Feds find problems with Columbia’s bond practices
The city of Columbia three times in recent years failed to tell investors in municipal bonds that its financial records had not yet been audited, federal officials said this week in reprimanding City Hall.
Federal municipal bond regulators, in announcing the problems, said they had reached a deal with the city requiring it to meet mandated deadlines for disclosing annual financial audits.
The city also must disclose the settlement to investors each time it sells bonds for the next five years.
The sale of bonds is how government bodies – including cities, states and schools – borrow money. Such sales are highly regulated. Good financial health leads to good bond ratings and lower interest rates, meaning it costs taxpayers less money to pay off a loan.
The capital city was among 71 public entities named in enforcement actions announced Wednesday by the U.S. Securities and Exchange Commission. Those public entities reached cease and desist agreements without admitting or denying the SEC’s findings about bonds issued between 2011 and 2014.
Columbia’s chief financial officer, Jeff Palen, said Thursday he doubts the SEC’s order will hurt Columbia’s plans to issue as much as $281 million in bonds this fall.
“We do not anticipate that it will affect that,” Palen said of the large issue that mostly will refinance older bonds at lower interest rates. When the new bonds are sold on the bond market, investors will be told of the agreement with the SEC, Palen said.
A spokesman for Moody’s Investor Services said Thursday that Moody’s bond rating for Columbia has held steady at AA-1, Moody’s second-highest, for several years.
“A one-time occurrence of a disclosure violation would be unlikely to affect Columbia’s rating, but a pattern of poor disclosure would be a negative credit factor,” said David Jacobson of Moody’s.
What the city failed to do was disclose to investors by the Jan. 31 annual deadline that yearly audits of Columbia’s finances had not been completed, Palen said. The audits in question are from fiscal 2009 and fiscal 2010.
That was during the time that Columbia’s books were in disarray and the city was double-paying some bills and failing to pay others, according to news accounts from the time. Annual audits ran late. Leadership in the city’s finance office also was in turmoil.
In its order to Columbia, the SEC wrote, “Respondent (Columbia) failed to comply in all material respects with its commitment to provide certain types of continuing disclosure within the time frames set forth ... .
“Respondent made materially false statements about its prior compliance ... ,” the federal regulators wrote.
Columbia’s agreement also requires it to have written policies, better staff training and a designated person to enforce timely audits and other disclosure requirements.
Palen, who became the city’s chief financial officer in 2013, said late Thursday afternoon that he could not immediately find the dollar value of the three questioned bond issues from 2011 and 2012.
In its statement about the cease-and-desist orders, the SEC’s director of its enforcement division, Andrew Ceresney, said, “The diversity among the 71 entities in these actions demonstrates that continuing disclosure failures were a widespread and pervasive problem in the municipal bond market.”