Update as of 1/5/2023: The Senate passed the NDAA on December 15 with the Financial Data Transparency Act included. President Biden signed the legislation into law on December 22, 2022.
Background on the Financial Data Transparency Act of 2022
Earlier this year, Senators Mark Warner (D-VA) and Mike Crapo (R-ID) introduced a bill in the Senate titled the Financial Data Transparency Act of 2022 (S. 4295). This legislation included a section requiring local governments to adhere to new financial data standards.
The National League of Cities along with other state and local groups pushed to have the Financial Data Transparency Act (FDTA) stripped from the National Defense Authorization Act (NDAA). Unfortunately, the provision was included in the final NDAA deal that is expected to pass Congress before the end of the year.
NLC wants to thank every member and state municipal league that took action to raise their voice to their senators about this critical issue. While the provision was included in the final text of the NDAA, there were key changes brought about by the efforts of NLC, members, state leagues and partners.
What is in the Final Provision?
As written, the introduced legislation would require local governments to come into compliance with the new financial reporting standard by 2027. The new standards are to be created by the Securities and Exchange Commission (SEC).
The final legislation mandates that governments put their financial information in machine-readable format. The key difference between the initial draft and the final draft of the legislation is that they will be responsible for enacting the new data standards. It is preferable to have the SEC be the body that administers the standards because Congress has oversight of the agency, and if the rules are not working Congress can exercise oversight of the agency.
This legislation will pose an unfunded mandate of compliance on local governments. While the bill mandates compliance, it does not provide any additional federal dollars to help municipalities come into line with the new requirements. NLC will be working with the SEC and other allied organizations to reduce the burden of this unfunded mandate as much as possible on communities.
The mandates will be set in place approximately four years from the passage of the legislation.
What Happens Next?
Three key things to keep in mind going forward are:
- The legislation only deals with how the information is submitted—in machine-readable format. There are no requirements for additional disclosures, which could add costs and be more complicated to comply with for smaller issuers.
- NLC will have a seat at the table as data standards are developed by the SEC to ensure the concerns of local governments are considered.
- The SEC must be aware of the burden the rulemaking will place on local governments. Therefore, local elected officials and state municipal leagues will have a strong role to play in the years to come.
We are just at the beginning of a journey for this legislation. It will be important to keep in close contact with NLC and be involved in helping to shape the data standards for all local governments.
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