New Financial Reporting Requirements for Governments Proposed in U.S. Senate: A Costly and Burdensome Unfunded Mandate

GFOA members should be aware of proposed legislation in the U.S. Senate that would mandate governments to report financial information using uniform reporting categories, or “data standards,” which may require costly updates to financial systems or extensive workarounds.

Currently, U.S. Senators are considering including the bill (S. 4295) as part of the federal defense authorization legislation that must be taken up before the end of the year.

GFOA has long advocated for governments to demonstrate transparency and accountability by making financial information readily accessible to the public, but hastily passing this bill may create data standards that 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.

GFOA urges you to reach out to your Senators and ask them to oppose including S. 4295 - or more specifically, Section 203 of the legislation - in the defense authorization bill.

Why would the mandate pose a challenge?

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 legislation 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.

What is the legislation?

S. 4295, the Financial Data Transparency Act (FDTA) of 2022, sponsored by Senator Warner (D-VA) and Senator Crapo (R-ID) would require the MSRB to "establish data standards." It also needs to "scale" reporting requirements for "smaller regulated entities." A similar bill was recently included in the House version of the chamber’s defense authorization act.

The provisions in question are in Section 203 of the legislation. Further, it requires joint rulemaking for regulated entities that will take place for two years after passage and then it provides two years for implementation. Full implementation and compliance would be required beginning 2027.

State and local governments do not oppose transparency and accessibility of information.

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

  • Section 203 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.
  • Section 203 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.
  • Section 203 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 bill 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.

Additional Resources

GFOA urges members to reach out to their Senators and ask them to oppose inclusion of S. 4295's Section 203 in the defense authorization bill. Please feel free to utilize this template letter as a starting point and to share any correspondence with your Senators with GFOA’s Federal Liaison Center.