PUERTO RICO

In a week full of events challenging the Commonwealth and creditors alike, the resignation of Governor Rosello effective August 2 was the biggest. His successor at least temporarily was expected to be the secretary of justice, Wanda Vázquez. Ms. Vázquez was next in line under the commonwealth’s Constitution because the secretary of state, who would have succeeded Mr. Rosselló as governor, resigned last week . Mr. Rosselló is the first chief executive to step down during a term since Puerto Ricans started electing their governors in 1947. Now, however, Ms. Vazquez has said that she will not accept appointment to the job.

The line of succession after the position of Secretary of State snakes its way along an unclear path through the remaining Cabinet Secretaries. With this backdrop, some 60 community organizations presented a letter to U.S. District Judge Laura Taylor Swain, requesting that the ongoing bankruptcy proceedings over the island’s debt be stayed until Puerto Rico stabilizes and a comprehensive audit of its debt has begun. Judge Swain is reported in the local press to have granted the petition and halted all adversary cases and claims against the government for 120 days.

After all, it is not clear who will be the governor of the Commonwealth during this later phase of the Title III proceedings. The Governor has resigned. The Fiscal Control Board is in a process of being challenged in court. The designated successor is not in place. The outgoing governor would have to nominate that person to be his secretary of state. It is not at all clear who legitimately represents the island’s citizens.

BURLINGTON BROADBAND

Burlington, VT was one of the first municipalities to finance, own, and operate a combined telecommunications utility.

On March 13, 2019, the city closed on the sale of Burlington Telecom (“BT”), a telecommunications business previously operated by the city, to Champlain Broadband, LLC, an affiliate of Schurz Communications, Inc. (the “Purchaser”). The sale of BT to the Purchaser was approved by the City Council of the Issuer on December 27, 2017, and regulatory approval for the sale was received from the Vermont Public Utility Commission on February 19, 2019. The Issuer received approximately $7 million from the sale.

The sale also resolved outstanding litigation which had threatened the city’s financial position. In late 2009, it became publicly known that BT was unable to make payments on the City’s $33.5 million lease with Citibank or return $17 million of City general fund dollars improperly spent on BT by the prior administration.  These events resulted in a federal lawsuit with Citibank, six steps of downgrades in the City’s credit rating from 2010 to 2012, and a lack of liquidity that put the City’s continued operations of core municipal functions at risk.

The settlement, according to the City brought full and final resolution to the $33.5+ million Burlington Telecom lawsuit with Citibank, as until today’s closing, Citibank retained the ability to re-open its lawsuit;  Citibank’s full release of the City from further BT liability is attached. It recovered at least $6.97 million of the $17 million improperly spent by the City prior to 2010 (an additional recovery of up to $500,000 in the future is possible) In addition, the City retains ownership of the building that houses Burlington Telecom and will begin receiving rental payments of $115,000 a year and tax payments of $18,000 annually.

At the time of closing, the City said that it had ensured that the City’s financial recovery and improved credit rating will continue.  They were quite right about that. Moody’s just announced that it upgraded to Aa3 from A2 the rating on the City of Burlington, Vermont’s outstanding general obligation unlimited tax (GOULT) bonds. It specifically referenced the settlement of the litigation. 

ILLINOIS BOND CHALLENGE

For years, individuals in several states have fought efforts by states to issue debt without some form of direct voter authorization. For a generation of municipal analysts, the name Schultz will forever be associated with numerous legal actions seeking to halt the issuance of various issues of bonds which were not subject to voter approval in New York State. The litigation is strewn across three decades. It should be noted that the suits ultimately were found in favor of the state.

The latest such effort is now occurring in Illinois. A hedge fund and the chief executive officer of a conservative think tank he filed suit in Sangamon County, IL circuit court alleging that bonds issued in 2003 to fund pensions and in 2017 to fund backlogged payments are deficit financing bonds which e plaintiffs assert are illegal. They seek to invalidate up to $14.3 billion of bonds.

One thing that always fascinates is the view of hedge funds versus what their role is in a given transaction. It does not favor investors if debt can be invalidated some 16 years after issuance. It is insistence on respect for the validity of issued debt that has hedge funds portrayed as bad guys in the Puerto Rico restructuring. Now, a hedge fund is essentially taking the other side. So they are not consistent and heir position doesn’t make sense.

In the case of the think tank plaintiff, the political animus of the CEO towards the Democrats in the state legislature is well established. The Illinois Policy Institute backed an Illinois employee named Mark Janus in his challenge to the constitutionality of mandatory union fees.  In 2014, the institute helped defeat a movement to amend the Illinois Constitution and replace the state’s flat income tax with a progressive income tax.  Voters will have a chance to vote on the income tax in 2020. They are expected to vigorously oppose the proposed income tax changes.

The institute faces the reality that it will be very difficult to reduce pension liabilities in the near term. If the state ceases making principal and interest payments on the debt it could contribute an additional $13 billion to its pensions over the next 14 years, according to the complaint. So this is their fallback.

As is the case often, this one relies on the parsing of words. Article nine, section nine of the Illinois Constitution says the state may issue long-term debt only to finance “specific purposes” if approved by three-fifths of the legislature or by popular referendum. Using bond money to cover general expenses, speculate in the market, or pay past-due bills isn’t a “specific purpose” for incurring state debt, but rather another name for deficit financing, the complaint said.

WHO SAYS TECHNOLOGICAL CHANGE ONLY CREATES GREAT JOBS?

We came across a fascinating story this week about the expansion of an industry as the result f disruptive technological change in the transportation space. it’s not what you think. It’s the expansion of the repossession industry into the electric scooter space. There is a real company in San Diego called ScootScoop. They are paid by business owners and landlords who are fed up with the deluge of dockless two-wheelers. It is a two man operation with a yard for scooter storage and a tow truck. ScootScoop charges the scooter companies $30 for pick-up and an additional $2 for each day that the scooter is in storage, capping the daily fees off after a month.

It hasn’t gone all smoothly. A lawsuit was filed in California Superior Court in late March which accused the company of improperly impounding Bird’s scooters and then “ransoming” them back to the $2 billion company. Lime filed a nearly identical suit soon after.

Many observers have wryly noted that the scooter companies are relying on the California Vehicle Code. The scooter companies have fought every attempt to enforce regulation of their industry under the same code. Others respond more strongly. A federal lawsuit has been filed by a disability rights group against Bird, Lime, Razor, and the City of San Diego. It claims that scooters are being left in front of wheelchair ramps, curbs, and crosswalks. 

It is all part of the battle for control over the streets and the revenue which can be derived from them. On July 1st, the City of San Diego – one  the defendants – implemented new regulations to address the scooter complaints. They require scooter companies to obtain insurance policies, free the city from all legal liability, cap speeds on the boardwalk, and obtain permits for every scooter in circulation. 

LONG TIME MUNICIPAL UTILITY UP FOR PRIVATIZATION

The Jacksonville, FL Electric Authority (JEA) board voted to give its CEO the authority to explore methods of privatizing JEA, including becoming a privately held or investor-owned company; evaluating an initial public offering making JEA a publicly traded company; or converting into a customer-owned utility. Privatization is one potential solutions to shrinking energy sales and declining revenue due to increases in energy efficiency and falling costs of home generation of renewable energy. 

The board chose from among a series of alternatives. One  scenario detailed in May would have put in place a 52% electric rate increase, a 15% rise in water rates and a reduction in JEA’s city contribution from a projected $118 million in fiscal year 2020 to nothing by 2023.  Scenario 2, or a “traditional utility response,” would have cut 574 jobs at JEA and raised electric rates 26% by 2030.

The vote also retains a $72.2 million plan between JEA and Ryan Companies US Inc. to build a high-rise headquarters in Downtown Jacksonville for the city-owned utility. JEA would then lease the building from the private builder. City Council approved the on June 25, effectively simultaneously with a  JEA’s board vote to enter into the lease 

The CEO has predicted that researching the options for privatization will take six to nine months. Should the board decide to sell JEA assets in a sale or competitive solicitation, it would require additional board action, approval by council and a voter referendum. The CEO is on record that a privatization would have to provide the city $3 billion as a supplement to future JEA annual contributions, give $400 million to customers as a rebate, guarantee a 3-year contractual rate, fund and provide the city and the Duval County Public Schools with 100% renewable energy by 2030; fund and provide 40 million gallons daily of alternative water capacity for Northeast Florida by 2035.

It would also have to guarantee protection of certain employee retirement benefits; maintain employee compensation and benefits for three years; make retention payments to all full-time employees at 100% of their current base compensation, and maintain the agreement to lease a new headquarters and retain employees in Downtown Jacksonville. The board also approved the introduction of legislation to council to revise employee pensions. The resolution would guarantee that all current employees receive full retirement benefits in the event of privatization. 

It is not clear how much support a privatization has. The mayor said in April 2018 he would not submit a proposal to council to privatize JEA. He said he would not support a decision by the JEA board that would lead to “hundreds of job cuts or failure to meet the retirement needs of career employees.”

“As a publicly owned asset, the value of JEA is built on the investment of taxpayers. Any policy regarding the utility’s future must respect that investment. Jacksonville taxpayers are co-owners of the utility and must have a voice in the future of their investment,” 

A private buyer would have to redeem the JEA’s outstanding debt in the event of a sale.

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

Joseph Krist

Publisher

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ISSUE OF THE WEEK

CommonSpirit Health is the entity which resulted from the merger of Dignity Health and Catholic Health Initiatives. It is now coming to market with four bond issues totaling $5.8 billion of combined principal. The new ratings on CommonSpirit are BBB+. This reflects actions by S&P Global Ratings which lowered its long-term rating and underlying rating (SPUR) to ‘BBB+’ from ‘A’ on all debt issued for Dignity Health, Calif. The existing BBB+ rating on debt for CHI was maintained but the positive outlook was removed.

The plan of finance submitted is expected by management to provide $6.3 billion of bond proceeds (including net premium), the majority of which will be used for current refundings and advanced refundings of multiple series of bonds issued on behalf of Dignity Health and CHI. The advance refundings will be financed through the $2.7 billion taxable bond portion of the issuance. A portion of CHI’s CP program will also be refinanced, although the program will remain outstanding for potential future use. Approximately $600 million of net new debt is included in the $6.3 billion, and CommonSpirit intends to use these funds for reimbursement of prior capital expenditures; the funds are available to support future capital investments.

The rating incorporates what we call integration risk. S&P refers to this process as “growing pains”. The outlook assumes that no new net debt will be issued at least through the first year of consolidated operations.  We view the merged entity as symbolic of where health credits will be continually pressured to grow and consolidate. The availability of a large and sound balance sheet has been an effective tool for hospital managements to deal with the vagaries of healthcare funding. It also position these institutions to more effectively manage their reimbursement relationships with private insurers.

Nonetheless, CommonSpirit’s ratings will continue to be weighed down by the substantial debt burden which has historically been a significant negative drag on the CHI credit. it will take time to reduce the burden and provide a base for ratings improvement

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LAS VEGAS MONORAIL

This is one of those credits which keeps rising from the grave. The project went bankrupt in 2010. Now the Monorail Co is pursuing financing for an extension to serve two additional hotels on the Strip. The Monorail Co. has also approached Nevada Gov. Steve Sisolak’s office “regarding a substantial new bond financing proposal,” according to a Monorail spokesman. The Monorail Co. has repeatedly delayed the start of construction on its planned extension to Mandalay Bay. Securing new bonds to finance the project have proven difficult for a system that went bankrupt in 2010 after ticket sales fell well below official projections.

The Monorail Co. is still working to secure an additional $172 to extend its mile track on the Strip’s east side to Mandalay Bay and to the MGM Sphere at the Venetian arena project. Budget documents showed the system was expected to make about $6.5 million less in ticket sales in 2017 and 2018 than was forecast in a Monorail Co.-commissioned ridership study published in April 2016. 

Earlier this year the Monorail Co. president asked the Clark County Commission to guarantee up to $135 million of hotel room tax revenue over 30 years if the monorail needed it to help pay for the extensions. The commission has yet to make a decision on the request. Monorail backers just continue to fail to see the reality that like so any other public transit facilities, fares are never enough to pay the costs including capital costs of these projects.

PHILADELPHIA

Over the last several years, cities like Detroit with its bankruptcy and Chicago with its well documented pension problems have dominated the attention of observers of city finances. That focus has allowed the City of Philadelphia to effectively fly under the radar as it deals with issues of economic development homelessness, its education system, and public transportation. When investors were trying to decide which cities might be candidates for bankruptcy in the middle of the decade, Philadelphia was often mentioned among likely candidates.

Now Philadelphia has begun to distance itself from the likes of Detroit and Chicago. It plans to soon issue $356 million General Obligation bonds. In connection with that sale, Moody’s has announced that it maintains its A2 rating on the City of Philadelphia’s parity General Obligation debt as well as an A2 rating on its outstanding service fee and lease revenue bonds (non-pension related). It also maintained an A3 rating on the city’s pension obligation bonds.

The outlook is stable for all rated securities. The outlook is stable given the city’s materially improved financial position at fiscal year 2018 end, projections that show relative financial stability over the next five years, and permanent funding for Philadelphia schools that largely eliminates its previously projected deficits. The stable outlook also reflects continued positive trends in the city’s economy, contributing to its improved financial health, consistently conservative budgeting and Moody’s expectation of continued positive budget to actual variance going forward.

Moody’s said that the A2 rating reflects the city’s large and diverse tax base and its position as a regional hub for the mid-Atlantic US. It also incorporates other tax base strengths not captured in traditional metrics, such as a significant “eds & meds” presence that serves as a considerable tax base anchor, offset by some persistent weaknesses, like the city’s very high poverty and above average unemployment rate. The city also continues to face a moderately high debt and pension burden.

The comment did reflect some concerns not particular to Philadelphia but reflective of the Detroit and Puerto Rico bankruptcies. “The city’s pension obligation bonds are rated A3, one notch below the city’s GO and other service fee debt, to reflect a higher loss given default risk given relative performance of pension obligation bonds relative to other debt in Chapter 9 bankruptcy scenarios.” So there it is. The relative treatment of pensioners versus creditors now begins to creep into the market. Absent clearer legal guidance, the initial effect will be seen through the ratings process rather than through rush to the courthouse by weaker credits.

ANOTHER NEW HOSPITAL CREDIT

Nuvance Health is an integrated health system based in Eastern New York and Western Connecticut. The system operates seven hospital campuses: Vassar Brothers Hospital, Putnam Hospital, Northern Dutchess, Danbury Hospital, New Milford Hospital, Norwalk Hospital and Sharon Hospital. The system is looking to issue debt for the first time as a combined entity following  the April 1, 2019 merger of Health Quest (HQ) Systems and Western Connecticut Health Network (WCHN). The combined stem includes two tertiary care facilities and further supported by several community hospitals along the Mid-Hudson Valley and Western Connecticut region. 

The new credit comes to market with a Moody’s A3 rating. According to Moody’s, “the rating favorably anticipates realization of modest net synergies and efficiencies from the proposed centralized operating model. That said, execution risk will be high given the new merger, provider fee variability in Connecticut, a large presence of a unionized workforce at both legacy systems and the current and unexpected downturn in performance at HQ due to weaker volumes and physician turnover. It also cited its view that  cash will decline over the next three years as the system funds the equity component of a new patient tower at HQ’s Vassar Brothers Medical Center this year (set to open, as planned, in 2020). Other large capital projects are planned at both the NY and CT hospitals which will require the use of cash and proceeds from the upcoming financing, including construction of a new medical school.

With all of that, a negative outlook was assigned to the rating. The negative outlook reflects Moody’s view that Nuvance Health will face near term challenges to achieve and sustain stronger operating performance to support high leverage while liquidity will decline given a higher capital plan over the near term. Inability to achieve projected improvement or declines in liquidity beyond expectations will pressure the rating.

PUERTO RICO

The situation in Puerto Rico continues to grow and evolve. The move this weekend by Governor Rosello to hold on to his potion smacked of desperation. He will not run for re-election in 2020 and he resigned as president of his New Progressive Party (NPP). The fact that key positions in the succession chain are vacant only adds to the instability and uncertainty. The opposition to the Governor will focus on street protests and the legislature. More than 200,000 people have signed a petition on Change.org demanding that Puerto Rico Gov. Ricardo Rosselló resign for his “incompetence and lack of maturity to govern and for continuous corruption charges at the highest levels of his cabinet.”

Pressure will shift to the Legislature to consider impeachment if the Governor chooses to stand and fight. As for creditors, none of this helps. There was already significant mistrust among the parties and the pending decisions in  the Commonwealth’s Title III proceedings will be harder to implement given the existing executive branch vacancies. The Secretary of State, the executive director of the Fiscal Agency and Financial Advisory Authority as well as interim director of the Office of Management and Budget (OMB) and the government’s chief financial  and investment officers—resigned from their positions.

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

Joseph Krist

Publisher

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THE EMERALD CITY

The Muni Credit News took a couple of weeks off (hopefully you noticed) and headed to the Northwest. Part of that trip included a visit to Seattle. The city tries to be on the forefront of progressive governance whether it be transit, the environment, or social policy. It tries to leverage its role as a tech headquarters to create a modern image but it struggles with some longstanding issues. Much has changed yet at the same time much has remained the same.

The first issue is a symptom of the underlying problems. That issue is homelessness. The numbers of homeless mostly mentally ill individuals is clearly higher. They are not hidden away, they are right in the city center. And they are aggressive. It is the sort of situation that easily deters visitors. There is no easy fix. Yet this creates additional costs for the City of Seattle until the underlying problem is addressed. Which brings us to the issue of development.

There was lots of construction and almost all of it residential. So that will increase supply and availability to meet the local housing needs across the board? No. The development was all geared towards market rate buyers. Half to one and a half million market rate. It wasn’t really clear where if any where affordable  housing was being developed.  That means the problem will just continue. The old tools which have been tried and abandoned in other cities – including the installation of various items designed to deter public sleeping in open city spaces – are all on display. And failing in the absence of housing supply.

Then there was transportation. Whatever you want they have – monorail, bus, light rail, subway, traditional electric buses (on overhead lines). And they certainly have lots of micromobility. Scooters and electric bikes strewn all over the sidewalks. When you read about the phenomenon you ask is it really that bad? Unfortunately, the answer is yes. Seattle was the first major city in North America to allow private dockless bike sharing companies to operate within the city beginning in July 2017. At least Manhattan learned something and will not allow the vehicles in Manhattan.

SANCTUARY CITIES

The early successes in federal court on the part of those cities seeking to receive funding for local law enforcement from the federal government suffered a setback this week. A number of so-called “sanctuary cities” sued the federal government after grant requests were turned down when those cities could not certify that the focus of the supported law enforcement efforts would be directed at illegal immigration enforcement. The Department of Justice (DOJ) chose to prioritize agencies that focused on unauthorized immigration and agreed to give Immigration and Customs Enforcement (ICE) access to jail records and immigrants in custody. 

The particular program in question is Community Oriented Policing Services (COPS) grants. The program really doesn’t have anything to do with immigration enforcement. The city of Los Angeles first sued the administration after it was denied a $3 million grant on the grounds that it did not receive the money because it did not focus on immigration for its community policing grant application. A federal district court judge found in favor of the City.

Now, The 9th Circuit Court of Appeals ruled that the Department of Justice (DOJ) was within its rights to withhold Community Oriented Policing Services (COPS) grants from sanctuary cities. “The panel rejected Los Angeles’s argument that DOJ’s practice of giving additional consideration to applicants that choose to further the two specified federal goals violated the Constitution’s Spending Clause.”   

An appeal would be expected in that other California cities have had success in the courts over the issue of grants and new requirements to obtain them. What does not help is how the law works. Congress created the fund in 1994. It was meant to provide federal assistance to state and local law enforcement to get more police on foot patrol and improve police-community interaction. However, the law provided for the Justice Department to administer the funds.

PUERTO RICO

Protesters amassed in Old San Juan for several day to demand the resignation of embattled Gov. Ricardo Rosselló. The position of Secretary of State  was occupied by Luis G. Rivera Marín until he resigned Saturday. The positions of chief financial officer and representative of the governor to the island’s Financial Oversight and Management Board, both held by Christian Sobrino became vacant on Saturday as well.

The Governor is in the midst of a political scandal resulting from a release of e mails sent by staff which disparaged legislative and other political opponents of the Rosello administration. The messages include 889 pages of a messaging app chat group in which Rosselló and his inner circle speak without inhibition about how to manipulate opinion polls, how to mark officials and journalists to affect their reputation, and how to handle operations to give the impression that they are addressing fundamental problems that affect citizens.

So what’s the point? The Rosello administration has been exposed as a sham. It finds itself the subject of federal indictments from the U.S. Department of Justice against former Education Secretary Julia Keleher and Ángela Ávila, the former executive director of the Health Insurance Administration. There have been enough concerns about this administration’s competence. Now it looks like they haven’t even been trying.

Under these circumstances, the implementation of a final plan of emergence from the Title III proceedings is now a longer way off. It is most likely that whatever decision reached by Judge Swain will be appealed. In the meantime creditors face a Promesa board of unclear standing, an extremely weak chief executive, and a poisonous political atmosphere. And regardless of intent, a blank check has been handed to opponents of real aid and reform including the President.

The resolution of Puerto Rico’s effort to escape its debt burden and reinvent its economy will not in and of itself create success for Puerto Rico. The latest political saga is but one in a long line now spanning two generations of political failure. Already a significant opening has been ignored which would have provided much cover for the hard decisions which needed to be made. Regardless of how this all turns out, it will go down as a missed opportunity.

CONNECTICUT PENSION REPORT

The Connecticut Legislature established the Connecticut Pension Sustainability Commission to study the feasibility of placing state capital assets in a trust and maximizing those assets for the sole benefit of the state pension system.

The Commission’s key findings, conclusions and recommendations The Commission’s key findings, conclusions and recommendations include a belief that it may be feasible for the state to establish a mechanism to identify and transfer state assets into a trust for the sole benefit of the state’s pension funds. The Commission recommends that the legislature provide specific policy guidelines before specific assets are considered for potential contribution to a trust mechanism and concludes that the Office of the State Treasurer is the appropriate authority to provide oversight and direction on the management of any kind of asset trust

The Commission believes that the concept of using the proceeds of the Connecticut Lottery for the benefit of the pension funds or the wholesale transfer of the Connecticut Lottery, as an asset to the funds, is technically feasible.  In many cases, a program such as this would be a sign of weak governance but the reality is that traditional approaches to addressing the State’s extreme unfunded liability position are not going t cut it.

The Commission consisted of appointees from all the major legislative and executive agencies. That should in theory provide cover for any legislators needing it. Commissions are a tried and true way to drive consensus on topics with no obvious political upside. Pension funding  is one of those issues. Let’s see if they take advantage of the opportunity.

SEC CONTINES ENFORCEMENT EFFORT

The Securities and Exchange Commission (SEC) has announce another enforcement action in the municipal securities space.

The latest matter involves a registered municipal advisor’s use of unregistered “solicitor” municipal advisors to solicit business from school districts in California. In 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act which amended the Exchange Act to establish a federal regulatory regime applicable to municipal advisors. The Exchange Act and SEC rules and regulations identify two broad categories of municipal advisors: (1) those that provide certain advice to or on behalf of a municipal entity or obligated person; and (2) those that undertake certain solicitations of a municipal entity or obligated person on behalf of an unaffiliated broker-dealer, municipal advisor or investment adviser. The latter category of municipal advisors are known as “solicitor municipal advisors.” Section 15B(a)(1)(B) requires all municipal advisors to register with the Commission. The registration requirement for solicitor municipal advisors is intended to provide protection and transparency to municipal entities and obligated persons as they make decisions on the hiring of financial professionals, including the hiring of municipal advisors.

Dale Scott & Co., Inc. (“DSC”) is a seven employee municipal advisory firm located in San Francisco, California, that provides advisory services to school districts and community college districts in California. DSC is registered as a municipal advisor with both the Commission and the Municipal Securities Rulemaking Board. Between October 2011 and March 2016, DSC engaged three unregistered parties to provide various services to DSC including to solicit municipal advisory business on DSC’s behalf. By soliciting municipal advisory business on behalf of DSC without properly registering with the Commission, those three parties violated the registration requirements of Section 15B(a)(1)(B) of the Exchange Act. DSC was a cause of those violations.

Why should the individual investor care? So often when an issuer finds itself in trouble financially it has often followed the advice of  unscrupulous advisor. It is a natural outgrowth of the knowledge imbalance between issuers and other market participants. The nature of political and elective turnover makes it more difficult for issuers to rely on their own in-house expertise. It is all the more important that issuers receive advice from those advisors who properly register and disclose.

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.