As the U.S. Congress continues work towards enacting tax reform, public school officials must be diligent in giving attention to their legal obligations to provide appropriate disclosures to sufficiently inform investors’ and other market participants about Securities and Exchange Commission (SEC) regulated debt, including voter-approved bond issues. An adequate level of disclosures under SEC Rule 15c2-12 must be provided to facilitate investors’ timely access to information to facilitate more informed investment decisions and to produce more informed analyses, in addition to enhancing investor protection.
Primary market (issuer to market) disclosure considerations in drafting the official statement may include different or more robust disclosures about the impact(s) of proposed or future changes that may be enacted in the tax law. More robust disclosures, if appropriate may disclose information about adverse impacts, if any, resulting from elimination of tax-exempt advance refundings. In some instances, school officials may find that the official statement has already contemplated proposed or future changes to the U.S. tax code or may find that the proposed tax reform legislation would not have a material impact on the public school’s financial condition.
Secondary market (investor to investor trading) disclosure considerations may include disclosure on how various enacted tax reform provisions affected the tax status of issued bonds. The proposed changes may trigger public school officials’ disclosure requirements under specific provisions in continuing disclosure agreements (CDA) in existing official statements, although Rule 15c2-12 contains no requirements to give notification of general events having sweeping market impacts.
Voluntary disclosure considerations may involve information items public school officials are reasonably expected to provide to investors (e.g., an investor call or EMMA filing) concerning certain adverse consequences to public schools under various tax reform provisions passed by the U.S. Congress. Disclosures in this area may include how changes enacted in the tax code affected the tax status of tax credit bonds (including Build America bonds and qualified school construction bonds).
Whether for purposes related to primary or secondary market disclosures, in addition to voluntary disclosures, public school officials have significant legal obligations to ensure appropriation disclosures are provided, in accordance with SEC rules. Accordingly, school officials should consult with bond counsel or disclosure counsel to ensure their efforts are in alignment with the changing landscape of current legal interpretations related to SEC rules.
Footnote:
An “official statement” is a document or set of documents prepared by an issuer of municipal securities or an obligated person, or its representatives, in connection with a primary offering of municipal securities that discloses material information about the offering of such securities. Official statements include information concerning the terms of the proposed securities, financial information or operating data concerning such issuers of municipal securities and those entities, funds, accounts, and other persons material to an evaluation of the Offering, a description of the undertakings to be provided pursuant to the Rule, and if applicable, any instances in the previous five years of any failures to comply, in all material respects, with any previous undertakings. A version of the official statement referred to as the “preliminary official statement” is prepared by or for an issuer of municipal securities or obligated person for dissemination to potential customers prior to the availability of the “final official statement”. Rule 15c2-12 specifically defines the terms “preliminary official statement” and “final official statement” for purposes of Rule 15c2-12. See 17 CFR 240.15c2-12(f)(3) and (6).