A municipal advisor is a person or a firm that provides financial advice to public agencies (cities, counties, school districts, special districts, redevelopment agencies, housing authorities, public utilities, ports and airports, etc.) and non-profit organizations (private schools, colleges, and universities, charter schools, healthcare organizations, federally qualified health centers, museums, associations, etc.), particularly as it relates to entering into financing transactions and issuing debt in the form of leases, private placements, installment sale agreements, bank loans, municipal bonds, and other securities.
The municipal advisor role was created by the Securities and Exchange Commission (the "SEC") in 2014 as a part of the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Municipal advisors are required to act as a fiduciary to the agencies that they serve, fulfilling the duty of care and the duty of loyalty to act in the best interest of their clients.
Municipal advisors are regulated by the Municipal Securities Rulemaking Board (the "MSRB) and the SEC. Each individual Municipal Advisor Representative must pass a rigorous Series 50 license examination that covers a wide range of municipal finance topics. At least one individual within a municipal advisory firm also must pass a Series 54 license exam as a Municipal Advisor Principal.
A municipal advisor assists public agencies in determining financing strategy, including method of sale (public offering or private placement), borrowing structure, timing of debt issuance, financing terms, and other matters related to the issuance of bonds or other financial products. Municipal advisors work with the issuer staff and other members the financing team to obtain the best overall outcome for the financing, whether to fund a new project, refinance outstanding debt, optimize pension liability payments, or obtain working capital. After the debt is issued, municipal advisors support their clients in filing continuing disclosure reports and performing arbitrage calculations.
To obtain the most favorable financing terms at the lowest financing cost, a municipal advisor starts by assessing the client’s credit quality, looking into financial trends and projections, reserves, capital structure, and overall objectives of the client. Credit quality is one of the main factors that determine the cost of capital and availability of financing options. A good municipal advisor will proactively work with their clients to identify and correct or mitigate credit weaknesses. Once the financing strategy is determined, the municipal advisor works with the client to select an appropriate underwriter or lender and properly evaluate financing proposals. During the due diligence process, the municipal advisor assists the client in communications with the financial market and implementing policies that assure the creditors that the client is credit-worthy.
The law limits who can give financial advice to public agencies. Only a properly licensed and registered municipal advisor serving as a fiduciary and working in the best interest of the client is allowed to perform that role. Consultants, broker-dealers, underwriters, and financial advisers are prohibited from giving financial advice related to debt issuance in order to ensure that the taxpayer funds and public agency interests are properly protected.
Any public agency or non-profit organization can benefit greatly from consulting with a municipal advisor as soon as it begins to think about borrowing money. It is a good practice to consult with a municipal advisor when you are first beginning to consider project financing, as some issues have to be addressed early and may take some time to resolve. The municipal advisor will help you understand the financing options that are available and what it takes to get there, as well as to get a general idea of the market interest rates and financial market requirements. Good municipal advisors know about various federal and state loan programs, such as the USDA, WIFIA, TIFIA, and SRF, as well as grants, which can help your agency obtain more favorable financing terms at lower costs and interest rates. A couple of hours spent in a conversation with a municipal advisor can help you and your staff save days of research and come up with more creative ways to get your project financed.
The purpose of the municipal financing industry is to provide efficient financing options, usually at the lower tax-exempt interest rates, to various public agencies (cities, counties, school districts, special districts, redevelopment agencies, housing authorities, public utilities, ports and airports, etc.) and non-profit organizations (private schools, colleges, and universities, charter schools, healthcare organizations, federally qualified health centers, museums, associations, etc.). To qualify for the low tax-exempt interest rates, the borrower needs to be a municipality or a qualified non-profit organization. When seeking financing, the borrower usually needs to be in a reasonably good fiscal position, have budgeting discipline, go through the process of preparing annual audited financial statements, and comply with the federal and state rules that govern issuance of municipal debt. An early conversation with a municipal advisor will help make the financing process go smoother and faster.
A municipal advisor will need to understand your agency’s fiscal situation and policy priorities and objectives, as well as the financing needs that you are looking to address. It is best to outline any challenges early on, so that appropriate steps could be identified to correct or mitigate the issues. A good municipal advisor will help you uncover multiple financing strategies and select the ones that are most appropriate for your specific situation and circumstances. You should expect a comprehensive assessment of your financing needs that goes beyond your current project and includes a review of your outstanding debt obligations and pension liabilities to identify possible refinancing opportunities.
The Municipal Securities Rulemaking Board (MSRB), a self-regulatory organization created under the Securities Acts Amendments of 1975 with the mission to protect and strengthen the municipal bond market, sets the regulatory rules for municipal advisors. The Securities and Exchange Commission (SEC) enforces the rules that municipal advisors are subject to. Each municipal advisor representative must pass a Series 50 examination which ensures a basic level of professional preparedness for professionals rendering financial and securities advice to public agencies. At least one professional within each municipal advisor firm must pass a Series 54 examination to act as the municipal advisor principal. Municipal advisors are subject to strict reporting and compliance rules and oversight.
A municipal advisor can help you with financing of any size, from a $500,000 fire engine acquisition to a water-treatment facility project that costs hundreds of millions of dollars and everything in-between. Issuance of municipal debt is a complicated and heavily regulated process. Engaging a municipal advisor early will help to ensure regulatory compliance, obtain best financing terms and lowest interest rates, save time, and improve the fiscal resiliency of your agency. As a fiduciary acting in your agency's best interest, a municipal advisor helps making the complex process of issuing municipal bonds or obtaining privately placed bank financing less daunting and more simple, because small details often make a big difference.
Ridgeline Municipal Strategies, LLC is a municipal advisory and financial consulting firm helping cities, water and wastewater agencies, and fire districts in California with financial planning and financing for infrastructure, facilities, and equipment.
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