Financial Data Transparency Act (FDTA) Implementation

On August 22, 2024, a consortium of seven federal agencies released the first of two Proposed Rules related to the Financial Data Transparency Act (FDTA). Click here for the recent GFOA Member Alert, and click here to review the Proposed Rule.

This first Proposed Rule seeks to establish general guidelines for additional regulations that each of the seven agencies (referred to in this alert as “Agencies”) will develop for their sectors. It is important to note, that this Proposed Rule DOES NOT establish or impose any new standards or data submission requirements on reporting entities. Therefore, reporting entities should not take any action to implement any of the proposals, as this Rule is not final. Any possible new structured data standards for issuer financial information and disclosures submitted to the MSRB’s EMMA system remains at least two years away.

To read GFOA's Comment Letter, click here. For comments submitted on behalf of the Public Finance Network, click here.

GFOA has long advocated for governments to demonstrate transparency and accountability by making financial information readily accessible to the public, but this law creating data standards opens the door to directing the use of specific technologies for reporting governmental financial information.

This effort to create new universal reporting categories will have minimal value to transparency efforts and would be a significant cost to state and local governments. This unfunded mandate would require extensive staff time along with the need for consulting resources and potentially risky updates to government financial systems.

A mandate for utilizing a specific technology for governmental and nonprofit financial reporting would require identical financial reporting taxonomies across all types of public entities. Given the wide variety of governments our market represents (e.g., states, cities, counties, water systems, public power, public gas, hospitals, etc.), combining all into a single standardized template has the potential to lose valuable information and to reduce transparency by eliminating detail specific to the unique functions or services that governments actually provide.

Transitioning to or potentially adding new reporting categories would require changes to underlying financial systems. The law does not provide any financial assistance with these transition costs to hire consultants, reconfigure financial systems, or implement new software or to assist with the ongoing costs to support this additional reporting burden.

GFOA has a policy statement on the matter: Mandating Specific Technologies for Financial Reporting and Disclosure Purposes.

The FDTA became law as part (Sec. 5801) of the James M. Inhofe National Defense Authorization Act (NDAA) for Fiscal Year 2023 (P.L. 117-263 (2022)). This law mandates that certain data and financial information provided to and developed by many federal agencies must be sent in a ‘structured data’ format after the Rules are finalized (sometime in 2026 or thereafter).

The law directs certain regulatory agencies (including the SEC) to jointly issue proposed rules that establish new data reporting standards governing the information reported by municipal issuers. For state and local governments and entities that issue municipal securities, this means that information provided to the Municipal Securities Rulemaking Board’s EMMA system related to bond offering and disclosure documents may have to be sent in a structured data format. Following two years of joint rulemaking by several federal financial regulators and two years of implementation by the U.S. Securities and Exchange Commission, issuers will be required to comply beginning 2027.

Our concerns about this law are not about transparency, they are:

• The FDTA poses an unfunded mandate for local governments that will need to take a various courses of action that come at a cost. Some will need to buy and implement new software, others will need to take steps to reconfigure existing systems, and yet others will need to take the steps to update their systems.
  
• The changes FDTA seeks to make may create more confusion or reduce transparency of publicly available information. Most state and local governments adhere to governmental reporting standards established by the Governmental Accounting Standards Board (GASB). The FDTA could create standards and requirements that conflict with GASB standards. Not to mention, creating uniform standardized reporting across all entities in the municipal market (states, counties, cities, water systems, transportation systems, universities, etc.) is a substantial challenge in and of itself.
  
• The FDTA poses as an unprecedent, substantial overreach by the federal government. If enacted, it could empower the MSRB to essentially dictate both the structure and content of disclosures, and indirectly prescribe accounting and reporting principles for state and local governments and other public entities. This would be a breach of principles established in federal law that have served as guardrails for over 50 years, and ultimately the tenets of federalism that are deeply rooted in our nation since its founding.
  
• This law seeks to establish the standards within an unreasonable timeframe. It is already troubling that there is no requirement to solicit input from issuers as drafted. But as called for in FDTA, two years is not enough time to solicit input and then determine new metrics for issuers. GASB often takes 5-10 years to go from workplan to implementation when developing statements.

In September 2022, GFOA staff produced a podcast discussing our concerns with the legislative proposal at the time.