This year’s GovFin 2024 took a deep dive into municipal reporting aspects of the FDTA. The program featured speakers with an in-depth understanding and experience in various aspects of the municipal markets and technologies to support reporting.
To leverage the expertise of many in our audience, we held breakout sessions with attendees to gather input on topics ranging from support for issuers, to what data should fall under FDTA requirements. Attendees were sent discussion questions in advance and had an opportunity to add and revise. When the breakouts began, attendees chose the topic area of most interest to them.
Below are findings drawn from conversations among governments, accountants, lawyers, software providers and standard setters.
(Note that these are findings from the audience and may or may not be the view of XBRL US).
What municipal issuance data should be reported in structured, machine-readable format?
Material event notices such as delays, delinquency, default, receivership, change in obligor, cyberattacks, redemptions, rating changes, adverse opinions, and bond calls, topped the list of disclosures that would be most useful for data consumers, and also easiest to prepare in structured format for issuers. Other material events that were seen as less critical for data consumers but likely easy to prepare, included change in vendor, amendments, and defeasance, as well as communications from the IRS.
Data prepared in face financial statements, official statements, certain notes, broker dealer disclosures, and key items in the auditor’s report were also ranked highly as data that should be prepared in structured, machine-readable format.
Attendees also noted that voluntary disclosures may be important to prepare in structured format as well; however, governments should be given the option to prepare voluntary disclosures in structured format. This should not be a requirement as it could be a disincentive to voluntarily disclose information.
Data that is not reported in the financial statement but that would lend itself well to standardization and structuring were budget and annual information, although some noted that structuring of this data should be optional.
Attendees stated that reporting should begin with entity level data, not simply aggregated state level data.
How can identifiers be implemented successfully?
Participants were asked to consider how entity identifiers can be successfully applied to the complexities of government structures, and whether entity and security identifiers can be used to improve searching on the MSRB EMMA system.
Participants agreed that both entity and security identifiers are needed. There was a significant discussion about CUSIP compared to FIGI. While FIGI is open and nonproprietary, CUSIP is more widely used and is fungible. There was agreement that entity identifiers are critical. In discussion about the Legal Entity Identifier (LEI) it was noted that there are some limitations in the LEI that could make it challenging for use with government entities.
Generally, attendees felt that identifiers are important as a means to tie government data to other data sets like Census data through crosswalks. Participants discussed how an identifier could be tied to specific parts of the government, for example component units, or funds. There was a lot of discussion as to whether the LIE could effectively handle this and whether another identifier might be more appropriate.
The group believed that all municipal market participants should be involved in determining what entity identifier is used and how it could be effectively applied. It was discussed that a stakeholder group be established that could apply “LEI oversight” specifically for the municipal market to ensure that all issues are considered. The LEI is globally used and applies to many markets; the uniqueness of the US municipal market calls for special consideration.
There was a recommendation made that the SEC issue the LEI freely to governments. The topic was also raised that the federal UEI has been freely distributed; could the LEI be mapped to the UEI (Unique Entity Identifier)? Many governments already have the UEI although other reporting entities subject to the FDTA do not.
How can the market support municipal bond issuers?
Discussions around this topic sought to identify not only how market participants can support municipal bond issuers, but also how governments may be able to resolve current pain points with the implementation of data standards.
Participants found that the immediate challenges for issuers, which range from how to fund the budget to how to meet payroll each quarter are unlikely to receive any boost from data standardization. It will be challenging for local governments to see how the FDTA will help with their current and most pressing needs. Most of the gain was seen as coming to downstream users like investors and regulators collecting the data.
Two benefits were identified, however. First, improved comparability. The ability to compare against similar sized governments would be helpful. Second, there was a belief that in the long-term there will likely be a lowering of reporting costs.
When asked what costs would be acceptable to governments, participants said “zero cost,” although the group felt that most governments would likely be able to afford the cost.
Participants felt that there was an opportunity for different cost models to be developed, for example, the Texas Municipal Advisory Council, a nonprofit membership corporation, is set up to help governments go to market. It was also suggested that the federal government should consider creating a platform that helps local governments comply easily and at low cost. The group also raised the point that the primary beneficiaries of structured, standardized data, investors, should have some role in defraying the costs of compliance.
Participants did not believe that the implementation should be delayed until such time as technology is available that can automatically capture data from existing reports at no cost to reporting entities.
How Can Technology Support the FDTA?
Attendees in this topic area focused on taxonomy development and how technology can facilitate the roll-out.
Participants noted that the taxonomy (digital dictionary of terms used to express government financial statements and other disclosures) must be flexible to accommodate changes in reporting requirements and technology over time. Second, the taxonomy must be “extensible” to accommodate unique information that many governments report.
It was also noted that the taxonomy must be accompanied by guidance materials, sample reports, and there must be a defined publishing schedule to help all stakeholders be prepared and manage process change successfully.
The topic was also raised that there should be “crosswalks” established between taxonomies so that comparison can be made between, for example, a hospital and a local general-purpose government. Some of the challenges in government reporting are accounting principles specific to entity type and different industries may have different dimensional characteristics.
The participants considered how AI could be used to reduce the reporting burden. The group noted that if iXBRL was chosen for reporting by governments, the PDF could be replaced by HTML which would be an improvement. It was also noted by the group that the extensive software community supporting data standards implementations today can be transferred with relative ease to government reporting. One of the challenges will be to help government entities collaborate with their current providers and/or processes to transition to generating machine-readable structured data with efficiency.
Conclusion
The roll-out of the FDTA program will extend over many years and there is much work to be done. Every participant in the municipal bond market owes it to themselves to get involved and voice their opinion. The discussions here are just the tip of the iceberg of what needs to be explored and investigated. We look forward to many more open conversations to help raise the issues and work towards resolving each challenge as the FDTA moves ahead.
Many thanks to our topic leaders for these discussions, Marc Joffe, Yossef Newman, Anand Padmanabhan, and Ben Russell, for their work in developing questions and format, and for facilitating each of the four topic areas; and to additional facilitators that led the conversations at each table: Nikkyann Berteau, Chase Bongirno, Chris Bullock, Mark Funkhouser, Christine Kuglin, Stephanie Leiser, and David Shaw.
Missed GovFin 2024? Watch the video replay here.
