How will the Financial Data Transparency Act (FDTA) reshape municipal financial reporting in the US? The FDTA will require electronic reporting and machine-readable tagging (likely in XBRL) of state and local government financial data, boosting the ability of users — especially lenders — to undertake analysis and comparison.
Although the act passed the Senate late last year, the devil is in the detail, and the implementation details are yet to be decided. The resulting question mark hanging over local government financial reporting was addressed this week in an article published on Governing. With transparency being the key concern, the author advocated for an incremental and focused approach. The article also advocates for relevant public bodies to take this opportunity to establish a public utility, providing data users with an easy-to-access portal to the data that will be newly reported in machine-readable format.
The proposals in the article are a little light in terms of disclosure for our taste. The US has an opportunity to modernise and greatly enhance its municipal bond market, with evidence based and data-backed decision making coming to the fore. Success in that country would provide the example that many other countries could turn to, permitting decentralised governance and enhanced risk management. However, to achieve all that will take more than a handful of tagged items. Shifting from a paper paradigm to a data paradigm by digitising disclosure, compliance and reporting isn’t new any more. It’s not all that complicated and it can be highly cost effective.
Regardless of how various parties envision implementation, the FDTA is not only an opportunity to make public-sector data available for digital consumption, giving investors, taxpayers, regulators, journalists and others much better access to decision-critical information. It also provides a chance to rethink local government reporting and analysis in general. We urge all stakeholders to actively participate in the debate over the FDTA’s implementation to usher in better access to information for all.