a must be proposed by the RNSA within four months of the effective date of Rule 10c-1a and must become effective no later than 12 months after the effective date of Rule 10c-1a. Disclosure will be required starting on the first business day 24 months after the effective date of Rule 10c-1a (the “reporting date”); and the RNSA must make specified information publicly available within 90 calendar days of the reporting date.

Paul, Weiss, Rifkind, Wharton & Garrison LLP – Christopher J. Cummings, Manuel S. Frey, David S. Huntington, Brian M. Janson, Luke Jennings, Christodoulos Kaoutzanis and John C. Kennedy

October 23 2023

On October 13, 2023, the SEC issued a release (the “Release”) adopting new Rule 10c-1(a) (the “Rule”) under the Exchange Act “to increase the transparency and efficiency of the securities lending market” by requiring certain persons to report information about securities loans to a registered national securities association (an “RNSA”). In addition, the Rule requires (i) certain confidential information to be reported to an RNSA to enhance its oversight and enforcement functions and (ii) an RNSA to make certain information it receives, including daily information pertaining to aggregate transaction activity and the distribution of loan rates for each reportable security, available to the public. Currently, FINRA is the only RNSA.

Summary Rule Requirements

• For each “covered securities loan,” the Rule requires a “covered person” to provide to an RNSA the material terms of the transaction – in the format and manner required by the RNSA – by the end of the day on which the securities loan is effected or the terms of the loan are modified.
• Covered persons may rely on reporting agents to provide the required information to an RNSA.
• An RNSA is required to make publicly available certain information about reported securities loans, either on a transaction-by-transaction basis or an aggregate basis.

Continue reading.

October 20 2023

City brought declaratory judgment action against county and various county officials, alleging that county failed to properly assess and pay city occupational tax on leasehold interests at county-owned airport located within city and county.

The Trial court denied county’s motion to dismiss. After obtaining certificate of immediate review from the trial court, county filed application for interlocutory appeal, which was granted.

The Court of Appeals held that:

• City failed to state a claim for declaratory relief under Declaratory Judgment Act;
• City failed to state a claim for collection of past taxes and appointment of an auditor;
• County was not liable for occupancy taxes because it was not a “business” under city code; and
• There was no final ruling to review on issue of city’s derivative claim for attorney fees.

City did not face any uncertainty as to any of its own future conduct but instead only sought an adjudication of issues that would impact the future conduct of county when it requested the court to determine that statute authorizing municipal airport owners to lease property required that county’s leasehold interests at county-owned airport located within city and county be treated as taxable estates, which would provide city with taxable revenue, and thus, it failed to state a claim for declaratory relief under the Declaratory Judgment Act against county; city sought to determine propriety of county’s actions, not its own, and so any judgment could not guide and protect city with regard to some future act.

City failed to point to any statutory provision authorizing its lawsuit against county for damages resulting from county’s alleged failure to assess ad valorem taxes for leasehold interests at county-owned airport located within city and county, and thus, city failed to state a claim for collection of past taxes and for appointment of an auditor; separation of powers doctrine required specific legislative empowerment for the judiciary to act regarding executive function in collection of a tax.

County was not liable for occupancy taxes for its leasehold interests at county-owned airport, located within city and county, under city code which provided in pertinent part that each person engaged in a business, trade, or profession or occupation with location within city shall pay an occupational tax for said business, trade, or profession or occupation, because county’s operation of the airport qualified as a governmental function, not a “business” under city’s code; county did not operate airport for purpose of raising revenue or producing income, but instead, it controlled the airport for public, government, and municipal purposes, as provided by statute authorizing political subdivisions to acquire airports for such purposes.

There was no final ruling by the trial court upon city’s derivative claim for attorney fees in city’s action against county seeking declaratory relief for county’s failure to pay occupancy taxes it allegedly owed city, and as such, there was nothing for Court of Appeals to review on appeal of trial court’s denial of county’s motion to dismiss the suit, where trial court expressly “reserved ruling” on city’s attorney fees claim.

Judgment creditor, a junior lienholder, moved for payment of remaining, unclaimed portion of surplus proceeds from judicial sale of judgment debtor’s property to satisfy city’s tax lien.

The Richmond Circuit Court denied motion and denied reconsideration. Judgment creditor appealed.

The Supreme Court held that:

• Unclaimed surplus proceeds escheated to city pursuant to statute governing judicial tax sales, but
• Escheat provision of statute violated takings clause of the State Constitution as applied.

Under statute governing distribution of surplus proceeds after judicial sale of property to collect delinquent local real estate taxes, the unclaimed portion of surplus proceeds held in the court’s registry escheated to city after expiration of the two-year deadline for unknown lien beneficiaries to make a claim, even though city’s tax lien had been fully satisfied.

Escheat provision of statute governing distribution of surplus proceeds after a judicial sale of property to collect delinquent local real estate taxes violated the takings clause of the State Constitution as applied to judgment creditor that unsuccessfully sought the remaining, unclaimed portion of surplus proceeds to satisfy its junior lien after city’s tax lien had been fully satisfied and unknown senior lien beneficiaries did not make claim within two years of judicial confirmation of sale, where city laid claim to the unclaimed proceeds solely by operation of the mandatory statutory escheat, and city did not assert any specific public-use justification.

Meeting Notice.

10/27/23

Meeting Notice.

10/27/23

New funding bolsters transit bonds in some cities, while others struggle as pandemic aid runs dry

Wall Street is betting on a messy and divided recovery for U.S. city mass transit systems.

Some cities are facing budget crises due to dwindling Covid aid and lower ridership as many people continue to work from home. Others have found new revenue streams to power their buses and trains.

That has bifurcated the outlook for municipal transit bonds, an $84 billion market, according to Citigroup. New York subway bonds are trading at higher prices and lower yields relative to top-rated municipal debt, while San Francisco’s Bay Area Rapid Transit District is staring down a decade of budget deficits. Boston- and Atlanta-area mass transit had their credit upgraded by ratings firms, while the Washington Metropolitan Area Transit Authority’s bonds are in danger of being downgraded.

Continue reading.

The Wall Street Journal

By Heather Gillers

Oct. 27, 2023

• State AG’s review of bank energy policies disrupts borrowings
• AG ‘has put a strain on municipalities,’ Houston official says

Texas Attorney General Ken Paxton is sending shock waves through the state’s booming municipal-bond market, leaving borrowers and bankers alike on edge.

At least two banks, RBC Capital Markets and Wells Fargo & Co., were dropped from underwriting muni deals since Paxton said last week that he was probing the energy policies of a group of finance companies given commitments they’ve made to cut greenhouse gas emissions.

The review by Paxton, a rising star in the state’s Republican Party, targets eight Wall Street bond underwriters, including JPMorgan Chase & Co., Morgan Stanley, RBC and Wells Fargo. The group has handled more than a quarter of the $51 billion of muni sales from Texas cities and localities in 2023, data compiled by Bloomberg show. Those banks are now at risk of losing business in the Lone Star State.

Continue reading.

Bloomberg Markets

By Amanda Albright, Nic Querolo, and Danielle Moran

October 27, 2023

• Yield is equivalent to 12% on taxable bonds for NYC’s rich
• Investors placed orders for seven to nine times bonds on offer

Delta Air Lines sold about $875 million in municipal bonds to help finance the completion of its new terminal at LaGuardia Airport. And the yields on the debt are exciting investors.

The bonds, issued through New York State’s Transportation Development Corp. so investor returns are tax exempt, mature in 2035 and were priced to yield 5.6%, with securities maturing in 2040 priced at a 5.85% yield.

To match those yields, a New York City taxpayer in the $1 million per year tax bracket would need to get 11.6% to 12% on equivalent taxable corporate debt.

Investor orders totaled seven to nine times the amount of securities available, people familiar with the transaction said. The bonds carry Delta’s corporate ratings of BB+ from S&P Global Ratings Inc. and Baa3 from Moody’s Investors Service.

Citigroup Inc. managed the sale and the bonds have an optional par call in 2031.

Bloomberg Markets

By Martin Z Braun

October 25, 2023

• Investor agrees to pay $25.5 million for complex near Phoenix
• Holders of $280 million debt get $2.2 million cash, 11% equity

Mutual funds that purchased $280 million of municipal debt to finance a 320-acre youth-sports complex near Phoenix would be virtually wiped out under a preliminary deal struck in the bankruptcy case.

Miami-based Burke Operating Partners agreed in principal to purchase Legacy Park for $25.5 million, with most of the proceeds going to building contractors for unpaid work. Bondholders would receive $2.2 million in cash and 11% of preferred equity in a new company that would own the facility according to an agreement outlined in a bankruptcy court hearing late Tuesday. It would need to be approved in the bankruptcy process to take effect.

Legacy Park has enough cash to remain open while the parties work to close the deal by the end of the November, said Keith Bierman, the complex’s chief restructuring officer.

Legacy Cares filed for bankruptcy in May, saying construction setbacks, labor shortages and supply-chain delays amid the pandemic led to the park’s delayed opening and resulted in lost revenue. Mutual funds including the Vanguard Group and AllianceBernstein Holdings LP hold the $280 million of Legacy Cares bonds issued by an Arizona agency. The bonds last traded on Aug. 23 for 10 cents on the dollar.

In addition to labor shortages, Legacy Park was also plagued by poor execution of restaurant and concession operations. In all, Legacy Park brought in just $27.7 million in 2022, far short of its nearly $100 million projection. It was losing more than $1 million a month on operations alone.

Legacy Park was the brainchild of Randy Miller, a former professional baseball player, who created Legacy Cares to finance the complex in the tax-exempt bond market. Miller, who had no experience in developing and managing sports facilities, resigned from Legacy Cares before the Arizona Industrial Development Authority approved the first $250 million tranche of bonds in March 2020.

Legacy Cares hired Miller’s for-profit company Legacy Sports to develop and manage the complex.

The attorney for Legacy Cares proposed that a hearing be held on Nov. 20 to weigh the proposed sale.

Bloomberg Markets

By Martin Z Braun

October 25, 2023

With better infrastructure, the desert city of Midland, Texas, would have a better chance of drawing workers to the continent’s most productive shale fields.

When Sam Sledge walked the halls of Robert E. Lee High School in the early 2000s, the aging West Texas campus had already seen better days. Dozens of small, portable trailers littered the grounds to house student overflow, the chief of ProPetro Holding Corp. recalls, and Phys Ed was downright brutal in an un-airconditioned gym.

The institution has since dropped the Confederate general’s name, but the physical structures at the rebranded school and others in the district have seen scant improvement, imperiling companies’ ability to lure talent to the rural, oil-rich desert. Desperate to change that, drillers are urging voters on Nov. 7 to approve the biggest-ever school bond in Midland, Texas, history: a $1.4 billion package to expand and refurbish its aging, overcrowded school system.

Midland, like countless Texas municipalities, is outgrowing its infrastructure as companies expand their presence in the Lone Star State. A lucrative fracking industry in the Permian Basin — which pumps about 46% of the country’s oil, spawning generations of extraordinary wealth and prompting supermajor Exxon Mobil Corp. to recently announce a $60 billion deal to become the basin’s biggest player — requires a large, skilled workforce that’s hard to retain given the sorry state of its hospitals, roads and educational system.

Continue reading.

Bloomberg CityLab

By Mitchell Ferman and Nic Querolo

October 25, 2023

A Comprehensive Overview of Post-Issuance Compliance and Secondary Market Disclosure Rules and Regulations for 501(c)(3) Organizations and State and Local Government Issuers Who Utilize Tax-Exempt Financing

Click here to learn more and to register..

Since 2021, half the states have cut personal income tax rates.

With a $750 million budget surplus on hand, there was little doubt whether North Dakota lawmakers would cut taxes earlier this year—the question was how much.

“The surplus was strong, and we believe it’s going to be sustained into the future,” said state Rep. Craig Headland. “So, it just made sense to cut taxes.”

Headland was among the Republicans who negotiated terms of the legislature’s $515 million tax cut this year—70% of which came from lowering personal income tax rates. The cuts leave North Dakota with the lowest tax rate among the states that collect income taxes.

In a special session this week, the legislature is considering more tax cuts that would exempt about 50,000 North Dakotans who earn $60,000 or less from income taxes. And Republicans, who control both chambers and the governor’s office in North Dakota, plan to continue their march toward eliminating the state income tax; Headland said he plans to introduce such a bill when the legislature reconvenes in 2025.

Continue reading.

Route Fifty

By Kevin Hardy,
Stateline

OCTOBER 25, 2023

NOVEMBER 14, 2023 – WEBINAR

Increasingly, investors are considering the impact of severe weather events, climate-related risks and socio-economic challenges, across the United States and around the world, as they make investment decisions. In response to this growing popularity, the financial markets have incorporated environmental, social and governance (“ESG”) factors into certain investment vehicles, in order to align socially responsible business practices with positive financial returns. The municipal securities market has been at the forefront of this movement, with investors and rating analysists taking ESG factors into consideration in evaluating an issuer’s or conduit borrower’s overall financial condition, operations and future prospects.

On November 14, Neal Pandozzi and Andrew Stern of Bowditch’s Public Finance team will take a deep dive into this topic, discussing the evolution of ESG in public finance transactions, from its beginning as a fairly innocuous marketing tool to its present iteration as a political flashpoint in the partisan culture war on “wokeness” in the United States. Particularly, they will review the different state-by-state approaches to regulating the use of ESG factors by various municipal market participants. Additionally, recent developments in cybersecurity disclosure relative to ESG will be discussed.

WHO SHOULD ATTEND?

This webinar is designed for members of the public finance community who would like to explore the topic of ESG in greater detail, particularly with regard to the complications, roadblocks and opportunities presented by the ESG backlash at the state level.

The webinar will include a question-and-answer session.

NOVEMBER 14, 2023 1 – 2 PM

REGISTER

The tax advantages of buying bonds in your own backyard

Want to get a tax-free return on your money? Put sewers and subway systems in your portfolio.

The municipal bonds that state and local governments sell to pay for unsexy-sounding infrastructure projects are offering their highest yields in more than a decade. New bond investors snapped up Treasurys after interest rates surged this year, but the special tax advantages of muni bonds make them also worth a look, financial advisers say.

Munis, like all bonds, are debt. Local governments sell them to get money for funding big projects. Investors who hold munis generally don’t have to pay federal tax on the interest they earn, unlike their gains from savings accounts or certificates of deposit. Better still, when investors buy bonds issued in their home state, they typically don’t have to pay state taxes on that interest either. Advisers say these tax advantages often give muni bonds an edge over other investments.

Continue reading.

The Wall Street Journal

By Oyin Adedoyin

Oct. 19, 2023

The NFMA established the FDTA Working Group to make initial recommendations to the SEC on the process of creating and implementing the taxonomy required by the FDTA. A letter was prepared by the Working Group, with input from our Executive Committee and review by the full NFMA Board of Governors.

To read the letter, click here.

GASB’s new guidance on compensated absences provides a unified recognition and measurement model for all types of compensated absences. This session will examine the various types of leave organizations provide to their employees, the ways in which the obligations for compensated absences are incurred and settled by governments, and how these obligations are properly accounted for, reported, and disclosed.

Click here to learn more and to register.

Procurement is an essential function for all governments and serves to provide service that connects public sector operations with private sector suppliers, contractors, and providers. High performing procurement functions not only support government’s responsibility to use resources effectively, they also promote efficient operations, reduce business continuity risk, and work to maintain trust in government. Unfortunately not all organizations utilize procurement to its full strategic potential. In this course, instructors will cover the basics of public procurement, provide an overview of key processes and policies, highlight important features and tools of modern procurement functions, and explain how the profession is evolving to better meet the needs of governments.

Click here to learn more and to register.

Enhance your skills in governmental accounting, auditing, and financial reporting with our new GAAFR Plus subscription. Get peer support and guidance through an exclusive online forum, access to free webinars, Blue Book supplements, and helpful templates and guides. Take advantage of this enhanced approach to governmental finance today!

SUBSCRIBE

The Board of Directors of the Municipal Securities Rulemaking Board (MSRB) met in Washington, D.C. on October 25-26, 2023, for its first quarterly meeting of fiscal year 2024. The Board voted to approve the 2024 rate card to adjust rates for the three market activity fees assessed on municipal securities dealers and the municipal advisor professional fee. The Board also discussed the regulatory and technology initiatives underway to enhance market transparency.

2024 Rate Card

Under a new rate-setting process adopted last year, the MSRB annually adjusts fees to ensure a timelier return of any excess revenue to regulated entities and to better manage the organization’s revenue needs and reserve funds. The 2024 rate card will be filed with the Securities and Exchange Commission (SEC) next month, and the new rates will be operative January 1, 2024.

“The annual rate card is designed to fund the organization with the revenue needed to deliver value to the municipal market through our regulatory protections, technology infrastructure and data services,” said MSRB Chair Meredith L. Hathorn. “Importantly, any surplus beyond those funding needs is promptly returned to fee-payers in the form of reduced rates rather than accumulating in the MSRB’s coffers. For 2024, the MSRB will be returning over $3 million in excess revenue collected from dealers as a result of record-high trading volume in 2023.”

The MSRB provides a detailed explanation of the rate card and its funding philosophy in the FY 2024 budget, which provides transparency about projected revenues, expenses and reserve funds. As projected in the MSRB’s budget, the formulaic rate-setting process will result in an increase to underwriting fees and municipal advisor professional fees to reflect less revenue assessed in FY 2023 relative to budget, and significant decreases in the transaction and trade count fees to return the surplus to regulated entities.

Market Regulation and Market Structure

The Board discussed progress toward filing proposed amendments to shorten the timeframe for trades to be reported to the MSRB from 15 minutes to as soon as practicable, but no later than one minute, subject to certain exceptions. The Board previously approved seeking SEC approval of the proposed amendments to MSRB Rule G-14 at its July 2023 meeting.

“The MSRB continues to closely coordinate with our fellow regulators on this impactful enhancement to post-trade transparency, with the goal of making a filing in the coming months,” said MSRB CEO Mark Kim.

The Board also discussed comments received in response to the request for comment on MSRB Rule G-47, on time of trade disclosure, and approved submitting a rule filing with the SEC for approval. The Rule G-47 request for comment included a number of questions about potential amendments to Rule D-15, defining “sophisticated municipal market professionals,” and the MSRB plans to seek additional information from stakeholders before determining next steps in this area.

Market Transparency Products and Services

The Board received an update regarding work to modernize the Electronic Municipal Market Access (EMMA®) website and related market transparency systems, including user personalization and improvements to search and the disclosure submission process.

Date: October 27, 2023

Contact: Leah Szarek, Chief External Relations Officer
202-838-1500
lszarek@msrb.org