taxes not levied directly on the bonds, the receipt of the income therefrom or the realization of gains on the sale thereof. Interest on the bonds is not subject to present income taxation by the United States of America under existing statutes and decisions. 4. The Bonds are lawful, valid, direct and general obligations of the County of Allegheny, and the full faith and credit of the County has been pledged in accordance with the covenant contained in said bonds and as provided by Section 404 of the Local Government Unit Debt Act, which covenant is specifically enforceable. 5. Under the Probate. Estates and Fiduciaries Code, Act No. 164 of 1972, the Bonds are authorized investments for fiduciaries (as defined in that Act) within the Commonwealth of Pennsylvania, and under the said Act the Bonds are authorized investments for personal representatives. 6. The Bonds are legal investments for Pennsylvania banks, banks and trust companies and insurance companies and are acceptable as security for deposits of public funds. 7. The County of Allegheny has the power to provide for the payment of the principal of and interest on the Bonds and has so covenanted in accordance with the Local Government Unit Debt Act aforesaid, and by the terms of this covenant the County shall budget and appropriate such sums to the payment of such debt services, and shall duly and punctually pay the principal and the interest thereon. The County has power to levy ad valorem taxes on all taxable real property therein for the payment of these Bonds without limitation of rate or amount, and covenants to levy the necessary taxes. 8. If sufficient funds are not appropriated for the timely payment of debt service charges, the covenant contained in the Bonds can be specifically enforced and the appropriate court can direct payment into the sinking fund in sums sufficient to pay such interest and installments of principal, at the suit of the holder of any of the Bonds. 9. These Bonds and all proceedings in connection with the issuance thereof have been approved by the Department of Community Affairs of the Commonwealth of Pennsylvania in accordance with the Local Government Unit Debt Act. The Bonds are exempt from registration under the provisions of the Securities Act of 1933, as amended. Very truly yours, BASKIN, BOREMAN, WILNER, SACHS, By /s/ FRANK R. BOLTE General Partner Bond Counsel Subject to all the conditions set forth in the offering of bonds hereto attached, we submit the following bid for the above Allegheny County Bonds, aggregating $27,000,000. This bid is based upon an interest rate of ....... %. The bid for all of the bonds above mentioned is $ together with accrued interest thereon to date of delivery computed on a basis of 365 days to the year. We enclose herewith a duly certified check or official bank check, For the information of the County only, and not as part of this proposal, Said bonds are to be duly and legally executed and issued as evidenced Signature of Bidder Appendix "B" Amount $27,000,000 Senator WILLIAMS. We are most encouraged hearing from two States, Illinois and Pennsylvania. Both States seem to be moving in the direction that would make the guideline provisions of this legislation unnecessary and exempt them if all of these developments that you're talking about are in place or moving in that direction. So your particular concern is probably not addressed to your own State. But I will say that the policy statement of the National Association which I subscribe to is a fine statement. Here's our situation. What is your title, by the way? Mr. FLAHERTY. I'm chairman of the county commission. Senator WILLIAMS. That residual area that becomes the Federal responsibility seems to be ever increasing because we are daily visited by the mayors, the county governments, Governors describing to us what residual areas that they find are necessary in the Federal structure. This week was both Governors and mayors week, I can assure you, here in Washington. And with that, the ever increasing pressures from local governments, State and local, this modest proposal is being increasingly felt around here as one way to restrict that residual area that we have been exposed to that is the Federal Government's rescue efforts, as with the biggest city in the country. I appreciate this, Commissioner Flaherty and Mayor Carver. I would just hope that the specific bill and bills be part of your next association discussions. There are two bills here. One is the full registration requirement that Senator Eagleton has introduced. He testified on our opening day and I got the impression that he is not dogmatic. He feels that Federal legislation is the only way to bring a new atmosphere into this broad area of investment and that provisions of the bill Senator Tower and I introduced were favorably received. Thank you very much. Mr. FLAHERTY. We would certainly welcome, Senator, if memhers of your staff would like to participate in our preparation of the voluntary guidelines which we intend to disseminate so that you would have any input into the establishment of these disclosure requirements that we would hope the National Association of Counties would adopt at its coming annual meeting. My own personal reservation about entry of the Federal Government in this area of local finance and I have read your disclosure requirements is that there are requirements for coverage that are capable of being reduced by the Securities and Exchange Commission. I personally fear expanding bureaucracy. Little offices have a tendency to grow into buildings the size of the Pentagon and I think there's a growing feeling in the country that I hope I express to you personally of the intrusion of Federal regulation in that regard. That's my own personal feeling, sir. Senator WILLIAMS. I know there is this feeling and I have frequently, since introducing this bill, observed that it reflects that national concern because we so clearly limit the bureaucratic overlay by not requiring all statements to be filed with the SEC and instead it would be someplace else under contract in a repository. The SEC is not to be a swollen bureaucracy because of this requirement. With the State exemption, where just the fundamentals of good investment are part of a State's procedures, that is another way to limit that threat of the swollen bureaucracy. I agree with you. This is a concern. Thank you very much. Mr. Robert G. Nordling, vice president, and Mr. Gilman C. Gunn, senior municipal bond analyst for the Chubb Corp. Thank you very much, gentlemen, for participating in this hearing. STATEMENT OF GILMAN C. GUNN, SENIOR MUNICIPAL BOND ANALYST FOR THE CHUBB CORP. Mr. GUNN. Thank you for inviting us, Senator Williams. My name is Gilman C. Gunn and I am the municipal bond analyst for the Chubb Corp. With me today is Robert G. Nordling who is a vice president of the corporation and has overall responsibility for fixed income investments. The Chubb Corp. is an insurance holding company with total invested assets of $1.3 billion as of year-end 1975, and a current municipal bond portfolio of $501 million. We are pleased to have the opportunity to voice our general support for the "Municipal Securities Full Disclosure Act of 1976." As institutional investors, we are convinced that municipal disclosure needs to be improved. Adequate disclosure allows investors to make informed investment decisions and it helps protect investors. If State and local borrowers are to continue to raise money in the municipal marketplace at reasonable cost, a high level of lenders confidence must be maintained. Over the long term, such confidence is fostered by good disclosure. As a municipal bond analyst, it is my opinion that the voluntary system of disclsure we have now is not working. At the present time levels of disclosure vary widely since there are no standards as such. A great deal of confusion has arisen as to what constitutes "adequate disclosure." Even now, many months after the New York situation gained national headlines, issuers of many general obligation bonds do not provide prospective investors with good credit information. Instead, many issuers still supply a brief offering circular which only describes bidding details. If some of the wellpublicized fiscal problems of State and local governments recede into the background in 1976, I am even more skeptical that State and local borrowers will step up their disclosure effort voluntarily. As an added note, the MFOA is in the process of developing voluntary disclosure guidelines. Since such guidelines would be strictly voluntary, there is no guarantee that better disclosure would result. Voluntary guidelines haven't worked in the past and I don't believe they will in the future. Without an adequate informational statement, the process of analyzing general obligation bonds is cumbersome for institutional investors and practically impossible for individual investors. As an analyst, without an informational statement, I am forced to rely on the issuer's budgets, annual reports, fiscal newsletters, Census Burean data, credit reports of the rating services, special reports prepared for us by municipal bond broker/dealer firms, and other data sources. General obligation bond analysis is further complicated by several other factors. For example, while many municipal governments claim to require balanced budgets, it has become all too apparent that such budgets often are not realistic-that is, revenues are overestimated and expenses are underestimated. Also, accounting policies and accounting changes are often not clearly spelled out although such policies and changes have a major effect on the issuer's financial statements. In addition financial statements are often not independently audited. As we have seen over the past several months, such independent audits are very important, especially in periods of economic stress. Individual investors are at a much greater disadvantage than us when it comes to obtaining information on issuers of general obligation bonds. They don't have the background to wade through a budget document the size of a Manhattan telephone book. Nor can they generally afford to subscribe to rating service products. Our Moody's bill this year is $2,850-and we have a "no frills" version. Individuals are an important class of municipal bond buyers. Since many people feel that the municipal market already has too few buyers, it is important to maintain a high level of individual investor confidence in the municipal market. One way to help achieve that would be to insure that individual investors have the opportunity to review a document which gives pertinent information in reasonable detail. The Municipal Securities Full Disclosure Act of 1976 expresses many of our views on improving disclosure. We are in agreement that the SEC is the logical entity to act in the public interest and for the protection of investors. The SEC is independent of issuers and underwriters. Responsibilities spelled out in S. 2969 would fit logically with the SEC because of the Commission's original mandate to protect investors and insure public confidence in the corporate securities markets. We believe it would be consistent to give the Commission a role for municipal securities as well. We agree philosophically with S. 2574 which would provide for the registration of securities issued by State and local governments. However, as a practical matter, we feel that S. 2969 is a reasonable compromise between investors who would like to see full registration and issuers who want to maintain the status quo. We are concerned however, about section 13A (c) (1) which states that local governments would be exempt from SEC purview if a State governmental authority indicates that disclosure is adequate for the protection of investors. This clause means that each State could establish different disclosure requirements. In that case, the SEC would be out of the picture. The prospect of each of the 50 States establishing its own disclosure requirements is not an appealing one to us. It would be less efficient and less independent than exclusive SEC involvement. We are particularly concerned that, in the final analysis, the level of disclosure would |