Vermont Bar Journal, Vol. 40, No. 2 Vermont Bar Journal, Fall 2016, Vol. 42, No. 3 | Page 22

What’s New

rities will ask all of the necessary questions
about the issuer’s finances, governance,
demographics, assets and liabilities. The
municipal issuer needs to disclose all material facts that one would reasonably assume will form part of the calculus used to
make an investment decision. While it is
not possible to define “material” precisely,
a well-developed body of law and practice
provides ample guidance.
Take, for example, these very real scenarios that could be plaguing any town:
The town’s tax collection is on target, but
the stage is being set for a year-end deficit as a result of unanticipated expenses. The public works collective bargaining
agreement is about to expire. The wastewater treatment facility is seriously out of
compliance with the issuer’s discharge permit. Leachate is migrating off the site of
the old town dump. The town is about to
sign a consent order involving combined
sewer overflow abatement. None of these
examples appears on the town’s balance
sheet or financial statements. Yet each has

the potential for causing some stress and
strain to the issuer’s management and operations.
While not indicative of impending catastrophe, it’s not unreasonable for a potential purchaser of the issuer’s obligations to
be concerned that each of these active or
incipient events will have an effect on the
issuer’s financial condition. For the bank
making a tax anticipation loan to the town,
or the investor who has expressed an interest in purchasing the town’s highway improvement bonds, or the vendor financing
the acquisition of a new fire truck though
a capital lease, each is entitled to know if
there are any factors creating some risk
that the issuer will experience difficulties
meeting its financial commitments.
Financial institutions are facing increased
and intrusive regulation from state and federal overseers. Through the ongoing efforts of federal regulators, issuers of municipal obligations must be prepared to
take a pro-active role in discerning and disclosing material facts. As a result of these

combined forces, banks and underwriters are under pressure to seek and obtain
more and more information and data from
issuers of municipal securities, who in turn
need to recognize that transparency and
full disclosure are the order of the day.
What once was a simple tax anticipation
loan with the local bank now is supported
by a two-inch file. What once was an interesting sideline in municipal life now has
taken on th