Plan Would Cut Fees Paid to Issue New Stocks, Bonds

Congress is preparing a $1.7-billion giveback to some of the biggest corporations in America, in a step critics charge could hamper federal securities regulation for years.

The provision, tucked into a bill that would reform the nation’s securities laws, would drastically cut the government fees companies pay to issue new stocks and bonds. Those fees cover the budget of the Securities and Exchange Commission, which regulates the securities industry.

The bill will come up for final congressional approval this month.

The fee cut has survived several rounds of negotiations between the House and Senate, though members of the securities industry and corporate issuers themselves say they do not feel very strongly about it.

It is, however, the darling of staunch GOP tax cutters such as Rep. Thomas J. Bliley (R.-Va.), whose House Commerce Committee introduced the bill.

Bliley argues that the fees represent an obstacle to capital formation. He also contends that any fees in excess of what the SEC needs to operate on amount to an unfair tax on corporations and investors.

“It is simply indefensible for Washington to collect a single dollar more in fees from investors than it costs to operate” the SEC, Bliley told The Times this week in a written statement.

The money from the fees, which runs into hundreds of millions of dollars annually--they are estimated to bring in $586 million this year--covers more than the SEC budget. Any excess over the agency’s appropriation is earmarked for federal deficit reduction, according to White House budget officials who agitated to keep the fees at their current levels.

That means, critics say, that ordinary taxpayers would have to shoulder a burden that up to now has been carried by issuers of new securities. That roster includes such corporations as General Motors Corp., Ford Motor Co. and Merrill Lynch & Co.

Under the proposed Securities Act Amendments of 1996, the securities registration fees would be drastically cut over the next 11 years, from the current 1/29 of 1% of the value of the offering to 1/150 of 1%. The estimated loss to the U.S. Treasury would be $1.7 billion over that time (based on the projected growth in securities issuance).

Moreover, with the nation’s capital markets booming and new stock and bond offerings nearing a record level this year, critics of the measure say there is scant evidence that the fees have been any hindrance to capital formation.

“There is no evidence at all that these fees are burdensome,” said Barbara Roper, director of investor protection at the Consumer Federation of America.

That point was conceded by Stuart J. Kaswell, general counsel of the Securities Industry Assn., Wall Street’s lobbying arm.

“Nobody is going to say this is a hideous deterrent to capital formation,” Kaswell said.

The SEC charges also pale in comparison to the hefty fees charged by Wall Street investment banks. On a $60-million initial public offering of stock, for instance, the SEC fee today would be $20,690, and a standard Wall Street fee on the same issue would come to about $4.4 million.

In an election year in which both parties are eager to offer something to Wall Street, the compromise on fees appears to have bipartisan support in Congress and is said by sources to have White House approval as well.

The fees grew out of the Depression-era laws that established the SEC and were based on the principle that Wall Street should pay for its own regulation via charges on regulated transactions.

The fees matched the SEC’s budget until the early 1980s, when a surge in the financial markets started to generate more than the SEC’s total budget. At $586 million, for instance, last year’s fees far surpassed the SEC budget of $297 million. But advocates of stronger regulation say more of the excess should go toward giving the SEC much-needed new resources.

Supporters of the bill say it includes a guarantee of continued funding for the SEC under terms that will end the nearly annual congressional battle over the size of the agency’s budget.

But critics say the cut in registration fees would exacerbate chronic funding constraints at the agency.

The agency says it already lacks the funds to be an effective watchdog over independent investment advisory firms, a business that has exploded in recent years and been the focus of numerous accusations of fraud.

SEC Executive Director James M. McConnell says the agency is only able to inspect small advisory firms once every 30 to 40 years on average, something he admits “amounts to no review at all.”