The nation’s top investment watchdog warned city and county treasurers Wednesday to clean up their acts and restore public trust. Arthur Levitt Jr., chairman of the U.S. Securities & Exchange Commission, also urged voters to kick out elected officials who don’t know how to manage billions in public money.
Speaking in Spokane at the annual convention of the Municipal Treasurers’ Association of the United States and Canada, the soft-spoken chairman said “the public has a right to expect that their money will be well-managed to keep schools open, streets paved.”
Treasurers and others investing public cash should not let the lure of high rates of return dictate how they invest the funds, he said.
“Using the treasurer’s office as a profit center has backfired,” said Levitt, the white-haired regulator who represents the interest of investors in stocks, bonds and mutual funds.
Most recently, Orange County officials squandered $1.7 billion in risky investments, triggering the nation’s largest municipal bankruptcy. The disaster also has threatened a default of $800 million in municipal bonds, an event that hasn’t occurred in 60 years.
Currently, there are $1.2 trillion in municipal bonds outstanding, with individuals holding 70 percent of those securities, Levitt said. The bonds raise money to operate parks and police stations and finance special projects such as the Spokane Veterans Memorial Arena.
Levitt, who was appointed in 1993 by President Clinton, exhorted the audience of 200 with the gentle authority of a wise grandfather who has practiced his own advice. Levitt later refused to accept a ride to the Spokane International Airport because it might be considered a favor. Instead, he took a taxi.
Levitt, who once chaired the American Stock Exchange, also has championed consumer causes such as user-friendly financial reports and the introduction of Edgar, an on-line system for accessing SEC filings.
Thanks to Orange County and other instances of poor management, Levitt said, people have become suspicious about how treasurers invest public cash.
Similarly, investors have become skittish about the risks of investing in tax-free municipal bonds, once a favorite of conservative investors.
Treasurers can restore public trust by publishing an investment policy and forming oversight committees, he said. Elected treasurers also should refuse campaign contributions from anyone who does business with their office.
Officials with MTA, a Washington, D.C.-based trade group, said most of its 1,500 members already do that.
In a later interview, Levitt said voters also can provide accountability for managing public money by electing officials qualified to handle public funds.
“A background in finance and accounting might be preferable to one raising cattle,” he said.
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