A new Florida law promises to greatly ease the task of gathering and analyzing local municipal finance statistics, including data on pension and other post-employment benefits (OPEB) costs. The measure—a byproduct of Reason Foundation research and legislative outreach—transitions local government financial reports from printed formats to machine-readable data that can be readily loaded into spreadsheets and databases.
On March 23, Florida Gov. Rick Scott signed HB 1073, which, among other things, empowers that state’s Chief Financial Officer to implement an XBRL (eXtensible Business Reporting Language) taxonomy for local government financial reporting, requiring public agencies to file their comprehensive annual financial reports (CAFRs) in machine-readable XBRL format rather than as PDFs starting in 2022.
Reason’s policy experts helped shape the process from the beginning. Senior Policy Analyst Marc Joffe, who has researched and advocated this idea since 2013, drafted a concept document and legislative language describing how Florida might implement XBRL for local reporting. These materials were shared with legislators and staff in the CFO’s Division of Accounting and Reporting. The agency determined that the XBRL-based solution meshed well with their own plans to upgrade their Local Government Electronic Reporting (LOGER) system. After consulting with Reason staff and others, the CFO’s office revised the language and incorporated it into their 2018 legislative package, advanced by Rep. Bill Hager in the House and Sen. Kelli Stargel in the Senate. Florida-based Reason Policy Analyst Spence Purnell managed the legislative outreach, providing education and technical assistance to committee members and staff at appropriate points during the process. As the package moved through House and Senate committees, Joffe and Purnell consulted with the CFO’s office and legislative staff on revisions and clarifications.
Once fully implemented, Florida’s municipal financial reports will finally be on the same technological footing as corporate financial reports. In 2008, the Securities and Exchange Commission (SEC) instructed public companies to file their annual (10-K) and quarterly (10-Q) reports in XBRL format. The SEC mandated transition process was completed in 2012.
The Challenge of Antiquated Government Financial Reporting
So-called electronic financial reporting is now quite common — at least outside the world of state and local government finance. The most familiar example of electronic financial reporting is the transition away from paper income tax forms to e-filing. Although the paper Form 1040 still exists, over 90 percent of tax returns are now filed with the IRS electronically.
By contrast, when states and municipalities produce their audited financial reports, they “print” the statements to PDFs, leaving information consumers with the unattractive options of diving through the filings (which can run to hundreds of pages) to find relevant numbers, or using PDF extraction software (which can be expensive and unreliable) or relying on unaudited (and potentially inaccurate) data compiled by the Census Bureau and state agencies.
As a result, standardized information on state and local financial performance is not nearly as accessible as corporate financial data. This lack of data makes it harder to identify and possibly assist fiscally distressed local governments. It also inhibits accurate reporting of key public sector financial aggregates. For example, no one has calculated total Other Post-Employment Benefit (OPEB) obligations, because doing so would involve gathering and reviewing tens of thousands of PDF financial statements.
The Solution: Improving Transparency Through Mandatory Financial Reporting Standards
The new Florida law begins the process of bringing government financial disclosures into the 21st century. HR 1073 authorizes the CFO’s office to create local government financial taxonomies along with electronic filing software that can be used by local governments. The CFO will choose one or more vendors to develop these technical deliverables, and then assess them in consultation with external stakeholders. These stakeholders include representatives of local governments that have to prepare the XBRL filings and a municipal bond analyst who would consume the information.
The legislation envisions a timeline ending on September 1, 2022, when the CFO will begin accepting XBRL filings instead of PDFs and placing the data on an updated version of its LOGER system.
Shortly thereafter, LOGER users will get a much more detailed look at local government fiscal condition, including details of their pension and OPEB obligations.
Unlocking More Government Transparency Nationally
The Florida legislation could be the first step toward the creation of a comprehensive, national data set of audited state and local government financial statistics that would be publicly available at little or no cost. Such a data set would enable us to answer important policy-relevant questions about government finance about which we can now only guess — such as the national total of OPEB obligations.
The database would also allow oversight bodies, municipal bond analysts, academic researchers and concerned citizens to monitor the fiscal well-being of states, counties, cities, school districts and special districts using standardized data and analytics. It will improve the efficiency of the municipal bond market, allowing issuers to raise money for infrastructure finance at a lower cost to taxpayers. It will empower early warning systems that will flag potentially troubled entities well before they end up in bankruptcy court.
To achieve the goal of a national database of audited government finance statistics, other states would have to follow Florida’s lead, or a national body such as the Municipal Securities Rulemaking Board (MSRB) would have to implement it.
To date, progress at the national level has been slow. As the Securities and Exchange Commission was rolling out its XBRL mandate for corporate filers in 2008, the Association of Government Accountants (AGA) piloted XBRL with the state of Oregon’s CAFR. Unfortunately, the AGA researchers did not publish a taxonomy and there was no meaningful follow-up.
The MSRB, despite taking many steps that have improved municipal financial transparency, has never prioritized electronic financial reporting. Similarly, the Governmental Accounting Standards Board (GASB) has been relatively silent on the topic, not updating its electronic financial reporting web page for the last five years. The Government Finance Officers Association has taken no official position on the matter.
It can be all too easy for policymakers to look past the need to modernize antiquated financial reporting methods, but fortunately, the state of Florida and its Chief Financial Officer’s Division of Accounting and Auditing have recognized the benefits of electronic financial reporting. By incorporating XBRL taxonomy development and an eventual filing mandate into legislation, they moved the ball forward at the state level in the absence of national action.
Reason looks forward to championing the adoption of machine-readable local government financial reports in other states. As state and local governments struggle with growing pension, OPEB and Medicaid costs, we need better tools to monitor fiscal sustainability. The long-delayed rollout of electronic financial reporting for state and local governments is finally underway.