Financial Data Transparency Act: find out about local government finances
Heightened transparency is on the horizon at state and municipal level in the US, with last years Financial Data Transparency Act (FDTA) set to transform the way local governments, including school districts, disclose financial information by introducing a machine-readable format.However, since the FDTA passed in December 2022, the process for implementation (unlikely to happen before 2027) has been subject to several different visions – and some concern about the extent of effort required to create a taxonomy for such specialised entities.
A recent paper written by Christine Kuglin (Director of Truth in Accounting at Daniels College of Business, University of Denver) and Michelle Savage (Vice President Communication, XBRL US) aims to provide some clarity, exploring the process and challenges involved in formulating and implementing a taxonomy for local government reporting.
The authors worked with the financial reports of four special districts in Colorado, with the goal of creating a tailored taxonomy that can accommodate financial statements. Although the authors expected technical challenges to emerge, surprisingly, resistance from human participants turned out to be a significant hurdle – with a lack of trust in government and skepticism about the need for machine readability causing hesitation.
Learning from their experiences, the authors share their recommendations to guide effective FDTA implementation. They explore the human obstacles and provide suggestions for improvement; offer recommendations for government leaders to smooth the process; review the technical issues relating to shifting from PDF into XBRL documents; provide examples of machine-readable documents; and share the reactions to iXBRL documents from local governments involved in the project.
The paper also highlights some of the many benefits the FDTA will bring to the US – In Kuglin’s words: ‘Imagine city government managers being able to better negotiate with contractors because they can more readily see how funds were spent in nearby municipalities on similar projects? Or evaluate the per patient expenses in a local hospital district compared to those in another city of a similar size? This level of transparency will benefit residents and local governments.’
