Public funds and public trust at the dawn of the 21st century.

• Position: Remarks by US Securities and Exchange Commission Chairman Arthur Levitt - Transcript

The following remarks were delivered by Chairman Levitt to a general session of more than 3,000 delegates to the GFOA Annual Conference in Baltimore, Maryland, on June 13, 1995.

We've stood together on many important issues - preserving private rights of action in litigation, for example, and working to improve our municipal bond markets. But while we've said our piece on litigation reform and the next step is up to Congress, the direction of municipal finance reform is still very much in our hands - yours and the Securities and Exchange Commission's (SEC). That's what I'd like to talk to you about today.

I feel a sense of kinship with you, the financial officers of small and large governments across the country. I mean that almost literally, for I first learned about the awesome responsibilities of managing the people's money from my father, who for 24 years served as New York State Comptroller. From my youngest days, he impressed upon me the duty to care for the assets of the people prudently. He considered it a sacred trust. I regard his profession - yours - as one of the most important to the ordinary citizen, who often knows nothing of its existence beyond the fact that taxes are paid, schools are built, roads are paved, and the pension check arrives on time.

If you can put up with advice from an official of a somewhat larger, if not always better-managed, governmental entity, I'd like to talk to you today about three aspects of the municipal market: the prudent management of public funds, the preservation of public trust, and the integrity of the offering process.

Prudent Management of Public Funds

Perhaps no question is as pressing today as prudent investment. Large sums of public money have been lost through investment strategies so laden with risk that the notion that they were undertaken in fulfillment of the public trust seems incomprehensible. I know the tremendous concern each of you has with such losses. And you know firsthand the tremendous concern this has generated among state and local taxpayers.

The public has a right to expect that money will be available when needed to keep the schools open, to police the streets, and to meet the other civic needs for which they paid their taxes. When such funds can generate additional revenue in the interim, so much the better. Care must be taken, however, that the return received does not become a narcotic, inducing dependency by being built into annual budgets as a significant revenue source in and of itself. Such an addiction loses sight of the original purpose for raising the funds, and it courts disaster in the event of sudden market changes. Using the treasury function as a profit center has backfired on some sophisticated corporate managers in recent years; it is no less risky for public officials.

Our markets have undergone dramatic changes...