Treasury, wrestling with challenges, leveraging private sector

Bonds

Dispensing infrastructure spending, combined with the need for advising on the implementation of the Financial Data Transparency Act has the Treasury Department looking to the private sector for talent and expertise.   

Recent hires by Treasury seem to indicate the agency’s desire to bolster its staff with experienced experts from the private sector. The money flowing in from the Bipartisan Infrastructure Legislation is an ongoing challenge for both sides of the equation.

“The federal government has been moving into a diverse portfolio of lending programs, starting with Transportation Infrastructure Finance and Innovation Act, and the Water Infrastructure Finance and Innovation Act,” said Christine Reynolds, a partner with Orrick at the Portland and Seattle offices. 

“The federal government has been moving into a diverse portfolio of lending programs, starting with Transportation Infrastructure Finance and Innovation Act and the Water Infrastructure Finance and Innovation Act,” said Christine Reynolds, a partner with Orrick at the Portland and Seattle offices. 

Orrick

WIFIA funds are flowing through the Environmental Protection Agency while TIFIA funds are aimed at Transit-Oriented Development projects approved by the US Department of Transportation.      

“It would be helpful for the Treasury’s Office of State and Local Finance to support revising or removing federal statutory requirements for credit ratings that apply to the TIFIA TOD program to make it easier for a wide array of affordable housing projects, which are often unrated transactions,” said Reynolds. 

Last week the agency revealed hiring muni expert Patrick Early as a senior policy analyst to help beef up the OSLF, which nests inside the Public Finance Office.  The move is seen as a positive by muni leaders. 

“It’s really good that someone with his experience has taken that position because it’s critical Treasury focus on the needs of state and local governments and nonprofits even if there is not a pandemic crisis,” said Charles Samuels of Mintz Levin, counsel to the National Association of Health & Educational Facilities Finance Authorities. 

“Having someone who is a veteran in public finance is a big plus because he will understand the practicalities and implications of Treasury policy actions, perhaps including the Financial Data Transparency Act.”

The FDTA was signed into law at the end of 2022 and requires that municipal securities disclosures be converted into a machine-readable format.

The OSLF is seen by muni insiders as an interagency think tank that keeps its finger on the pulse of all things related to state and local finance.

They monitor patterns in the muni market, public pensions, and public revenue streams, which could render them a credible voice in the ongoing rulemaking debate.  

“There are several items in the rulemaking process that may impact the municipal market, from the FDTA to Basel III Endgame proposal,” said Brian Egan, director of government affairs, National Association of Bond Lawyers.  ”We welcome more municipal market expertise at Treasury to watch as these items, and others, ripple through the market.”

The Treasury Department chairs the Financial Stability Oversight Council which is leading phase one of FDTA rulemaking that will start by establishing a taxonomy. The Council’s voting members includes representatives of the SEC, the Federal Reserve, and the Comptroller of the Currency. 

Reynolds also points to Treasury hiring Jacqueline Knights as a senior policy advisor position, six months ago, as another sign of the agency looking for private sector expertise. Knights’ previous position was the director of Oregon State Treasury Debt Management Division. Prior to that she was a principal at Williams Capital Group. 

“I think it’s interesting that they recruited Jacqueline,” said Reynolds.  ”She had both the public sector and the private sector experiences, having been an underwriter for decades. Bringing Patrick in, who is sort of a buyside type, if they round that out with a couple of other folks, will result in having a well-rounded shop.” 

The revolving door separating the public and private sectors has produced effective results in the past. John Cross, who is well respected in the muni community, served at the Treasury as the agency’s top municipal finance tax attorney before leaving in 2019.

From 1994-2006 he anchored the Washington office of Hawkins Delafield & Wood before joining the Treasury. In 2012, he jumped to the SEC where he headed the independent Office of Municipal Securities then returned to the Treasury. Cross worked out of the Office of Tax Policy with a focus on tax exempt bonds. According to sources, his position has never been backfilled.

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