Connecticut’s Economic Linkage to NYC; MCDC Is Inflating 15c2-12 Filings

Categories: Commentary, Uncategorized |

November 17, 2014

This week we look at the relation between the economic linkage of Connecticut and New York City. We will also update our calculation of the impact on EMMA filing volumes of the SEC’s MCDC initiative.

Connecticut Economic and Fiscal Health Tightly Linked to New York City

The largest deal this week comes from the State of Connecticut.  The State is selling $550mm of general obligation bonds.  One of the series of bonds is being designated as “green” bonds.

The use of proceeds for this green bonds series will be to “finance a portion of various high priority clean water projects across the State”.  To ensure that investors don’t miss the significance of the green bonds, the Preliminary Official Statement uses a green font for the headings describing the series.   This deal presents an interesting opportunity to compare pricing differentials between standard municipal bonds and green municipal bonds.  This could help answer the question of whether issuers are achieving real savings by issuing green bonds or just accruing good public relations.

While the state of Connecticut has a strong economy, it has been lagging the national recovery.   Its current DIVER Geo Score is 7.2; this is down from 8.6 in January 2012.

Connecticut State and County DIVER Geo Scores


Source: DIVER Analytics-Data Access Module, DIVER Data Solutions

Fairfield County, which is closely tied to New York City, remains the strongest county in Connecticut, and one of the strongest nationally.  All the other counties in the State have been lagging the national economy.  Unemployment in both Hartford and New Haven Counties remains above the national average.

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Source: DIVER Analytics-Data Access Module, DIVER Data Solutions

Connecticut depends on personal income tax for over half of its tax revenue.   The share of this revenue attributable to the towns in Fairfield County is large.

State of Connecticut Personal Income Tax Statistics


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Source: Connecticut Department of Revenue Services, DIVER Data Solutions

The State’s dependence on the personal income tax and the outsized contribution by towns in Fairfield County means that the State’s economic and fiscal health is highly leveraged to the New York City economy, and the strong performance of financial assets.

EMMA Filing Volumes Remain High, Long Term Impact of MCDC Still Uncertain

While underwriters and issuers have been devoting substantial resources to responding to the SEC’s Municipal Continuing Disclosure Cooperation initiative, and the issue has been frequently discussed at conferences, there has been little news to report.  As we approach the December 1st deadline for issuer filings, it appears that we may begin to see more newsworthy events.   Last week, the Bond Buyer featured several stories related to MCDC.

Berwick Area School District, PA posted its actual MCDC questionnaire to EMMA.   Legal experts cited in the article believed this was a mistake.  The board of the Palm Beach School District, FL discussed filing an MCDC disclosure after learning that several underwriters had reported failures to file.  The Palm Beach case is interesting, because the failures to file were apparently caused by the industry’s switch from the old NRMSIR system to EMMA.  While Palm Beach did not file with EMMA, it did file with the NRMSIR’s.

15c2-12 Financial and Operational Disclosure Document Filings

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Source: MSRB, DIVER Data Solutions

The volume of issuer filings to the MSRB’s EMMA system continue to be high compared to previous years.   By analyzing the volume of filings this year vs. previous years, we can make a rough estimate of historical 15c2-12 compliance.

If we assume that all of this year’s increase in filings was attributable to “cleanup” and “catch-up”, and assume that everyone who should file will file, we can estimate the percentage of required filings that were actually made in previous years.

Adding together 340,000 filings actually made since July 2009 with the extra 14,700 from this year, means that over the last five years there were 354,700 potential filings to be made. The extra 14,700 filings this year represent just over 4% of this hypothetically required filings from the last 5 years.

While many of the “catch-up” filings have been of dubious value to investors, the MCDC initiative has likely achieved some of the SEC’s goals.  We believe that issuers, underwriters and bond counsels will be more diligent about complying with the disclosure requirements of 15c2-12 going forward.

In addition, we hope the MSRB will review and revisit the list of Material Events that require filings.  A particular omission is the incurrence of direct loans by issuers.  While numerous issuers (and bank lenders) have disclosed this information, it remains an area of needed improvement.

This week, the Lumesis team will be all over the map. I’ll be in Arlington, Virginia for the Bond Buyer conference early in the week, and others will be in Philadelphia for the NFMA conference at the end of the week. The rest of the team will be spread out between NYC, Florida and Cincinnati.

Have a great week,


Mike Craft
Managing Director, Credit, Lumesis, Inc.


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