Act 463 of the 2014 Louisiana Legislative Session enacted Louisiana Revised Statute (R.S.) 39:1438, requiring issuers of municipal securities to comply with the continuing disclosure rules of the Securities and Exchange Commission (SEC).
Municipal securities are defined as any securities issued by a public entity (the state of Louisiana, its agencies, departments, boards, commissions, parishes, municipalities, school boards, special districts, special authorities, and any other political subdivision or other entity created by the foregoing) that are subject to continuing disclosure under the SEC Rule.
The referenced SEC Rule is codified in the Code of Federal Regulation, 17 CFR 240.15c2-12 (commonly referred to as Rule 15c2-12), together with all corresponding rules, updates, notices, and interpretations of the SEC and the Municipal Securities Rulemaking Board (MSRB), as may be amended from time to time. For further information on SEC Rule 15c2-12 as amended, see the SEC’s website, or the continuing disclosure guidelines published on the MSRB website.
The requirements of the SEC Rule generally apply to all publicly offered bond issues (i.e., those sold to the public via an underwriter using an official statement), but not to private placement bond issues (i.e., those sold in a private sale to one or a few investors, such as a bank).
Generally, the Rule exempts issuers who offer municipal securities with an aggregate principal amount of $1,000,000 or less. See the Rule for additional exemptions.
The continuing disclosure requirements apply to “obligated persons” as defined in the SEC Rule. An obligated person is generally an entity which is responsible for the repayment of the bonds or has pledged its own revenues or assets to the repayment of the bonds. The obligated person may or may not be the issuer of the bonds (e.g. a conduit issuer which issues bonds on behalf of another entity). Therefore, entities other than the bond issuer may be an obligated person subject to continuing disclosure requirements.
The MSRB’s Electronic Municipal Market Access (EMMA) website publicly displays continuing disclosures that are provided by municipal issuers, obligated persons, and other parties. A tutorial video for using EMMA may be found at: http://www.msrb.org/msrb1/Training-Tutorials.asp?section=1&video=0.
The official statement for a bond issue usually includes an appendix (“Form of Continuing Disclosure Agreement”) which sets forth the specific continuing disclosure reporting obligations for the particular bond issue. The official statement for a bond issue may be obtained either through EMMA or the bond issue transcript on file with the public entity. An executed copy of the continuing disclosure agreement may also be found in the bond issue transcript.
R.S. 39:1438.C requires that public entities continuously maintain:
- · A list of all Louisiana municipal securities for which the public entity is the issuer or an obligated person;
· A copy of all continuing disclosure agreements to which the public entity is a party; and
· If pursuant to a continuing disclosure agreement to which the public entity is a part, the public entity is responsible for filing notices of changes in bond ratings and a list of current ratings for such securities, if any.
All records required by R.S. 39:1438.C are subject to inspection by the public entity’s auditor, whether the Legislative Auditor or CPA.
R.S. 39:1438.D. requires the public entity’s auditor to:
- · Review the public entity’s compliance with the recordkeeping requirements of
· Review a sample of the public entity’s filings on EMMA to determine if such filings are in compliance with the continuing disclosure agreements to which the public entity is a party.
The Legislative Auditor would expect to see a compliance finding in the report of any local government or quasi-public organization (local auditee) found to be in noncompliance with R.S. 39:1438.C.
CPAs should be mindful that if a local auditee has bonded debt, the bond indenture may require the local auditee to provide for an annual audit, regardless of the amount of revenues the local auditee receives. For example, a local auditee that receives $200,000 in revenues and other sources during its fiscal year is required by the audit law (R.S. 24:513) to provide for a review/attestation report. However, if that local auditee has bonded debt, and the bond indenture requires the local auditee to provide for an annual audit, the local auditee must provide for an audit report to the Legislative Auditor, not a review/attestation report. A CPA who is performing a compilation or review/attestation for a local auditee that has issued bonded debt should carefully review the bond indenture while engaging the local auditee, and engage for an audit if required.
The documents in the table below from the MSRB and the Government Finance Officer’s Association (GFOA) may be reviewed for additional information.
The final document pertains to amendments to the Rule that were effective February 27, 2019. The amendments added two events for continuing disclosure agreements entered into on or after February 27, 2019, expanding the list from 14 to 16 events. The amendments also define the term "financial obligation."