Funding Board Moving Toward Regulations on Local Debt

The state funding board is working toward establishing new regulations for the finances of local governments. Tennessee’s comptroller says hundreds of millions of dollars are at stake in uncertain debts.

Several Tennessee towns have gotten into trouble with municipal bond derivatives, as well as variable-rate debt, which Comptroller Justin Wilson likens to a homeowner’s adjustable rate mortgage. Wilson says such deals have gone sour for some towns using them, though not all.

“In some cases, the consequences of a bad decision have not occurred, and they may not occur; just like if you don’t have insurance on a house, and the house doesn’t burn down, you don’t have a problem.”

Wilson is taking public comments on variable-rate debt, and will soon issue a revised proposal for state regulation of municipal bond derivatives.

EXTRA:

The proposal to overhaul municipal bond derivatives has already been open to a round of public comments.

Says Wilson, “An enormous amount of money is at stake – hundreds of millions of dollars. Some communities use exclusively local debt. This is a matter of concern to me.”