Library trustees seek exemption from SEC requirement
As part of its plan to prevent another economic meltdown, the federal government is cracking down on library trustees.
Spokane County Library District trustees recently joined library boards around the state in asking the Securities and Exchange Commission to excuse them from a requirement to register as financial advisers.
They believe the Dodd-Frank Wall Street Reform and Consumer Protection Act casts too broad a net in an effort to hold currently unregulated financial advisers accountable.
Library trustees aren’t financial advisers, said Mike Wirt, library district director. They make decisions about selling municipal bonds, so “how can you advise yourself?” he asked.
The Spokane Public Facilities District and possibly the Spokane Airport Board face the same dilemma. The county issues bonds for airport projects, but Airport Board action is required.
The boards of trustees of Gonzaga and Whitworth universities also are targeted, as are other nonprofit corporations that can issue municipal bonds through public “conduit” agencies.
In Washington, private universities gain access to the municipal bond market through the state Higher Education Facilities Authority.
Brian Benzel, Whitworth’s vice president for finance and administration, said trustees scrutinize the university’s infrequent bond sales closely because the school is fully responsible for the debt.
But, he said, “Truly, the board members are the advised, they are not the advisers.”
He fears it will be harder to recruit trustees if they face burdensome and intrusive federal rules.
Gonzaga University’s vice president for finance, Chuck Murphy, said the school is monitoring the SEC proposal.
“We are looking for clarification before considering additional action,” he said.
Roy Koegen, a Spokane bond attorney who represents Spokane County and other local governments, believes the SEC eventually will correct the problem by doing what Congress meant instead of what it wrote.
“It really is an unintended result,” Koegen said.
He said he and other bond attorneys believe the SEC eventually will define a municipal adviser as someone who is paid specifically for financial advice.
Koegen favors regulating paid advisers.
“It brings more professionalism to the public finance market, and that’s very good,” Koegen said.
Currently, he said, “All you’ve got to do is put your name on the door and get some business cards printed.”
Koegen said Spokane, Spokane County and other local governments get their financial advice from reputable firms that would have no difficulty with the regulations.
However, Koegen agreed with Wirt and Benzel that volunteers might be discouraged from serving on community boards if they are subject to federal securities regulation.
“It’s risky to serve on nonprofit boards right now,” Koegen said. “Why would you if you had to register and go through all this extra risk?”
Just filling out the registration form would be challenging.
The 28-page questionnaire is not only complicated but requires disclosure of more personal information than would be expected of a candidate for public office.
In addition to placing their finances under a public microscope, community volunteers would have to disclose details of any lawsuits, arbitration proceedings or customer complaints against them.
Also, board members may have to get training as financial advisers and pay fees.
The SEC already has exercised its discretion to remove city council members, county commissioners and other elected officials from the requirement. But the agency reasoned that appointed board members need regulation because they lack accountability.
Spokane County library trustees and those in seven other districts took umbrage at that. They pointed out to the SEC that they are appointed by elected county commissioners, who may remove them at any time for “just cause.”
On the other hand, trustees said, voters can remove county commissioners only with a cumbersome recall or during regular elections.
Technically, the registration requirement is already in place. Interim rules were established when the Dodd-Frank Act took effect Oct. 1, but there has been no rush to register library trustees.
There is no deadline for adopting final regulations, but the interim rules expire Dec. 31. The SEC sought public opinion on who should register and received scores of letters in a comment period that ended Feb. 22.
“We solicit public comments on things that may have to change to make this a workable rule,” said SEC spokesman John Nester.
Already, he said, the commission knows the law “captures too many people.”
Library trustees probably weren’t on the congressional radar, he said.