A rowdy, muckraking financial blog that has repeatedly raised later-corroborated concerns about how the California Public Employees’ Retirement System operates has gotten traction with one of its new allegations.

The Naked Capitalism blog’s report that CalPERS CEO Marcie Frost had misled the giant pension fund about her education prompted state Treasurer John Chiang to seek an independent investigation.

Naked Capitalism blogger Susan Webber offered evidence that Frost – who does not have a college degree – allegedly told a consultant who evaluated her job application before her hiring in 2016 that she was enrolled in a degree program at Evergreen State College in Olympia, Washington. The Sacramento Bee reported that she hadn’t taken any classes at the college since 2010. Before coming to CalPERS, Frost led Washington’s Department of Retirement Services, which oversees more than a dozen defined-benefit state pension funds.

In May, Webber’s reporting led CalPERS to oust Chief Financial Officer Charles Asubonten for making misleading claims about his employment history before he was hired.

With CalPERS’ new mess, a potentially big problem for Frost is that while she might be able to dismiss questions about whether she was honest over her education as the result of a misunderstanding, Naked Capitalism’s recent reports actually raise bigger concerns.

Accuracy of death-benefits claim questioned

For one example, Naked Capitalism writer Yves Smith last week wrote a persuasive analysis that argued that CalPERS had cherry-picked among data in claiming it was doing a better job processing death benefits in 45 days or less.

“CalPERS used an obviously cooked-up basis of comparison. Rather than take the same time period in successive years, CalPERS instead chose a set number of cases to examine (300 each) before and after a suspiciously arbitrary-looking cutoff date, February 12. Under questioning, the presenters admitted the ‘before’ cases included ones submitted in November and December,” Smith wrote.

“Why does this matter? The beginning of November through end of January is certain to be the worst time of year in terms of efficiency for a government agency. First, you have a high density of holidays compared to the rest of the year (Veterans’ Day, Thanksgiving, Christmas, Martin Luther King Day). Output suffers due to distractions like holiday shopping, more interaction with family members, and even getting out of the mood to work. Second, many employees also take vacation days around these holidays (and recall that CalPERS employees have generous vacation allowances). So there was also almost certainly reduced manpower to process claims during this period.”

There is no sign that Chiang or others with oversight authority are looking at this allegation. Last week, the CalPERS board made its feelings known about Frost, voting to raise her pay by 4 percent to $330,720 and to give her an $84,873 bonus.

Board officials suspicious of blog’s motives

A Sacramento Bee story last week about Naked Capitalism’s critiques of CalPERS gave space to CalPERS’ officials’ claims that there is something suspicious or perhaps partisan about an East Coast-based blog paying so much attention to a pension system across the nation.

In comments that the Bee reported were intended for Webber, CalPERS Vice President Rob Feckner said, “You’re not from California. Why would you be involved in a California election for that board? Why is it so important to you to get someone elected in that board?” Webber has been sharply critical of Feckner and other board members who have close relationships with Frost.

Naked Capitalism’s tart response: “CalPERS likes to relish its status as the biggest, highest profile public pension fund, but when it gets bad press, its stance is that it’s a parochial organization and why isn’t it left alone?” wrote Yves Smith.

No one familiar with the blog would consider it obsessed with CalPERS. The website’s roster of authors with Wall Street or banking backgrounds is long and their targets are widely varied. The site’s index cites nearly 5,000 stories about the global finance industry versus 98 about CalPERS.

The underfunded California Public Employees’ Retirement System faces daunting challenges in coming years, with local governments increasingly vocal about not being able to afford the ever-growing cost of their CalPERS-managed pension programs, as CalWatchdog

The nation’s largest public pension fund could face these challenges with a board that appears both solidly pro-union and solidly in the corner of the pension giant’s top management. Or the board could once again have a rabble-rouser in its midst.

That was the takeaway from the voting that concluded last week for two of the six member-at-large seats on the 13-member board that are elected by CalPERS members. (The other seven members are chosen by various state leaders.)

David Miller, a state regulator and former president of the California Association of Professional Scientists, was elected to replace J.J. Jelincic, a maverick board member who has long accused CalPERS executives of poor management, bad decisions and a lack of openness.

Jelincic decided not to seek re-election in June after facing harsh criticism from other CalPERS leaders for allegedly leaking confidential information. In May, he made headlines on investment blogs for likening a top CalPERS lawyer to Roy Cohn, a notorious New York lawyer known for his ruthlessness. In particular, Jelincic’s acidic remarks have long drawn praise from writers at the Naked Capitalism website who share his low opening of how CalPERS is run.

Miller, who was backed by public employee unions and has emphasized the importance of preserving and protecting government pensions, easily defeated former CalPERS board member Michael Flaherman, who was backed by Jelincic and has a history of being open to pension reform.

Union-backed board incumbent denied re-election in initial voting

The union-backed candidate for a second member-at-large seat, incumbent Michael Bilbrey, led voting but was forced into a runoff next month after no one garnered majority support in a four-way race. Bilbrey’s opponent is a Jelincic-like wild card – Garden Grove Unified School District manager Margaret Brown.

While Brown too has vowed to protect and preserve government pensions, she has offered sharp criticism of CalPERS’ upper ranks.

In May, she accused CalPERS’ top officials of knowingly cooking the books – hiding investment costs to make the pension agency’s investment record look better than it actually was so annual bonuses would be larger.

In September, Brown wrote a letter to CalPERS CEO Marcie Frost, CalPERS board members and state officials including Attorney General Xavier Becerra alleging that the new rules for mail voting for the just-held elections broke state laws and made it possible that individual union members’ votes could be made public.

The runoff is also a mail election. Ballots must be mailed by Nov. 10. In initial voting, Bilbrey got 49,801 votes (40.8 percent) to Brown’s 43,132 (35.4 percent).

Jelincic took a final shot at a top CalPERS official on his way out the door. In a September email to Naked Capitalism, Jelincic mocked board President Rob Feckner’s remark that he had never been misled by CalPERS staff in his 18 years on the board.

Jelincic noted that Feckner was “board president while the CEO was collecting shoe boxes of cash.”

That was a reference to Fred Buenrostro, who was sentenced to a 4½-year prison term last year after after pleading guilty in 2014 to taking more than $250,000 in bribes during his six years as CalPERS CEO.

By Chris Reed

In the private sector, there are all kinds of laws that govern employment, conduct, conflict of interest and appropriate use of shareholder funds. They may not always be enforced, but in the best-run companies, they are usually taken seriously.

In the public sector, there are all kinds of rules and regulations that are supposed to cover these same areas, but they are ignored. And sometimes there are rules and regulations that protect misconduct and tolerate ridiculous conflicts.

Public sector mischief and worse: Ho-hum, nothing to see here

Examples are everywhere, but I stick to these four:

It took a lawsuit by parents of students in bad schools to get the Los Angeles Unified School District to begin heeding a 1971 state law that requires student performance be part of teacher evanluations.

In the same school district, administrators chose to pay off a perverted teacher who fed semen to first-graders because they didn’t think it was within their authority to immediately dismiss him.

In the California Public Employees’ Retirement System, the longtime president of the board, incredibly enough, is the same guy who is the executive vice president of the California Federation of Labor. Boy, I wonder why CalPERS has acted so irresponsbily for so long.

Shut up, complainers, and butt out

Which brings us to California’s second-largest school district after LAUSD, San Diego Unified. The San Diego County grand jury issued a report last week that noted all the different ways the district has used taxpayer resources to promote ballot measures and bills in Sacramento in explicit defiance of state law. This is from a U-T San Diego story:

“[The U-T] last year highlighted a district email blast to parents with the subject line ‘Make Your Voice Heard — Support AB 2434,’ a proposal by Marty Block, D-San Diego, affecting the sale or lease of district property.

The story also looked at the district’s Education Issues Action Center, a website that urged residents to write their representatives or sign petitions asking them to provide adequate funding for schools. It also linked to advocacy websites for two tax increases.

“Another story highlighted school board President John Lee Evans’ use of his district email to coordinate a news conference with the region’s school board presidents to advocate for the passage of two tax increases, Propositions 30 and 38.”

Behind the flouting of the law? You guessed it

But as I pointed out in an editorial, San Diego Unified has already rejected the idea that it must use taxpayer funds legally.

“Last year, an attorney for the school district said SDUSD emails and a website advocating passage of a state bill were perfectly legal. So much for state courts’ established view that it is illegal to ‘use the public treasury to finance an appeal to the voters to lobby their Legislature.’

“There’s the law of the state of California, and then the one governing the San Diego Unified School District. That latter law amounts to, ‘We do what we want, and if you don’t like it, tough luck.’”

If this attitude sounds like standard union thuggish politics, bingo. San Diego Unified’s CTA-affiliated teachers union has its hooks firmly into four of the five school board members. The rules of the state just don’t apply, these members jave concluded — just the rules as determined by the bullies of Burlingame.

By Chris Reed

The longer I’ve lived in California, the more governance here seems to resemble organized looting of taxpayers. It’s not just the showy and ridiculous things, like the longtime president of the CalPERS governing board being a top official in the California Federation of Labor, or the public safety workers in a bankrupt town winning automatic raises. It’s stories like this one, about a defeated Assembly member getting a $128,000 part-time state job:

“Allen, defeated by Marc Levine in his reelection bid for a state Assembly seat representing part of Sonoma County and Marin County, was appointed on Thursday to the state Unemployment Insurance Appeals Board.

“The five-member panel, which meets monthly, is the final arbiter in appeals of unemployment and disability claims involving workers and employers.

“The job pays $128,000 a year. That’s a hefty bump from an Assembly member’s base pay of $95,300.”

Assemblyman aids aide and is aided in return

And it’s stories like this one, about a termed-out Assembly member helping his aide win a narrow election to his old job, and then getting a $102,000-a-year job from his aide until his next elected gig starts paying him:

“Voters in northeast Los Angeles picked former state Assemblyman Felipe J. Fuentes III (D-Sylmar) in March to represent them on the City Council, but that job won’t begin until July, seven months after Fuentes’ term in Sacramento ended. He won’t be struggling to make ends meet, however: Fuentes is bridging the gap by working for his former chief of staff and longtime friend, Raul Bocanegra, who was elected in November to fill Fuentes’ seat in the 39th District.

“Assembly records show that Fuentes went on Bocanegra’s payroll Dec. 3. His title as of February 28 was principal assistant in Bocanegra’s district office; his monthly salary of $8,500 was the second-highest among Bocanegra’s aides. In fact, it’s more than the salaries paid to either Bocanegra or his chief of staff.

“The unofficial tally from the March 5 election showed Fuentes with 51% of the vote in Council District 7, almost twice the percentage of runner-up Nicole Chase. The only candidate in the district to raise a significant war chest, Fuentes spent almost nine times as much in the campaign as all his rivals combined.”

That’s from the L.A. Times.

Question the looting, and you’ll get insulted

Here’s another version of governance as looting involving another Democratic Assembly member, Ben Hueso, and the San Diego City Council. Note that Hueso’s aide characterizes questioning the looting as being “obnoxious.”

What’s obnoxious is this status quo, and how government watchers are so used to it that it’s barely considered news any  more.

Here’s more from the Times story on Fuentes:

“Fuentes has tapped public funds at least once before while moving from one public-sector job to another. He was chief of staff for Padilla in the 7th District until Padilla won a seat in the state Senate in 2006. Fuentes then ran for and won a special election to replace Assemblyman Richard Alarcon (D-Panorama City), who had won the seat Padilla vacated on the council. The day after Fuentes won that election, he obtained a $7,500 contract from the [Los Angeles] City Council to brief Alarcon’s council staff. Not that Alarcon was new to the council; he’d represented the 7th District before heading to Sacramento.”

Showing it’s not just Sacramento and San Diego. It’s L.A. It’s all of California government.

Great, just great.

By Chris Reed

On Monday, the day that finally saw criminal charges filed over CalPERS’ brazen pay-to-play bribery scheme, there were signs that some Democratic state lawmakers finally are figuring out that believing California’s pension status quo is ridiculous isn’t just partisan right-wing posturing.

Ed Mendel, one of a handful of elite reporters on pension machinations, has the scoop at Capitol Weekly:

“Assemblyman Marc Levine, D-San Rafael, an upset victor last fall in a new election process, has introduced a bill containing Gov. Brown’s stalled proposal to restructure the CalPERS board, adding financial expertise and loosening labor control.

“The proposal to change the board, which needs voter approval because of a labor-backed initiative in 1992, would double the number of gubernatorial appointees to six, matching the number of labor representatives.

“’In the past, the lack of independence and financial sophistication on public retirement boards has contributed to unaffordable pension benefit increases,’ said the 12-point pension reform proposed by Brown in October 2011.

“The proposal said pension boards need members with ‘independence and sophistication’ to ensure that retirees receive promised benefits ‘without exposing taxpayers to large unfunded liabilities.’”

‘Unsophisticated’? Or union double agents?

Journalistic decorum requires Mendel to pretend the problem is a lack of sophistication on board members’ part, not the fact that they are union tools. Why is this problematic? More from Ed:

“CalPERS sponsored legislation, SB 400 in 1999, that gave state workers a major retroactive pension increase. A deep pension cut in 1991 was rolled back. Retirees received a 1 to 6 percent increase in their pensions.

“Highway Patrol pensions increased 50 percent, setting a costly bargaining benchmark for local police and firefighters that critics say is unsustainable. All of this, CalPERS erroneously said, would be paid for by investment earnings, not costing taxpayers ‘a dime.’”

Here’s a factoid that goes a long way to explain why California is so screwed up. Who is the president of the CalPERS’ Board of Administration?

Is it a UC Berkeley economist? A CEO of a thriving Califoria firm? A respected former statewide official considered an independent straight-shooter?

Nah.

It’s this guy.

“Mr. Feckner is the Past President of the California School Employees Association. He also serves as an Executive Vice President of the California Labor Federation.”

How insane that a guy with such preposterous and extreme conflicts of interest is CalPERS’ board chairman.

How … California.

MARCH 20, 2012

By DAVE ROBERTS

Once upon a time buying a municipal bond was considered a safe bet. A decent rate of return with little risk ­– just the thing for junior’s college fund and grandma’s retirement account. But that was before Standard & Poor’s downgraded the U.S. government’s credit-worthiness, sending shock waves through the bond markets. And before governmental agencies increasingly defaulted on loans and threatened or declared bankruptcy, converting safe securities into junk.

That’s potentially a lot of junk. Investors hold nearly $3 trillion of municipal debt in the United States.

Municipal bond holders have become concerned that they can’t get access to adequate financial information from governmental agencies about their credit-worthiness. Many are senior citizens who may know members of their city council or water board. In the past, the citizens blindly trusted in the fiscal soundness of government, considering it a safe place to park their money without having to worry about pouring through bond offering reports, prospectuses and audits.

One of those investors receiving a wake-up call is Irv Siminoff, a World War II veteran who served in the Pacific Theater and began investing in municipal bonds in the early 1980s to provide a stable income for his son’s tuition at Stanford.

“I started out investing in Wall Street right out of college, and in those days things were pretty calm,” he told the Securities and Exchange Commission at a hearing last year in San Francisco. “One could get 5 to 6 percent in dividends and could reasonably expect maybe a 5 to 10 percent annual return from the underlying corporation. In addition to income from my equity portfolio and my growing business, muni bonds seemed like an ideal, good security, a given income and investment return at some time in the future at a scheduled date. Boy, was I naive.”

‘Looked Really Safe’

His first municipal bond investment was in the Washington Public Power Supply System. It was not insured, but, he said, it “looked really safe. What could be better than revenue from power?” He wound up losing half of his money after delays, cost overruns, mismanagement and political opposition to nuclear power resulted in WPPSS defaulting on $2.25 billion in construction bonds. Investors and the public were largely kept in the dark about the problems. Siminoff was luckier than some investors who only received 10 cents on the dollar.

He then shifted his account to Drexel Burnham Lambert and bought bonds that turned out to be secured by nothing more than raw land and an Oklahoma hospital center that was on the fast track to bankruptcy. Bankruptcy is also where Drexel wound up after its illegal activities in the junk bond market were discovered. “Looking back, these deals were sold on projections, not on established facts,” said Siminoff. He got similarly burned on Mello-Roos bonds that were based on pie-in-the-sky projections.

While Siminoff was naive at the outset, even sophisticated investors can suffer from insufficient knowledge about the risks in these supposedly safe investments. Peter Kuhn, a former accountant for Price Waterhouse whose wife calls him a “municipal bond geek,” bought from a professional trader a general obligation bond issued by the Hayward School District, getting a very good yield. “However, Hayward is having some financial challenges, and their certificates of participation were just downgraded to nearly junk, if not junk status,” he said.

Lack of Information

A lack of up-to-date governmental financial information was a common complaint at the SEC hearing by both individual and institutional investors.

“The municipal securities market lacks many of the basic investor protections that exist in most other sectors of our capital markets,” said Andy Gill, senior vice president at Charles Schwab. “It is time for this circumstance to change, beginning with an improved disclosure regime that will boost investor confidence and improve access to information about the municipal securities market. Financial reporting by municipal issuers can take up to 270 days to reach an investor.

“This information lag is particularly worrisome because, for many investors, bond assets provide stability and income generation, the most critical portion of an individual investor’s assets.”

Institutional investors have an advantage because they are exclusively treated to investor road shows in which bond issuers may provide financial information that never appears in financial statements, according to Mary Colby, representing the National Federation of Municipal Analysts. But they share the complaint about being kept in the dark.

“Given that most issuers only undergo audits annually with a substantial lag after the end of the fiscal year, this often results in fairly stale financial information being included in offering documents,” said Colby. “While this situation has improved in the last few years, perhaps in response to the financial crisis, it is still fairly common to see an official statement that only includes audited financials that are six to nine months old.”

The situation is even worse in the secondary market in which bonds are resold; for example, Chicago takes 13 months to file its financial information. A lot can go wrong financially for a government agency in the meantime.

“During the current recession, many state and local governments experienced double-digit declines in revenues, including sales taxes, personal income taxes, property taxes and mortgage recording taxes, among others, all of which separately or jointly secure tax exempt debt,” Colby said. “Investors during the period were often left relying on financial information gleaned from newspaper articles, because secondary market disclosure lagged so substantially and was so infrequent. The municipal market contrasts very poorly with the corporate sector where quarterly disclosure is the norm.”

Incomplete Information

In addition to late filings, many small-to-medium sized government agencies provide incomplete information when they do file.

“Often after a few years, the filings may shrink to only the audited financials ­– and the additional items of information disappear,” said Colby. “These items may range from annual updates for assessed valuation, property tax delinquencies and tax appeals — all of which are critical for assessing a general obligation bond — to operating information for a water and sewer system or sales tax collections, all of which are vital to a thorough analysis of associated bonds. There are numerous issuers currently under financial stress about whom newspaper articles frequently appear, but who have not released any updated financial information.

“While some might argue that the filings are an unnecessary burden, given their low rate of default among municipal general government issuers, we feel strongly that the issuers have availed themselves of the benefits provided by issuing debt in the public market and must be prepared to follow through with the promises they have made to investors to provide complete and timely information.”

A lack of transparency and deceptive practices were unveiled in the Los Angeles Community College District’s $140 million bond construction program. An audit by state Controller John Chiang released in August 2011 concluded that the district “could not produce complete and timely records, spent funds outside voter-approved guidelines, ignored its own procurement rules, failed to plan effectively, and provided poor oversight of bond funding. Shoddy fiscal management and sub-par oversight of a project of this magnitude will undermine the public’s trust and threaten billions of public dollars.” 

Problem? What Problem?

But to listen to the government representatives at the SEC hearing, you would not think there was any problem. They argued that, as public entities, they are even more transparent than private corporations.

Said California Treasurer Bill Lockyer, who manages a $67 billion investment pool of state and local funds and annually issues more than $30 billion worth of debt, “As both investor and issuer, we’re responsible for protecting the public trust and adhere to the highest standards of transparency.”

Lockyer had a complaint of his own about the ratings provided by S&P, Moody’s and Fitch, which have pegged California’s general obligation bonds in the A-minus to A1 range. The A-minus score ranks California tied for last with Illinois, or second worst behind it, among the states in credit worthiness — and that rankles Lockyer.

“There’s been historic discrimination in public issues compared to corporate issues,” he said. “Municipal bonds rarely default. A study by S&P revealed that 0.33 percent of municipal bond issues rated A-minus defaulted during the last 15 years, while corporate issuers rated A-minus had an average default of 3.16 percent. So, 100 times more likelihood of default, but same rating.

“That discrimination costs taxpayers a lot of money because our cost of issuance goes up, and it’s unfair to investors to not be able to accurately compare the choices that they would be making.”

Fair or not, the credit agencies’ ratings can negatively affect the municipal bond market, particularly the sector tied to federal debt. Moody’s recently warned 177 municipal issuers with high exposure to federal funding about possible downgrades, including 162 local governments in 31 states, 14 housing finance programs and one university, according to Wells Fargo Wealth Management. The company advises investors to be wary of these issuers, particularly bonds issued by Virginia, Tennessee, South Carolina, Maryland and New Mexico. 

Under-Reporting

But as bad as that seems, the problem actually may be much worse, given the under-reporting of unfunded pension and retirement health care liabilities for state employees. Taxpayers may be on the hook nationwide for more than $2.5 trillion in pensions, according to David Crane, a registered Democrat who has been an economic advisor to former Republican Gov. Arnold Schwarzenegger, with perhaps $500 billion of that in alifornia alone.

“State and local governments utilize a misleading method for reporting the size of public pension obligations,” said Crane, calling it “the Alice in Wonderland world of government pension accounting that allows governments to hide liabilities.”

The California Public Employees Retirement System, the largest pension fund in the nation, voted in March 2011 to keep its discount rate at 7.75 percent, despite a recommendation from its actuary to lower it to 7.5 percent. The rate reflects what the fund expects to earn on its investments over 20 years, allowing it to reduce what it owes by what it expects to bring in. In the past 20 years, CalPERS has earned an average 7.9 percent rate of return, despite the Great Recession.

“According to our actuaries, maintaining our discount rate at its current level is prudent and reasonable,” said CalPERS Board President Rob Feckner. “Given the current economic environment, we believe keeping our discount rate unchanged is in the best interest of our members, employers and taxpayers.” Despite his recommendation to lower it, Chief Actuary Alan Milligan went along with the status quo, saying, “The discount rate adopted is reasonable and achievable, and appropriate for funding the promised benefits.”

Market Crash

CalPERS was especially hurt by the market crash of the summer of 2011. CalPERS, which has 49 percent of its investments in the market, lost $17.5 billion in just five weeks, representing 7.4 percent of the $237.5 billion balance it reported on June 30, as reported by Calwatchdog Managing Editor John Seiler on August 9, 2011. Some of that has been restored. But as of December 12, 2011, the fund’s value stood at $238.3 billion, up not even a billion dollars from the June 30 amount.

Crane considers a 7.75 percent discount rate a misrepresentation of reality, and provides the following example:

“Suppose an individual wears two hats. One is a just-retired government employee entitled to pension payments from the state government, and the other is an investor in a general obligation bond issued by that very same government. Assume the pension payments and the bond payments are unconditionally owed by and fully recoursed to the government. 

“Suppose further that the pension payments and the bond payments have identical profiles. For example, suppose that both require a payment of $30,000 per year for 25 years. Also with respect to the bond, assume that, at the interest rate at which it was issued to the retiree, the government would record a present value obligation of $425,000. With respect to the pension payments, that very same government would record an obligation of only $320,000. Now how can that be? Two identical, fully recoursed and unconditional obligations owed by the same government are valued at different amounts.” 

In March 2012, CalPERS bowed slightly to reality and dropped its discount rate to 7.5 percent from 7.75 percent.

Expensive Mistakes

Overstating the pension fund’s ability to cover its liabilities can lead to expensive mistakes. Such as what occurred in 1999 when CalPERS reported that its fund assets equaled 128 percent of liabilities, when a more realistic discount rate would have put assets at only 88 percent of liabilities, according to Crane. That imaginary surplus led the legislature to increase employee pension promises, which could result in an additional $150 billion hit to the state budget, he said.

“California wasn’t alone in this regard,” Crane told the SEC. “Unrealistic reporting of pension promises is a systemic problem. That’s why the SEC must require realistic accounting of public pension promises. For that to happen it must insist upon a realistic discount rate when reporting pension liabilities.”

A month later Crane took his case to the Governmental Accounting Standards Board, which is considering revising the accounting rules for pension funds. A decision could be made sometime in 2012. It remains to be seen whether the SEC will revise pension reporting rules, but there’s a chance it will seek more openness in governmental financial reporting.

“There seems to be a disparity between the level of information that institutional investors in this market are able to obtain compared to what a typical retail investor can access, and that’s a serious concern for all of us, particularly for me,” said SEC Commissioner Elisse Walter, who chaired the hearing. “And while I would not want to see a door shut on institutional investors obtaining the information they need to make sound decisions, we can’t close our eyes to the fact that retail investors are really in need of the same types of information. As in so many areas, improving investor education and financial literacy about issues of risk, whether it’s credit risk, default risk, interest rate risk, always has to be a high priority.”

Walter also acknowledged Crane’s concerns, saying, “Disclosure of accounting for pension and other post-employment liabilities is quite complex and implicates serious public policy issues.”

In late July 2011 the SEC wrapped up its field hearings around the country on the municipal securities market. It is preparing a report with recommendations for further action, which may include changes in rules and industry best practices as well as legislation by Congress.

Roberts is a contributing editor to Calwatchdog and a long-time Bay Area newspaper reporter.

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CalWatchDog.com’s Special Series on Municipal Bankruptcy:

Broke Municipalities Look to Bankruptcy Option

Bankruptcy Didn’t Make the Sky Fall In Orange County

Local Governments Face Bankruptcy Quandary

Bond Holders Seek Governmental Transparency