Executive Summary
Prepared by Christine Kuglin, University of Denver, Natalie Fitzpatrick, University of Michigan, Stephanie Leiser, University of Michigan and Michelle Savage, XBRL US
The Financial Data Transparency Act (FDTA), a bipartisan bill co-sponsored by Senators Mark Warner (D-Virginia) and Mike Crapo (R-Idaho), was officially signed into law on December 23, 2022, as an integral component of H.R. 7776 – James M. Inhofe National Defense Authorization Act for Fiscal Year 2023. As outlined by Senators Warner and Crapo in a press release, the primary objective of this act is to modernize the collection and dissemination of financial data by federal financial regulators, rendering this information more accessible, standardized, and more valuable to both investors and data consumers. Section 5823 of the legislation calls for data transparency related to municipal securities. Specifically, the FDTA will require that information disclosed to certain federal regulators, including the Municipal Securities Rulemaking Board, be reported in an open data format that is structured and machine-readable.
The FDTA impacts all municipal bond issuers, including states as well as local governments, special districts, and other entities. There are roughly 38,000 issuers registered in the Electronic Municipal Market Access (EMMA) system. Data transparency related to municipal securities has the potential to reduce friction and improve efficient functioning of the market, but perhaps more importantly, is an important driver to support trust in government reporting. Enhanced data transparency means that more stakeholders will have access to municipal data and the tools to analyze and interpret it.
Local governments, both general purpose and special district, have raised questions concerning the extent of effort and cost required to implement the FDTA, and whether the work required to increase transparency will lead to competition for limited resources. They also question whether data standards can accommodate the heterogeneity in types of municipal governments that report to the Municipal Securities Rulemaking Board (MSRB). Data standards requirements as described in the FDTA are to be implemented “to the extent practicable.” This language leaves the door open to flexibility on how stringently data standards are applied across reporting entities. Regulators can opt to phase in requirements, giving smaller entities more time to transition; they can phase in the types of data to be reported in standardized format as well.
To address these challenges, researchers from the University of Michigan, the University of Denver, and the nonprofit data-standards organization XBRL US have collaborated on a series of projects to design and evaluate machine-readable data standards that could appropriately represent the unique characteristics of U.S. government entities. This paper summarizes the lessons learned in designing a data standard and piloting it in multiple local governments. It demonstrates that data standards can be practically applied to all entities, and that a robust, competitive marketplace of software providers has many offerings to accommodate all issuers. A “one size fits all” approach is not appropriate, nor is it necessary given the flexibility of the standard and the expansive nature of the software market supporting it. These lessons can inform both regulators and local governments as they work toward modernizing financial reporting and implementing the FDTA.
