SEC's 'Municipal Advisor' rule has harmful ramifications for engineering companies
National ACEC lobbying for changes
Engineering companies that provide utility cash-flow modeling and other consulting services to municipalities will be saddled with onerous new regulatory requirements and restrictions if the Security & Exchange Commission's proposed definition of "municipal advisor" is allowed to stand.
Section 975 of the Dodd-Frank Act requires “municipal advisors” to register with the Securities and Exchange Commission (SEC) and the Municipal Securities Rulemaking Board (MSRB). The law defines municipal advisor as a person or firm that provides advice to a municipal entity in connection with municipal financial products or the issuance of municipal securities.
Although the law includes an exemption for “engineers providing engineering advice,” the SEC has proposed defining engineering advice so narrowly that traditional engineering services, such as cash-flow modeling and feasibility studies, would not be covered by the exemption.
The SEC had intended to finalize the municipal advisor rule by the end of December 2011, then it extended the temporary registration system until September 30, 2012. The agency recently extended the temporary registration system again, until September 30, 2013, although the Commission hopes to finalize the rule before this new deadline.
There continues to be significant pressure on the Commission to revise the proposed rule, and congressional interest in this provision of Dodd-Frank remains strong. ACEC staff has been in discussions with House and Senate offices regarding the need for clarifying legislative language if the SEC proves unwilling to revise its definition of “engineering advice”.
The House of Representatives recently approved legislation (H.R. 2827) that seeks to narrow the definition of municipal advisor. While the bill does not address the engineering exemption language, at ACEC’s request House Financial Services Committee Chairman Spencer Bachus publicly expressed his concerns during the consideration of the bill that the SEC ignored congressional intent in its interpretation of the exemption. Identical legislation has been introduced in the Senate (S. 3620) by Senator Roger Wicker.
In addition to imposing a fiduciary duty obligation on municipal advisors, the proposed SEC rule would institute campaign contribution restrictions on firms that register as municipal advisors. If the rule is adopted in its current form, municipal advisors will likely be subject to “pay-to-play” rules that are similar to those that have covered securities dealers since 1994.
Most contributions from a municipal advisor firm or municipal advisor professionals to candidates for state or local office would trigger a two-year period in which the firm could not work for that state or local government. Contributions from a registered municipal advisor to an association PAC could also trigger the two-year cooling off period because of what are considered indirect contributions.
ACEC national staff is mindful that the municipal advisor rule poses serious concerns for engineering companies and continues to work to obtain reasonable modifications to the proposed rule.