The Tennessee State Funding Board has approved a sweeping set of changes implementing enhanced requirements to the guidelines that govern cities and counties that propose to enter into interest rate swaps and other exotic financial transactions.
The revised guidelines are aimed at eliminating potential conflicts of interest by prohibiting individuals or companies from representing more than one side in derivative transactions. These revisions require greater transparency in the way information is reported and communicated about the transactions and require comprehensive disclosure of fees paid.
Cities and counties will have to demonstrate that they employ people with sufficient expertise to understand these complex transactions, including a chief financial officer and an accountant. Cities and counties must also meet minimum outstanding debt requirements and have an audit committee and a capital improvement plan.
Communities that do not meet all the requirements laid out in the guidelines have the option of appearing before state Comptroller Justin P. Wilson or his staff to explain that they fully understand all the risks involved and can comply with their debt and derivative management policy and the ongoing risk monitoring and reporting requirements.
The guidelines can be viewed at the Comptroller’s web site here.
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