The Federal Data Transparency Act: Uh-Oh.

• Author: McDonald, Galen
• Position: FEDERAL UPDATE

GFOA members need to be aware of proposed legislation likely to pass that would mandate governments to report financial information using uniform reporting categories, or "data standards. Here is what you need to know.

What is the FDTA?

The FDTA [S. 4295] would require the Municipal Securities Rulemaking Board [MSRB] to "establish data standards." It would require joint rulemaking for regulated entities for two years after passage, and two years for implementation, with full implementation and compliance required beginning in 2027. The act is sponsored by Senators Mark Warner [D-VA] and Mike Crapo [R-ID].

Why has the FDTA been a concern?

You might wonder why greater transparency would be an issue. After all, who opposes transparency? Well, significant financial transparency standards are already in place. There are, in fact, several reasons to worry about this act. It poses an unfunded mandate; doesn't provide enough time for implementation; will cause confusion, potentially diminishing transparency; and presents a substantial federal overreach. Let's look at each of these points.

The FDTA poses an unfunded mandate and seeks to establish the new standards within an unreasonable timeframe.

The provision could result in an unfunded mandate because of the increased costs state and local governments would face to ensure their systems comply with future standards. GFOA estimates that of the roughly 40,000 issuer communities currently responsible for reporting annual comprehensive financial reports [ACFRs]:

* At least 15 percent of governments and nonprofits will need to buy and implement new software at a minimum cost of $100,000 per government.

* At least 10 percent will need to reconfigure existing systems using outside consultants at a cost of $100,000 to $200,000.

* At least 25 percent will struggle through updating their systems on their own by using staff capacity, costing at least $50,000.

* The remaining governments, perhaps 50 percent, will develop shadow systems and use redundant processes to deal with additional reporting needs, at a cost of anywhere from $5,000 to $100,000 each.

Complying with the mandate puts a disproportionate burden on smaller entities with the fewest resources.

As for the timeframe, there is no requirement to solicit input from issuers as drafted--which is already troubling. Two years is not enough time to solicit input and then determine new metrics for issuers; the Governmental Accounting Standards Board [GASB]...