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Thought Leadership Thursday

Risks of Financial Data Transparency Act

Rachael Eubanks

Thought Leadership Thursday Article

Risks of Financial Data Transparency Act
October 18, 2023
Rachael Eubanks , State Treasurer, Michigan & NAST Midwestern Region Vice-President

Dear Colleagues:

Late last year, the Financial Data Transparency Act (FDTA) was signed into law. Since then, many of us have drilled into the document to see how this unfunded mandate improves data reporting for our agencies and states. From what I can see, it doesn’t.

The stated goal of this Act, which was included in the National Defense Authorization Act (NDAA), is to promote transparency by requiring all state and local public agencies issuing debt to submit financial documents in a structured, “machine-readable” format. The problems: this is not in response to an issue identified by investors; it will likely result in less transparency; and it is a costly unfunded mandate.

Let’s start by asking what problem is FDTA solving? No significant issues or challenges have been brought forward by the investors or other stakeholders who regularly use financial disclosure data associated with municipal bond issues where machine readable format would be a solution. As far as we can tell, the majority of the supporters of this legislation were software developers. Their software, XBRL, is the most likely to be pushed as the structured data format needed to comply with FDTA – and this software does not ensure more transparency.

How does an Act with transparency in its name result in the risk of less transparency. If using XBRL, or something similar, the opportunity to include narrative to provide context to the data, will almost certainly be lost. Data without context is not useful for investment decision making. Currently, financial reporting is done following established accounting practices, Government Accounting Standards Board (GASB), which are not a requirement of the FDTA.

Of course, the primary concern I have about the FDTA is that it is a costly unfunded mandate on all public agencies that issue debt. To comply with this Act, public agencies will not only have to buy the software or a license from a very short list of vendors to produce the machine-readable data, but also will be required to invest in training and additional staff or contractors to convert current financial reports to the new standard format. In Michigan alone there are more than 1,300 local units of government that issue debt. The costs will vary depending on the size of the agency and how often they issue debt, but I’ve seen estimates around $100,000 per entity.

First, I call upon my fellow State Treasurers to spend some time talking to their staff to learn about how the FDTA would impact their offices, states and localities within their states.  Including the FDTA within the NDAA did not allow many of our offices to contemplate the impacts before it was passed, and accordingly has yet to appear on the radar of Treasurers to date.

Secondly, as we approach the NAST Legislative Conference, I encourage State Treasurers to include this issue in their outreach to their state’s Congressional delegations and relay the real and tangible impacts this will have in their states.  It is in our collective best interests for municipal issuers to be carved out of these provisions, and Congress has the ability to do this at no cost to the federal government.

Thank you.

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

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