Municipal Bond Market Transformation
Just over a month ago we reported on the progress being made towards US state level XBRL. Further optimistic thoughts on that this week from Barnet Sherman in Forbes. While the US municipality bond market is larger than any other, the work being done in this context has direct relevance to government reporting in many other parts of the world.
Sherman discusses the need for standardised digital disclosure in the municipal bond market to reduce the ‘municipal tower of Babel.’ Today, the process of analysing documents across municipalities involves manually copy and pasting or rekeying data from PDFs.. something “akin to unscrambling an egg to make it sunny-side up.” The municipal bond market is disorganised, badly needing a common language that can be applied across all 50 states so that information in state-level comprehensive annual financial reports (CAFRs) can be tagged and compared.
Worldwide there are currently 25 public securities exchanges, with a total of more than $50 trillion in capital, filing standardised, digital disclosures with XBRL. Plenty have paved the way for the municipal bond market to develop uniform definitions and benefit from easily usable and accessible data.
US regulators have expressed their support for XBRL application in the municipal bond market. Securities and Exchange (SEC) Commissioner Robert Jackson, Jr. responded positively when asked for his thoughts on this at the XBRL Investor Forum 2018. He replied, “My understanding is that there are a number of projects afoot in that area and I think that’s fantastic news.” Acknowledging that relatively little had been done in the municipal space, he was blunt: “It’s frankly unacceptable” He continued, “I think bringing XBRL to that space would be enormously exciting.”
Despite SEC support, progress will have to come from the states themselves. Neither the SEC nor the Municipal Securities Rulemaking Board (MSRB), the regulatory authority for the municipal bond market, can impose mandatory disclosure obligations on municipal issuers, so voluntary collaboration will be key to making progress.
Florida are leading the way on this, having passed a bill earlier this year requiring all local fiscal reporting in XBRL from 2022. They hope to streamline the CAFR preparation process with a replicable municipal taxonomy. Florida will therefore align their reporting with standards used elsewhere, make analytics more accessible and vastly improve transparency. Hopefully, they will also inspire other states to make the same step towards the future of reporting. This effort is gathering pace in the United States: where will it inspire change next?
Read more here.
