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HomeMy WebLinkAboutResolution 912 3. A Resolution L-L WHEREAS, the Congress of the United States enacted into law the Tax Equity and Responsibility Act of 1982 (TEFRA) as amended; and, WHEREAS, TEFRA includes requirement that municipalities register all bonds issued after June 30, 1983; and, WHEREAS, the following are major sources of difficulty in complying with TEFRA: 1. "Pledgability" - Texas state law requires that banks which hold funds of the state and local governments insure those deposits by holding equal amounts of Texas municipal securities. This pledging law thus protects the funds of Texas and its political subdivisions as well as increases the demand for municipal securi- ties issued by Texas and its local governments. A large number of legal and- operational changes will be necessary for banks to utilize registered securities for pledging purposes. 2. Increased Costs to Smaller Municipalities and Districts - Professional transfer agents will be necessary to perfect transfer of registered securities. However, due to economies of scale present transfer systems will be prohibitively expensive for small and infrequent borrowers in the municipal market. 3. Delays in Transfer; Marketability - Until systems of transfer can be perfected delays in the transfer of registered securities will have a significant adverse effect on the marketability of these securities. It is expected that there will be delays in transferring ownership and crediting interest payments. It is believed that issues of small and moderate size will be most profoundly affected. 4. Creation of a Two--Tiered Market; Loss of Individual Investors - At present, over $380 billion of municipal securities- in bearer form are outstanding nationally. These securities will remain in the secondary market for a number of years. It is believed that for a substantial period of time individual investors will prefer the available bearer securities to the newly issued regis- tered securities. This two-tier market will terminate only when registered securities can be transferred as expeditiously as bearer municipal securities. 5. Overall Market Efficiency - At present, market participants can trade securities expeditiously and are able to reflect changes in the cost of credit in a timely manner. However, delays of transfer may well hamper the speed with which securities may be traded. Should this occur, investors may draw away from the municipal 13 CITY OF FORT WORM market and state and local government borrowing costs will increase; and, WHEREAS, there are no benefits to the City of Fort Worth from registration; BE IT HEREBY RESOLVED, that the City Council of Fort Worth urges its elected representatives in Washington to repeal the provision of TEFRA requiring the registration of municipal bonds. PASSED AND APPROVED THIS day of , 1983. CITY OF FORT WORTH dtx association Of the nici.Pal bond dealers MUNICIPAL ADVISORY COUNCIL of TEXAS s Texas 905 FIRST CITY NATIONAL BANK BUILDING f AUSTIN,TEXAS 78701 512 476-6947 DANNY BURGER, Executive Director JAMES O.STREET,Asst.Executive Director March 7, 1983 TO: Executive Representative of Each MAC Resident Member RE: Fully Registered Municipal Bonds Gentlemen: The repeal of the fully registered bond provisions of TEFRA of 1982 becomes ever so paramount as we approach July 1, 1983. To seek support in this task, we have mailed the attached letter, includ- ing supporting information, -to the majority of Texas political subdivi- sions. We expect that you will be contacted by your clients, and that you should be advised of our mailing. The mailing list included almost 600 cities, nearly 1,100 school districts and our 254 counties. This could not have been accomplished without the help from certain Austin associations, and appreciation Is extended to Dick Brown, Texas Municipal League; Charles Mathews, Texas Association of School Administrators, and Sam Clonts, Texas Association of Counties. Sinc ely yo , Executive Director DB:sa 10 I c0 MN� 15 1983AP 1 c9 • , ,•, .,,,1uE:R'S � ,4n arrociation of the municipal bond deakrr MUNICIPAL ADVISORY COUNCIL of TEXAS o Texas 905 FIRST CITY NATIONAL BANK BUILDING ,f AUSTIN,TEXAS 78701 512 476.6947 DANNY BURGER,Executive Director JAMES O.STREET,Asst.Executive Director March, 1983 TO: TEXAS CITIES, COUNTIES & SCHOOL DISTRICTS This Council is an association of the Municipal Bond Dealers of Texas, whose membership was urged that we, on their behalf, contact you with respect to an extremely important matter. The Tax Equity and Fiscal Responsibility Act ("TEFRA") of 1982, as amended, enacted by Congress requires that you issue debt in fully registered form effective July 1, 1983, or the tax exemption is lost on your debt securities issued subsequent to that date. The Federal mandate for fully registered municipal bonds will cause us numerous and very serious problems in Texas, as well as across the Nation, including: * Pledgability for public deposits * Increased costs for issuers, particularly so for smaller issuers * Delays in transfer and marketability; dramatic increase in recordkeeping * Creation of a two-tiered market; loss of individual investors * Decline in overall market efficiency * Increase in interest-rates It has been demonstrated that a recent major issuer incurred a 4/10 of 1% ihigher interest rate on its bonds because of their issuance in fully registered form, as compared to traditional bearer bonds, and the interest costs over the life of the issue increased by some $500,000. This does not include the administrative and registrar fees associated with the bonds, which in Texas will increase by 300% to 500%, depending on the size of the debt issued, All of this, of course, means an increase in interest rates and the resultant increase in ad valorem taxes and revenues to offset these additional costs. We strongly urge that you contact your Texas Congressional delegation to repeal the provisions of TEFRA of 1982 that require fully registered municipal securities. If you have any questions, please contact your financial advisor or this Council . Noe Time is of the essence if you want to avoid higher taxes and service rates., as the effective date of this registered bond requirement is July 1, 1983. Sinc ely yo , cc: Texas Municipal League Texas Association of School Administrators Texas Association of Counties