Congress moving ahead on new state and local government financial reporting rules

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The new requirements, tacked on to a must-pass defense bill, call for financial data to be standardized, machine-readable and searchable. State and local advocates argue the plan is an “unfunded mandate” that will create significant costs.

State and local governments could face time-consuming and costly new requirements around how they share financial information with the public under a provision that congressional negotiators attached to annual defense legislation released late Tuesday night.

To the disappointment of state and local officials, language included in the National Defense Authorization Act would require the Securities and Exchange Commission to set new standards in the next two years for how states and localities release financial data. While the primary purpose of the overall defense bill is to set military policy and spending levels, lawmakers often seek to attach other unrelated legislation to the must-pass measure.

Closely watched proposals to overhaul environmental permitting for infrastructure and energy projects and to open up the banking system to marijuana companies in states where cannabis is legal were left out of the package.  

A group of government organizations, including the National League of Cities, the U.S. Conference of Mayors, the National Association of Counties and the Government Finance Officers Association, said in a letter to Senate leaders in September that the new financial reporting requirements would cost governments and charities “well over $1.5 billion within just two years and a disproportionate burden would likely be placed on smaller entities.”

In addition to standardizing what data is reported and how it is identified, information would have to be machine-readable and searchable. 

A bill to create the requirements sponsored by Sen. Mark Warner, a Virginia Democrat, and Mike Crapo, an Idaho Republican, had given the responsibility to the Municipal Securities Rulemaking Board, which regulates the municipal bond market. 

However, in a slight change, the SEC will develop the rules, Emily Brock, director of the Government Finance Officers Association’s federal liaison center told Route Fifty in an interview on Wednesday. Even so, she said, “a lot of our concerns are still there” about the regulatory burden the rules will create for state and local governments.

The association had estimated that about 15% of governments and nonprofits would have to buy and implement new software at a minimum cost of around $100,000 for each of them.

At least 10% of governments, the letter said, would have to hire consultants to reconfigure existing systems, resulting in $100,000 to $200,000 in expenses. Meanwhile, about 25% would “struggle” through the process of handling updates on their own with in-house staff.

Proponents of the idea, like Marc Joffe, a senior policy analyst at the libertarian Reason Foundation, have argued that the new standard would make it easier for the public to analyze governments’ financial data.

The problem, Joffe, a former senior director at Moody's Analytics said in an interview in October, is that governments publish their annual financial reports in PDF documents, making it difficult to use software or spreadsheets to analyze the data.

State and local governments counter that they are already being transparent and the new rules would be difficult and expensive to implement, especially for smaller governments. In the letter to Senate leaders, government associations called the proposal “an unfunded mandate” and said it would result in “significant costs.”

 Kery Murakami is a senior reporter for Route Fifty.

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