When a practiced public finance professional brings up the Tower Amendment to a lay observer of the municipal bond market, eyebrows are furrowed. Taken with no context, the fact that state and local governments are not held to the same expectations as other regulated market entities is bizarre.
We explain it: “To summarize the reasoning behind this: it is constitutional (a check on federal overreach into state and local sovereignty), it is political (the market itself represents the federalist approach to American democracy), it is practical (the market is made up of thousands of very small borrowers that lack the ability and resources to meet corporate bond disclosure litmus) and it is does not pose a risk (default rates are minuscule and diligence requires so-called sophisticated investors to participate in the marketplace). “
In the second part of our impact and disclosure discussion, we get into Tower and the likelihood that climate change and materiality will be decided in court, not by the industry. We also offer some ways forward that are already in place with an eye towards future solutions.