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Federal Agencies Looking Closely at Municipal Bonds: What You Need to Know

Since the 2008 financial crisis, we have observed a heightened scrutiny of the municipal bond markets from various federal agencies, including the Securities & Exchange Commission, the Internal Revenue Service and the Department of Justice. This additional attention has, in most cases, spawned both criminal and civil litigation.

These agencies have begun contacting some issuers regarding various aspects of their outstanding debt. Notifications vary from full audits and subpoenas for documents in third party investigations to questionnaires and letters of inquiry regarding proper use and investment of bond proceeds, compliance procedures and amount of federal subsidy payments.

Examples of these investigations are discussed in a recent Wall Street Journal article.

In the article, the author describes how Miami city officials are dealing with an investigation into whether the City of Miami used bond funds appropriately. The article discusses the decision by some cities to transfer and use funds for purposes other than those that they may have originally been designated for, and states that, “The moves are exposing municipalities to controversy, as federal regulators and local auditors are more heavily scrutinizing their finances to protect bond buyers and taxpayers.”

Targets of these federal inquiries have not been specified, but our goal is to educate all of our clients in the event they receive one of these notifications.

Copyright © 2020, Hunton Andrews Kurth LLP. All Rights Reserved.National Law Review, Volume I, Number 322


About this Author

Thomas A. Sage, Tax Finance Attorney, Andrews Kurth, Law Firm

Tom counsels both issuers and underwriters in almost every aspect of tax-exempt financing and infrastructure development. Tom emphasizes his practice in the realm of school finance, municipal finance, infrastructure, and urban development. He regularly serves as bond counsel for several cities, counties, and school districts as well as special utility districts. Tom is the foremost authority on educational finance.

In the area of traditional finance, Tom has been instrumental in guiding a number of clients through financing structures that avoid any negative impact on the tax base....

Gregg Jones, Andrews Kurth Law Firm, Tax Attorney

Gregg has delivered tax opinions as bond counsel or special tax counsel in connection with financings for states, cities, counties, school districts and other political subdivisions. He has participated in all facets of the tax analysis associated with the issuance of qualified 501(c)(3) bonds, qualified hospital bonds, qualified student loan bonds and qualified small issue bonds.

Gregg also has extensive experience in IRS audits of tax-exempt bonds, representing issuers and other interested parties.