It is

be impractical and extremely costly. Not only would underwriter investigations involve costly duplication of effort, but they would entail an intrusion into public affairs that seems both unwarranted and virtually impossible. notable that the 1933 Act provides that in the case of registered securities, an underwriter may rely in good faith upon official statements. This is a standard which should definetly be applied to municipal offerings.

Finally, assuming that adequate provisions are made for disclosure standards to be applied on a nationwide basis, it seems sensible to consider delegating to state authorities responsibility for enforcing these standards, provided that such state agencies meet certain minimal tests of competence and independence from other arms of state government.

It seems likely that under such an arrangement most states would choose to set up their own authorities, which would work directly with issuers to assure compliance and would also provide a useful vehicle for communication between the states and their subdivisions and the Federal rulemaking authority. For annual reports, reports of events of default, and distribution statements not cleared by a qualified state agency, some provision for direct enforcement at the Federal level would still be needed. The logical locus of that responsibility would seem to be the Federal rulemaking authority.

Enclosed is the analysis and recommendations of our Municipal Department with respect to S-2969.

I requested our experts to speak to the issues from the basis of the "real municipal world" and the disclosure requirements needed to make the marketplace function more fairly and efficiently. I am certain that there recommendations can be easily converted into the proper legal terminology.

Also enclosed is a copy of our latest economic forecasts. The different sectors looked well balanced with little speculation.

Best regards.

WRG: ecm

Encl.

Sincerely,

Brie

William R. Grant

S-2969 is a good start, but in our opinion does not go

are enough. The concern is in six areas.

1.

Disclosure: This is a complex question. Information requirements will vary depending on whether the security is a specific revenue source, or a general obligation. Legal and statutory requirements may have a profound impact on the ability of an issuer to market and/or service debt. Actions of State or local legislators, the Federal government, and court decisions may also have a dramatic effect on the security. The marketplace itself may dictate whether an issuer is

able to raise capital, and the ability of an investor to sell an outstanding obligation.

2.

Waiving Disclosure Requirements: A section of 2-2969 specifies the waiving of disclosure requirements if

approval for the issuance of debt has been granted by

some unspecified, and not necessarily qualified State Agency. No criteria as to adequacy or ability is

mentioned. The door is open to circumvention of the

proposed legislation.

3.

4.

Penalties: The legislation is non-specific as to

penalties for either issuers or underwriters other

than reference to 11(c) of the Securities Exchange Act of 1934. Antifraud laws, particularly as they apply to public officials is questionable.

Availability of Information: The legislation does specify the requirement for annual audited financial statements, and distribution statements applicable to issuers of an established size. It also requires "proper" distribution. Recognizing there are literally hundreds of thousands of existing holders in tax-exempt obligations, and equally vast numbers of potential investors, some centralized location where information would be available appears

necessary.

Whether or not disclosure is required by an issuer,

unless it is adequately and properly presented to

investors it will have been a useless exercise.

5.

Legality: Qualifications for the issuance of legal
opinions necessary to assure investors that offerings
comply with Federal and IRS requirements, and local

laws and statutes is not addressed at all. Professionals

have a growing awareness and sensitivity to the problem.
It is doubtful, however, that the average investor fully
understands the implications and importance of qualified
bond counsel. There are many excellent firms specializing
in this legal area. Offerings, nevertheless, co
come to
market with opinions rendered by firms with little back-
ground in the highly specialized field of tax-exempt law.
Tax-exempt bonds are often sold with the opinion of the
State's Attorney General. This is usually an elected
official, who may or may not have any background in
tax-exempt law. His opinion is analogous in the financial

area to inhouse audits, or feasibility studies versus

those of recognized outside experts.

6.

Underwriting Practices: This is an area which is

technical, complicated, and perhaps not perceived to

be within the scope of the proposed legislation. If,
however, one of the primary aims of S-2969 is to

inform and protect the small investor, the disclosure of

basic information should be required by underwriters as

well as issuers.