Michigan’s Review of XBRL

Dear Colleagues:

Last fall I shared my thoughts on the Financial Data Transparency Act (FDTA) [Risks of Financial Data Transparency Act]. In 2022, the Michigan Legislature directed the Michigan Department of Treasury to undertake a review of XBRL technology and make a recommendation regarding its use. Michigan Treasury worked with the State of Florida’s Department of Financial Services, XBRL US and the University of Michigan Center for Local, State and Urban Policy in the analysis of the technology and drafting of the report. Recently the report was finalized, and the results are compelling in its recommendation not to pursue further use of XBRL. I now have additional data and information to bolster my thoughts from last October, and my concerns that this costly, unfunded mandate could jeopardize data quality and authentic transparency are even more solidified.

Let’s start with the fact that many local units of government will not be able to afford this unfunded mandate. XBRL reporting requires a full IT project and change management discipline. The initial information technology system for just the State of Michigan is estimated to require $3-6 million funding, not including manpower hours, and $1-2 million annually for additional human resources and system maintenance and estimated to take between 3-5 years to complete. In addition, it is conservatively estimated that XBRL reporting costs, including licensing, would be between $6,000 to $8,500 annually per local unit of government. If we multiply that across all 50,000[1] known municipal debt issuers across the nation, the total cost for the technology alone nears $300 million on the low end of the estimate and as high as $425 million.

If money were no object, and local units of government were to successfully implement the use of XBRL or something similar, it is not likely the outputs would generate better data, or additional transparency. Most local units already effectively support streamlined data reporting through the use of the Uniform Chart of Accounts (UCOA) and Generally Accepted Accounting Principles (GAAP). Current reporting practices also include the opportunity to include narrative to provide context to the data. This is especially useful for investment decision making. From what we can tell, this will almost certainly be lost using XBRL.

I'm also worried about the scarcity of resources needed to meet the demands of the FDTA. There isn't a universally accepted software solution that effortlessly transforms existing reports into XBRL format. The use and application of XBRL conversion tools necessitate a combination of accounting expertise and technical know-how. Many local government entities lack employees with these comprehensive skills, necessitating extensive training and the aid of professional services to effectively deploy and uphold the mappings that XBRL conversion tools demand. As an alternative, numerous smaller entities may lean towards securing bank loans to avoid the intricate and expensive obligations imposed by the FDTA on bond issues, leading to a decrease in reporting obligations than presently required and diminishing transparency.

Michigan is unlike many other states in that the Treasury Department is directed to ensure compliance with state reporting statutes. Standard reporting processes are in place to validate submitted data. This process provides increased accuracy and consistency among reports. We have also implemented several tools to provide transparency, consistency, and financial data accessibility for much of the data collected from established reporting processes through the required use of a central depository for collecting reports, forms, and data and ensuring statutory compliance. We also have a public financial dashboard, and Open Data Portal applications to transparently share financial information. The FDTA will not enhance or improve upon the reporting statutes of Michigan.

While the stated goal of FDTA is to promote transparency by requiring all state and local public agencies issuing debt to submit financial documents in a structured, “machine readable” format, I maintain this is not needed and will not guarantee higher quality data or additional transparency.

I continue to encourage you to include this issue in your outreach to your state’s Congressional delegations and relay the real and tangible impacts this Act, which was slipped into the National Defense Authorization Act, will have in your states.

Rachael Eubanks
State Treasurer, Michigan
NAST Midwestern Region Vice-President

[1] Municipal Securities Rulemaking Board. (2018). Dealer Participation and Concentration in Municipal Securities Trading. Retrieved from https://www.msrb.org/sites/default/files/MSRB-Dealer-Participation-and-Concentration-Report.pdf