The tax-exempt sector, where not-for-profit hospitals and health systems frequently seek financing, objected to the rule after it was proposed. The National Association of Health and Education Facilities Finance Authorities and more than a dozen groups lobbied to omit tax-exempt bonds from the regulation of asset-backed securities. Groups argued Congress did not intend municipal bonds to face new the requirements under the financial overhaul bill, the Dodd-Frank Act.
And the SEC has limited oversight of municipal bonds under law, which the rule would partially repeal by expanding regulators' reach, they said.
For hospitals and health systems, The upcoming rules are more notable for regulators' new authority over tax-exempt debt than for any additional scrutiny or burden tax-exempt borrowers may face, said Chuck Samuels, the attorney who represents the health finance authorities association. Authorities bring bonds to market for not-for-profit borrowers.
Regulators argued Congress did not grant them power to exclude tax-exempt asset-backed securities from oversight, he said. Samuels said it suggests the commission will opt in the future to expand its reach—rather than create exemptions for municipal securities—when the opportunity arises. “Where they can grab jurisdiction, they will do it,” said Samuels.
SEC Chairwoman Mary Schapiro acknowledged calls for tax-exempt borrows to be exempt from the rule. “However,” she continued, “the Dodd-Frank Act did not provide us with exemptive authority.” Schapiro said the commission did delay the rules for municipal issuers for three years.
Interest in the municipal market from Congress and the SEC has increased. The Dodd-Frank Act requires the Government Accountability Office to conduct two studies of the tax-exempt market. The law also created an office of municipal securities within the SEC. The commission also held the first of several hearings on the market last September.