SEC Commissioner Endorses Efforts to Make Municipal Finance Documents More Transparent

Commentary

SEC Commissioner Endorses Efforts to Make Municipal Finance Documents More Transparent

It is time to convert tens of thousands of government annual financial statements into machine-readable form using XBRL.

In August, we reported on an effort to convert tens of thousands of government annual financial statements into machine-readable form using XBRL (eXtensible Business Reporting Language). In addition to helping taxpayers and policy analysts better understand the magnitude of the underfunding of local government employee retirement benefits, this reporting improvement would make it easier for investors to analyze municipal bonds they own or are considering buying.

Investor reporting is normally regulated by the US Securities and Exchange Commission (SEC). In the case of municipal securities, SEC authority is delegated to a self-regulatory body known as the Municipal Securities Rulemaking Board (MSRB). But the SEC influences MSRB policies — as evidenced by the conference it is convening to discuss Municipal Securities Disclosure on Dec, 6. Reason submitted comments on “The Road Ahead: Municipal Securities Disclosure in an Evolving Market,” which the SEC has posted here.

In addition to applying XBRL to municipal disclosures, we recommended two changes to the MSRB’s Electronic Municipal Market Access system (EMMA web site):  eliminating restrictions to bulk file downloads and allowing users to copy municipal security identifiers and ratings into Excel. Overall, EMMA is behind the SEC’s Electronic Data Gathering, Analysis, and Retrieval system (EDGAR) in providing open data access.  Our recommendations, if implemented, would close the gap.

At the XBRL Annual Meeting on Nov. 8, SEC Commissioner Robert Jackson was asked about applying XBRL to municipal disclosures. He expressed enthusiasm for the idea, saying in part:

My understanding is that there are a number of projects afoot in [the municipal XBRL] area and I think that’s fantastic news.  … On the corporate side we have done a lot of work  … On the municipal side … we have done relatively little in that space and as a result people don’t feel they have at their fingertips the data they need on those kinds of securities.

You can watch his full comments here:

Jackson is right. In the full question-and-answer session, which is available here, he went on to emphasize the need for accessible financial reporting so investors can focus on analyzing data rather than trying to locate it.

It is time for local and state governments to put financial reports and data into a standardized, easy-to-compare format.

Marc Joffe

Marc Joffe is a senior policy analyst at Reason Foundation.