Home » Taking No Chances: Why an Engineer Registered as a Municipal Advisor
According to the U.S. Securities Exchange and Commission, whenever an engineer advises a municipality on project funding related to bond sales and debt financing, rather than project design or construction, the engineer is not performing engineering services.
The distinction between engineer and municipal advisor is needed because of new rules meant to protect cities and towns that carry stiff penalties for consultants.
To prevent engineers from being swept into the advisor category for all of the technical and construction consulting they provide, the SEC agreed to exempt much traditional engineering advice, including feasibility studies, project revenue projections and cash-flow modeling.
Despite the exemption from the rules, which took effect in July, gray areas in capital program finance advice remain a worry for engineers.
The “engineer exemption” is part of SEC rules written to enact the Dodd-Frank Act, adopted by Congress and signed by President Obama in 2010. The act was for the most part a response to the financial disaster or 2008 and the recession it triggered. The exemption was intended to allow engineers to do their work without having to register as municipal advisors.
Engineering groups contend that the regulations could result in legal, insurance, and ethical quandaries for firms working with municipalities. Although no engineering firms have run into trouble yet, several firms have already registered as municipal advisors and made changes to professional liability insurance policies to avoid running afoul of the rules, according to staff at engineering associations.
A Firm Decides to Register
One firm that decided it was prudent to register is consultant MSA Professional Services Inc.
MSA has 300 employees working in 15 offices in four states. It has numerous small towns and cities in Wisconsin, Minnesota, Illinois and Iowa as clients. Smaller towns and cities have less capacity to hire separate advisors or explore financing options on their own.
“We recognized that with the business model we subscribe to,” says Justin Sornsin, MSA’s municipal funding team leader. “It was pretty important for us to take the appropriate steps: to not only register as a municipal advisor, but also to put all the policies and procedures in place for us to achieve compliance.”
When the Dodd-Frank regulations caught MSA’s attention in 2011, says Sornsin, “at that time there were a lot of firms which were either ignoring the regulations or they assumed that the winds in Washington would change and it wasn’t something of broad concern.”
Now, more firms have gotten the message and are taking the regulations seriously. But Sornsin is concerned that there has not been enough outreach to municipal entities, especially small communities, about the new regulatory processes and how this will impact their relationships with engineering firms.
“Those who the regulations are supposed to protect are really going to be the last informed about the laws themselves,” he says.