Memo to public officials in California: if you try to put an optimistic spin on a sticky fiscal situation, you could get yourself in trouble with the feds.
Two years ago, it might have seemed like a nutty question, but now the question is real: Is any of this recent happy talk about California – and specifically about its state and local budgets – a violation of law?
Judging by the recent behavior of the Securities and Exchange Commission, it’s a possibility.
The SEC has begun to go after state and local governments that aren’t accurate in disclosures about their fiscal health. In a recent case brought against Harrisburg, Pennsylvania, SEC charged the municipality in part because written and oral public statements had put a happy face on the city’s dire fiscal situation.
Essentially, the commission has put officials on notice that their public statements can mislead bond investors, and put them on the wrong side of federal securities law. Public statements are just one piece of the problem; the SEC is worried about a failure by many governments around the country to provide accurate, timely disclosures about their bond sales..
Earlier this year, the SEC went after the state of Illinois for failing to disclose the true state of its pension system in bond documents.
California has its own shaky pensions systems – albeit, thankfully, nothing as bad as Illinois’. And there’s been plenty of upbeat, don’t-worry talk about the security of municipal bonds here, and of the pensions themselves. Treasurer Bill Lockyer has frequently equated the risk of default with that of thermonuclear war.
It’s probably wise to refrain from similar happy talk in the future. Not only could it land you in trouble with the feds, but also, given California’s huge remaining fiscal and governance challenges, such talk is wrong.