Financial Data Transparency Act and Disclosures for Issuers

Transcription:

Lynne Funk (00:07):

Good morning everyone. Hope everyone hear me. Hi. Welcome to day three of the Texas Public Finance Conference, Bond Buyer. I'm Lynne Funk, Executive Editor at the Bond Buyer and we are delighted to have you all here this morning we are going to be talking about the Federal Data Transparency Act. I hope everybody has coffee. Just kidding. It's going to be fun. I'm excited to welcome our esteemed panelists who will share their insights on this important and somewhat controversial topic, new law. With us today we have Rob Widigan, who is Chief Deputy Financial Officer of Wayne County, Michigan. We have Campbell Pryde President and CEO of XBRL US and we have Colin MacNaught who is CEO and Co-Founder of Bond Link. So I would like to just kind of start here. We'll get more into the thick of what the FTTA is, but to sort of just start the conversation about issuer disclosure generally. Rob, you've been an issuer with Lansing Flint and now Wayne County. Can you talk a little bit how important investor disclosure has been for you and your team over the last decade?



Robert Widigan (01:18):

Yeah, I think actually I'll start with Wayne County and looking at the 43 communities of Wayne County and let's look at Detroit, the largest city in the county and over the past few years, as we all know, the city went through bankruptcy and their philosophy has been get the good news out fast, but get the bad news out faster, which has helped build thank you. A lot of trust with rating agencies and we just recently saw what a month ago, rate hike for Detroit. So it is been crucial to have access to real-time data anywhere you go.



Lynne Funk (02:04):

That's great. I think. How do you think investor disclosure has sort of evolved over time, over your time?



Robert Widigan (02:15):

I mean, I guess again, if you look at Detroit, that's kind of a new philosophy. Get the good news out fast, the bad news out fast. A lot of issuers tend to, let's try to gloss over the bad news. And so we're starting to see municipalities realize, just be honest, get everything out there. So it's starting to evolve in that way. But if you look at the technology part, we're still using PDFs which came about in 1993, 1993.



Lynne Funk (02:46):

Alright Colin, I want to just hit you up. As former, you were with s and p and then you were on the issue side in the state of Massachusetts. Now with BondLink, what's your perspective on how issuer disclosure has evolved?



Colin MacNaught (02:58):

Yeah, thanks Lynne and welcome to everybody. And I first want to say congratulations to the Bombard. I think the Bombard has really covered FDTA really well over the last year and it's been a topic at a whole bunch of conferences and I think it's done a real service and Rob has sort of been the Guinea pig on the issuer side and tested FTTA and has sort of become the issuer spokesperson for what it's going to be like. And so hearing your perspective I think is going to be important. I've been in this market for a long time. First a couple of stints in government, but my time in S and PI was a consumer of disclosure and that was a lot of work and I got to understand credit and the value of good disclosure and looking at patterns. And I then went to the issuer side and I was the producer of disclosure and I took what I learned at S and P and really tried to standardize things and spent a lot of time talking to investors about what is helpful.



(03:58):

And to my surprise, over my seven years as an issuer for the state of Massachusetts, it was less about the audited financials that would come out for a June 30 close. We'd get it out in March, a one day snapshot in time that's really meant to give them confidence in the interim documents. And that is what I learned that investors buy side really focused on credit analysts. So as an issuer we made an emphasis of making it easy for investors to grab our interim financial documents. And now at BondLink we really focus on that with our issuers. I'll use the District of Columbia is a client, they've got about 300 documents right now on DC bonds.com. 90, 95% of those are not on Emma. And that's what investors find valuable. And we're going to get into the gory details of FTTA and what works in the corporate side and how we can influence FTTA as it hits our market. But on the investor side, what we have learned, what I have learned is it's about the format and the frequency and the timeliness. All three of those make it easy for investors to say yes to your bonds. And maybe I'll pause there and kick it back to you, Lynne.



Lynne Funk (05:23):

That's great. Alright, I'm going to click over. I'm going to turn it over to Campbell who you are going to give us the overview, what are the data standards? Alright,



Campbell Pryde (05:38):

So thank you. Thank you Lynne. Thank you everyone for being here. Thank you for coming early. I'm sure a lot of people got at a late last slide so hopefully we can keep concentrated on this. So just to give you an update on the FDTA. So the FDTA is a lot broader than municipal securities. It affects eight FS O agencies and the FSOC agency. These are a number of different federal agencies who are responsible for managing the financial markets in the United States. So the one that we're talking about today, the main focus today is on how the FDTA affects the Securities and Exchange Commission, but this rule or this law is the same for all of these agencies. So there's a lot of work going on amongst the federal agencies to work out how they're going to standardize data across those agencies. And a lot of this came out of the issues, particularly with the financial crisis with covid, just when the government needed the data, they didn't have the data available.



(06:35):

All of this data was in separate islands and it's not connectable. So the idea is if the data is standardized and it's easy to connect these pools of data and look at the overall systematic risk in the US economy. So that's kind of like the background for this. This is why it's happening at a macro level. And this is the timeline that was initially laid out in the role. So this basically it's a long timeframe. There's a lot of work that needs to be done in 2022, at the end of 2022, the FDDA was signed into law in 2023. The SEC was report to Congress on what they had been doing relative to standardizing data in 2024. We are expecting in June July a rule coming out for public comment from the FSOC agencies, this is not the SEC rule, this is the proposed plan, how all these different agencies will work together.



(07:28):

And then this will really start to kick off the rule writing for the SEC for how it affects municipal securities. In 2025, the Securities and Exchange Commission, the Office of Municipal Securities, they will issue a rule around how data in the municipals market should be standardized. And that's going to be made of available public comment in 2026. And I think we've got some questions about how to comment on that later, which is going to be an important thing that everyone in this room should be aware of. And then the final rule would be published at the end of 2026 and then in 2027 then that's when the rule would start would be the effective date for the rule to be implemented. Now you want to go to the next slide? We'll just skip over that. It's a little detailed. This is what we know and this is what we don't know.



(08:20):

So governments that have outstanding municipal securities would need to comply with this rule. There's no change in what's actually required to be disclosed. The only change in how that data would be reported. And so the idea is that this data would be reported in a standardized format At the moment, we dunno what those data standards will be. That's up to the SEC to decide. One of the things the rule requires is that common legal entity identifiers are used. There really isn't a general standard for that today other than the CUSIP identifier. What disclosure documents will need to be repaired and used in those standards is it budgets, those type of documents, what actually will be required to be put into a standardized format who will build or own the taxonomy. So just a quick question on this. So this is or a point on this.



(09:13):

So the rule requires that there's a taxonomy built. So basically what all this is, the way to think of this is is accounting standards in an electronic format and not in paper and put up on a website. What that means is you can query the accounting standards, you can get results back. So it basically makes the accounting standards readable and understandable by machines don't know what it's going to cost. We have some data on that from other filing regimes and then how the rule will roll out. So that's kind of what we don't know. Just so you know things that are happening, the GASB has started to look at building a taxonomy and what would be required to do that. So there is some initial work happening there. USL organization, we've built some prototype taxonomies, which is what Rob had used to file. That's obviously that's a prototype that's put out there so people can see what's required. So we have some background on what the implications are, just some background on XBL. So XBL meets the specifications of the law, which is basically that it's open source, it's not proprietary, it's machine readable. There's a whole bunch of things in there which that complies with. It's currently widely used by the SEC. The SEC is using it for the majority of their data collection for accounting related information. It's open and free. Anyone can use it. There's no cost associated with it.



(10:41):

And so the other thing we try to do as an organization is to try and drive down the cost and make the market as efficient as possible so that we can have as many people participating in the market and try and eliminate information asymmetry so that everyone has an equal playing field so that when issuers are appearing this document, they're not forced into using a supplier that they're locked into. One of the things we want to make sure is that the standards are easily accessible to everyone and that there's tools in the marketplace to support that. And we'll talk about that in a minute. So just on the SEC precedent, so the SEC as I mentioned has used it, the rule proposal will come out then. So then when that rule comes out, I would encourage everyone to comment on that and we'll talk about that later.



Lynne Funk (11:30):

No more. You're good? I think we're good. Wonderful. I kind of want to switch it over. So Rob is the Guinea pig here. He has actually actually used XBRL and you did that in Flint, Michigan, correct? Correct, yep. Alright, do you want to go over what you learned?



Robert Widigan (11:50):

So I think the biggest thing is we all governments, we have to produce our fer each year and as Colin said, it's a pinpoint in time that we're looking at. And on top of that it's really old data. We're not giving today's fun balance data when you're reading our fer and in Flint, we did the process, went through, built the audit, and what we did then is work with a program called Workiva, which was basically word and Excel and we were able to import all the workbooks right into it. And when we get to the actually right here, is it possible to click the link? So we took the ER looks just like any other er, but instead we now have fax. And so if you go in there, if you all pull out your phones because that's what we all keep in our pocket at all times, you can pull up Flint's ER and then you can drill down and look at all the data. But like I said, it pulls out what it is. So if most of you read your ER half of the data is it really relevant? And I think that the bigger thing is is today's generation those getting into government. How many of you can raise your hand and honestly tell me you've read all 300 pages of your local government's audit.



(13:20):

So what this does is we can pull the data and quickly see where we're at say with fund balance and then with a click of a button, you can then pull fund balance data from all local governments around you and compare it the process. At the time we had short staffed no deputy CFO, there was always a fire every day and we still got this done it. I'm not talking, we had to hire staff. I'm not talking about we had to hire a company. It's what you're always doing but it puts it in a format that anyone can easily pull up, read and understand just so I'm looking here on my laptop cash equivalents and investments and there's a fact it tells you what the number is, it's in US dollars, it tells you it's for Michigan, Michigan Data, Flint, Michigan. There's explanation of cash and cash equivalents and what that means. And it really wasn't that hard. And now we have something that's not API really wish I printed our act for Wayne County. It's 363 pages, it sits about yay high and here we are with something that you can pull up on your phone and quickly compare to everybody else.



Lynne Funk (14:42):

That's interesting. Yeah. What have been the benefits, the costs from doing this?



Robert Widigan (14:50):

So we were a pilot and actually Mott Foundation, Flint, Michigan, it's a large philanthropic foundation. They actually paid to do this pilot. So I can't say like, well the program cost X because it was donated to the city, but I think that's a good point, right? The foundation paid for this. Why do they care? Because they want data that they can easily pick up and read and see how the city's doing. I mean yeah, you can call up the mayor and say hey, how's it doing? But they just want the numbers, right? And if you're not trained in greeting governmental statements, you're going to look at that thing and it's going to tell you nothing. But this breaks it down to where they can easily pull the data and say, alright, their water fund is depleting assets pretty quickly. This might be a problem. Maybe we could do a grant with the city to help them out.



Lynne Funk (15:53):

Okay. Do you know if anybody who's accessing it now, have you heard any feedback



Robert Widigan (16:02):

On our website in the original format and then the fully digital format and right as we were leaving we were always talking with S and P and Moody's at Flint and it was definitely appreciated to be able to have this and the bigger feedback came from Mott Foundation saying, Hey look, we read this, we really appreciate it. This puts it, it's easily, we can just quickly pull the numbers and see how the city's doing.



Lynne Funk (16:32):

Colin, from your seat, what do you think the adoption of data standards to improve this accessibility and usability of the financial data for investors, how do you think the adoption of this would play out?



Colin MacNaught (16:45):

Yeah, I mean I think Rob has achieved Valhalla, he's made it and he was the first and he got someone to pay for it and kudos, I think it's going to be a challenge for 49,999 other issuers in the market. This is now law and we can all get upset about how it was jammed through Congress and there was really no market feedback went into it. And certainly we skipped a lot of important bases like accounting standards, what XBRL is going to, sorry, the FDTA is going to focus on in terms of which financial documents, the frequency of when those documents are going to be reported by 50,000 issuers. All of that has to be consistent before technology layers on top of it.



(17:38):

That I think is going to be a challenge. I think it's up to everybody in the room and everybody in the room that we're representing to push and to comment and to be involved in what the SEC and the MSRB and GASB are trying to pull together. It's important. Valhalla is where we want to go and I think for too long the muni market has really resisted significant change with we're different, we're quirky, you don't understand there's regionalization in Munis or different sectors. Feels like it's getting old, it's 2024. I'll take state of Texas as a great example. State of Texas is immensely more transparent than American Airlines also based here in Texas and more documents, more financial reporting. And yet there's probably some investors in the US or around the world that are hesitant to invest in Texas because it's not as easy to pull data points as it is for American Airlines because they're using this technology. And if we can get there, it's going to be I think a good thing for taxpayers and opening up a broader pool of capital. But how we get there, we all saw the timeline, it's very condensed. I think it's going to be a big challenge when we get there.



(18:59):

Excellent things, but a challenge, and I think it's up to everybody, every market participant to lean into this and try to push the SEC and GASB and the MSRB in the right direction to get this right.



Robert Widigan (19:12):

If I can please, this is why Campbell's between us, but to Colin's point, he made the comment about FDTA was pushed through quickly and I think you'll hear a lot of some of your organizations complaining about that. But I think here's the biggest point, it's law period. So we can either sit here and be mad about it or we can sit here and provide the comments and make sure our voices are heard. I mean we've been at a few conferences where the SEC's there and multiple times every time I hear them speak, they say we read every single comment we get. So take the time, don't send a form letter because that just gets punched into one, but take the time, look at it and then get your constructive feedback to the SEC or MSRB and make sure that we shape this, that the final product when all the rules come out is exactly the way we want it to look.



Colin MacNaught (20:14):

Yeah, to me there's two big concerns. It's going to be a challenge, but even if we get there in 2026, the big concern is you've got unsophisticated investors there, it's garbage in, garbage out. You've got very sophisticated, we heard from the buy side yesterday, those firms are super tech forward and they have eliminated a lot of human capital and they rely heavily on technology. So they will benefit and they will accelerate and use things like AI to improve their credit analysis. Mom and pop will not. So this is garbage in and garbage out and you've got mom and pop looking at garbage. That's a concern. Their concern is on the issuer side, if this becomes so painful and so expensive and glad to hear it wasn't for you, Rob, what are we going to do on the issuer side five years from now when the NFMA asked for something else from the issuers in terms of more disclosure, I think the response could be like, look, we are doing FDTA, it's garbage in, it's garbage out, but this is what you guys wanted and rob it's law and we've got to make sure it's done really well.



Lynne Funk (21:23):

So I'd like to pivot here for a minute and talk a little bit more about the actual technology and Campbell, I turn this over to you for a second. Break it down. Pardon me.



Campbell Pryde (21:35):

So just to be clear on this XBRL call it a technology, it's really a standardized way of reporting data. So it's not locking you into buying Oracle software or using Linux or using Unix or whatever it is, technology agnostic. It's not really think of it that way. Think of it more as it's a standardized way of a representing accounting data. So it's really more like a data model. And the idea is that you'll get data that's an unambiguous format and that you can capture a lot of information that you wouldn't be able to get in a traditional flat file structure. And this has been a lot of confusion around this. Oh well they're going to give us a standard set of chart of accounts and we've got to shovel our unique activities into that chart of accounts. That's not the way it works. It basically has a model which allows you to define what your accounting transactions are, what your accounting balances are, what were your expenses, and to individually be able to define those.



(22:35):

So that model is completely independent of technology. So no matter what's happening, then the underlying model will support that. So XBRL itself will support things like there's a lot of conversations like, oh, we can just use ai, we don't need this. At the end of the day, still everyone still needs to agree on what are the underlying things that we're comparing. If you have AI generating it and they all come up with different results, then you still don't get comparability. So at the end of the day, one of the things that's most important here is that the GASB and other accounting standard set in the space say this is the stuff that we expect to be reported and this is what these things mean and this is what they are. And if you're reporting stuff and it doesn't fit into that as standard, then you have the ability within the XBRL, within the XBRL standard to be able to make those distinctions as well.



(23:28):

So that's very powerful and that's why it's been used by the SEC particularly for reporting in the equities market. There's a lot of variability there. You've got REITs, you've got airlines, you've got banks, they're all reporting in that standard. So when you hear, oh, it's going to force us into a standard set of chart of accounts, that's actually not the case. But what that does, that means it does give you a lot of flexibility to report what you actually want to report and how you can report it. So I just want to make sure that's clear. And a lot of people talked about AI, we expect what we hope that people will be using AI to do this. One of the things that happens today, and this was particularly happens a lot everywhere, is you have all this data, it's all in an electronic format, it's in your subsystems, in your accounting systems, lease, whatever systems you have, we take away data, we put it down into a paper format, publish it out, the market comes along, takes it all up, puts it back into an electronic format.



(24:25):

So it's kind of like the old days of shipping before shipping containers. We take everything on a container to the wharf, take it all out, hand pack it into the ship, ship it across the ocean, take it out, put it back into a container, just put it on a container the whole way through. So we're kind of saying that, so if we get, it's very important to get agreement on these standards when probably the most important thing other than obviously putting comments into the SEC is to put comments into GSB. When they start working on this taxonomy, they're going to start working on it. They're going to make a lot of mistakes and you really want to be able to look at that. One of the things that's happened in the gap world from the FASB side is all of that, all of the FASB standards are in a taxonomy.



(25:09):

It's an incredibly useful tool for looking up accounting standards. I used to read through all these paper, all these paper documents, what do I have to do here? What's the disclosure now I can just go and look at the taxonomy. I've got to do pension disclosures, boom, these are things I need to disclose. Let me pull up 20 companies who have disclosed this, I can get them, get them really quickly. So there's a lot of benefits for issuers and you have all the stuff at your fingertips doesn't cost you anything. You don't have to license anything. You can get all this information, you have the trends and techniques, what every other issue is doing. So that's what the technology is, that's what it enables to hopefully answer



Lynne Funk (25:45):

Your question. No, that's helpful. Thank you. I want to talk about or ask questions and these can be, I think this is sort of what's going on in the market. Various participants have questions and try to put them all here and let you all kind of go at them. And I think I'll start, we know that currently investors find information of all sorts of disclosures that are required and issues continuing disclosure agreement. Does this have to be the act for, what about voluntary disclosures? How do you tag a narrative? What's going to be at stake here?



Colin MacNaught (26:18):

Yeah, I can go first. I'd be surprised if investors wanted to start with an ER as opposed to an offering document, A POS, they're all different. They're all written by different law firms. Even issuers within the same sector might have a table that describes revenues in slightly different ways and that those little nuances create challenges for investors and it slows everybody down. If I was to bet, I don't like to bet. I think the offering statement would be the place to start in terms of providing the best benefit or the earliest benefit for investors as opposed to an acter.



Campbell Pryde (27:01):

Yeah, I would actually agree with that. And that's all depends on the SEC as well, obviously how they come out with that. I think that's the most relevant information at that time. And obviously with the act there's a delay in many cases in terms of them being reported so that information becomes stale by the time people use it. We've been looking at building a taxonomy for the offering statement as well, and there's a lot of information that's reported in the ACT for in that document. So it's not like you need a separate taxonomy for it. These things will talk to each other. So the nice thing is if you put something in your offering statement and then that can automatically populate your act for or vice versa, that should be tagged exactly the same way that from a machine perspective, that information is represented identically. So we tend to have this idea of these are a report and act for and all these different budget, it's all just different delivery mechanisms for data and a lot of times that data is the same. And the point here is, okay, let's just peel back the container, what we call the containers and say this is the data, this is the data that people want. How can I get that information out?



(28:12):

I think they covered it well.



Lynne Funk (28:14):

You did. Okay. So one of the big points that I think a lot of issuers and issuer groups say is, is this going to prevent smaller governments to come to the market? What do you think about that? Is it going to be too daunting for Missoula? Montana is a lot different than the state of Texas, so



Campbell Pryde (28:40):

I can go on that. Alright, so when the SEC first implemented XBRL in 2008 for SEC reporting, that's what we heard. That was the biggest complaint. This is going to destroy the capital markets. No one's going to file. You're scaring people away. 10 years earlier in 1998, there was seven and a half thousand publicly listed domestic companies in the United States. By 2007 there was like four and a half thousand. So it dropped dramatically. So there was a real concern about this since the implementation of exp bureau, that's pretty much stayed constant and we've been through the financial crisis and the covid, obviously there's been an uptick in publicly listed companies because of SPACs. So we've seen basically a gradual increase in publicly listed companies. I think that was considered to be a factor. I don't necessarily know it is. I think people concerned about that.



(29:29):

To give you some perspective, every single company in the UK reports in an XBL format. When I say company, I mean Doctor Plumber, any company which is a limited liability company, they're reporting an XL. They have that as an option. Their other option is they can either report an XBRL, their financials or they can print everything out, put it in an envelope and send it in. No one prints it out and sends it in because the postage cost is too high. And so they've got people supporting them in the UK, for example, where they'll charge them like $120 to do a filing. So that's kind of where it's, I know that it's not the uk, I know it's the us. I know these filings are a lot more complicated, but I don't necessarily think that the evidence suggests that it's not going to necessarily scare people away from the kins.



Colin MacNaught (30:19):

I have a slightly different take than Campbell. Again, to Rob's point, this is law and we've got to support it and shape it, but there are real concerns. There are issuers or governments in our market that don't have a full-time CFO or it's CFO of a school district, but also driving the school bus and helping with the school lunch. That's a real thing. There are small governments all across the country and they look a lot different than state of X, Y, Z in terms of resources and the ability to produce reports and then to adopt this new technology. To me that's a real concern. And if this pushes more issuers out of the bond market where there's a lot of oversight into private markets, direct loans, that's an area where there's no calendar, there's no QIPs, no SEC or EMMA. There's no DTCC, there's no rating agency oversight, oversight, but review. I'm not sure that's in the benefit of everyone to see a large segment of our market. Most of our market is really small, really small governments in terms of the number of issuers. I don't think it's in anyone's interest to see a significant part of the muni market leave and go into these opaque, unstructured, unregulated to some degree markets. So we've got to find a way to make it very, very easy for the small issuers to participate in this.



Robert Widigan (31:59):

Just to go off of that, maybe I'm a little too optimistic, but the school district with the bus driver who's also the CFO, they still have to produce a for each year, or if they're small enough every other year, maybe



Colin MacNaught (32:13):

Maybe



Robert Widigan (32:13):

Not true, maybe in the cases where they do though what I'm seeing already is a lot of organizations are already out there trying to, we're kind of in the middle of a wave of technology. We've all played with AI and heck, we were using it and building our budget in Wayne County to pull out more data points. There's already a lot of people working right now to prepare for 2026, 2027 when this happens to develop those free tools that the smaller issuers can pull to meet the standards. Now what does that look like? We don't know yet, right? We're still in the building phase, but I don't see this, I personally don't see it being a big issue. And potentially it could help. And in Michigan I had the list, but we have about 16 different reports we have to file with the ACT to the state, various departments.



(33:12):

In theory, what I saw here in Flint is we built it manually the first time and then the program knew what to do. So next year you input the workbook, hit a button, and boom, your act first is built. And then on top of that, it's not quite there yet, but I can also see this hitting another button and it's submits all the reports to the state that we need to submit. When I was just out of college, worked for the state of Michigan Department of Treasury and Public Act 202 was being considered and that's Michigan's law on pension and OPE disclosures. We literally shut down the bureau of local government finance so each of us could take a hundred PDF audits manually comb through them and figure out pension data to get to the legislatures so that they could figure out what they needed. I mean, it took weeks of nothing else getting done that treasury to do this and it was painful where something like this, you can hit a button and the government has all the data they need.



Campbell Pryde (34:21):

Can I say something? Sure. I agree with Colin there. It's a big problem and I've seen in terms of tiny little school districts and how do we do this? One of the things that this may, in some cases, I think states need to think a little bit about this differently. For example, Utah, they collect all the transactional details of every single entity within the state. You can go and you can go and download it, actually hugely transparent. And what the state of Utah are thinking of doing is saying, look, we can probably prepare, do a lot of the work for preparing the acters for a lot of these small entities automatically, and then basically give that information back to them, get 'em to review it and then make sure it's okay. So I think to some extent, once this data becomes electronic, it opens up opportunities to improve the efficiency of which reporting is done.



(35:12):

We want the data, not really the ACFA. So I think having the data structured in a standardized format, everyone talking the same language, it makes the economies of scale and the potential for automation so much greater, which I think can be helpful. I don't want to see the situation where software vendors are descending on every school district saying, you need to buy the software to report an exp bureau. That is not the right solution. I think that needs to be the state saying, okay, these are the people reporting in our state. What facilities and tools can we offer them to basically streamline this and think about it in a logical way and take advantage of it to actually not make it worse, but to actually make it better than it's today.



Lynne Funk (35:56):

So who bears the risk of noncompliance or of misrepresentation or how are governments held to account?



Colin MacNaught (36:09):

That's a really good question. That's a really good question, Lynne. I think it's on the issuers, but that's just not how it's set up. When an issuer comes to market, it's on the underwriter to validate the data. I'm not sure I know the answer to that Campbell, Bob.



Campbell Pryde (36:28):

Yeah, so what the a c has done in the past, and maybe they'll do the same, and it'd be very helpful to probably communicate this. If you wrote a letter to the SEC as one, you probably want to safe harbor in terms of, so people have times to work out any problems they may have. Two is then what is the liability on? So in expo today, it's not like a data file. It looks like an HTML file. You can look at it, you can review it, and they've kind of subtly split the level the paper filing or the HTML filing should look what it should look like, but then the XBRL data should match what's underneath that. So there hasn't actually been any litigation at this point after 10 years in the US on XBRL filings for those security filings. And they've kind of sidestep that a little bit. One of the things, particularly in Europe on these types of simplify filings in the equity markets at least, is to have the auditors take the liability for that. I don't know if that's going to cut up in this market, but it's definitely something that should be front and center. Any comments you put forward? Then obviously should there be exemptions for smaller filers and that kind of stuff, or even limitations on liability is something that the SEC should be thinking about.



Lynne Funk (37:47):

So thinking about technology in general, and I moderated a panel on the first day of this conference with technology providers and we talked about AI and there were five panelists and we had more people who wanted to join that panel. Now, 10 years ago it was maybe two. So the evolution of just technology is very rapid now. So I guess my question is, is this timeline actually that dense? Could there be more evolution of things popping up, more other platforms or other availability of technology to help speed this process up?



Colin MacNaught (38:32):

Yeah, I think so. I think you're right. 10 years ago there wasn't a lot of technology in this space, and GovTech itself is a massive market. It's like 450 billion a year. It's a huge market. But in terms of muni, treasury, there's just not a lot, particularly on the issuer side. Everybody has a platform except for issuers. And the joke, if you've never worked on the government, you have no idea how lean and mean it is. On the government side. My time in Massachusetts, we had very limited human resources with a lot of responsibility, and that's where technology can come in and assist and fill those gaps. Now, I'm not smart enough to understand AI, but AI is moving so fast. Maybe it has a really positive impact on this technology and greatly assists governments in implementing. And I'm a big proponent of more disclosure. I'm a big proponent of modern disclosure. I throw a hissy fit if I can't download my Taylor Swift song in 10 seconds. So it would be great on my phone to be able to pull up Wayne County's look at a trend of their balance sheet like I can with Apple today or with American Airlines. Going back to the Texas example. If we can get there, I think that's a really good thing for our market and for opening up to more investors.



Robert Widigan (40:03):

Yeah, I mean FTTA was passed, what, 2023. So we have a lot of year. I mean, AI is just really getting, it's kind of like one day we woke up and it's like, Hey, have you tried Gemini or have you tried Bard or all these different programs? But to your point about there being no resources, yeah, wow. Nobody is going to college and coming out saying, I want to work in government finance. It just doesn't happen. And as a matter of fact, until you get to your master's level classes, when I went through college for my bachelor's, I had one class that for part of the semester, talked about government finance. That was it. It is just not out there when you're building a budget. We have Wayne County, 2.02 billion budget. I built it in Excel. That was miserable. Our team, we have four people, 40% vacancy rate, four people.



(41:05):

I mean, it's miserable by charter. It was due to the commission on June 3rd, and I think they got it almost in August, which was a nice five minutes apologizing to the commission. But my point is, if we can get technology to help that, so when you build the budget, you're saying, okay, what are property taxes for the past five years, trying to get the best number to put in your budget for the upcoming year. Any of us can do that, right? There's been an average, we're looking at a 7% swing this year, whatever. But what AI I am visioning or hoping can help with is we don't have time to read all the analysis done by organizations like BondLink or S and P Moody's when we're trying to come up with our budget AI. I see being able to analyze that and say, well, historically you have a two and two and a half percent increase on your expenditures, but because of these factors and these reports, really you should expect a 5% increase. And if we can get budgets, which are also a snapshot in time to be 10% more accurate, we're really accomplishing things and helping with the workload issue



Colin MacNaught (42:21):

And the data coming in is also important. If you could click a button and get ADP payroll for businesses in Wayne County and then be able to pivot that above budget very quickly based on what you're reading, I think that'd be a huge lift for governments. Yeah,



Lynne Funk (42:38):

We're coming up on time, so I would like to invite anybody who has any questions for our panelists to come up to the mic.



Audience Member 1 (42:53):

Good morning. I know we were talking earlier about small issuers and we work with a lot of them, and one of the things that we're finding out, have been finding out is there's a lack of accountants, right? Lack of auditors. And when you get into the smaller, rural, more remote parts of Texas in particular, what we're seeing is there's just no way they can get their audits out in a timely manner. So when we're doing continuing disclosures, we're finding ourselves, getting tables done, getting those submitted by the end of March if they've got a nine 30 year end, and then coming back August, September, October, and getting the actual audit then filed. So how much communication is taking place through this requirement to the accounting firms? Because in a lot of cases for these issuers, the issuer's really not putting together the financial statements. I mean, most of the time you think, well, the auditor's issuing the opinion for these small cities, county school districts. The auditor's doing everything and they're assembling it. So if they can be trained and aware of what's going to be needed, that's to me, where the rubber hits the ground. And just wanted to get y'all's thoughts on that.



Colin MacNaught (44:14):

I thought Kimel had a, first of all, thank you for the question. I think it's very thoughtful, and I think it's one of the bigger challenges that the SEC and GASB face right now, there could be some creative solutions like a state entity, a state auditor can suck in raw data from small issuers and compile on their behalf what they're receiving in terms of the raw financial data to try to give them a bit of a crutch until there's enough capacity to bring a third party auditor in and actually do the testing that's required as part of an audit and produce the financial statements. It's going to have to be something creative. You're just not set up. There's not enough resources internally. And to your point, externally, with the lack of auditing firms available,



Campbell Pryde (45:04):

And I know we're out of time, but we are doing a lot of work to reach out to the A-O-C-P-A and educate small accounting firms on what this rule is and what the requirements are. So obviously once the SEC rule comes out, then obviously we can start to do a lot more around this. But you're absolutely right, this is a huge problem.



Robert Widigan (45:24):

I would agree. At the moment, the firm will remain nameless to protect the innocent but Flint, when we started this project, we invited the auditing firm to come to some meetings and be a part of it and they weren't really interested. So maybe after the rules are set, we can give them to the table. But I think all of you, when you speak with your auditor, should be like, alright, so what are you doing to prepare for FTTA?



Colin MacNaught (45:56):

That's a good point.



Lynne Funk (45:58):

Great. We actually are out of time, so I would like you to, let's thank our panelists. They were wonderful.



Colin MacNaught (46:05):

Thank you.