State treasurers concerned about FDTA, hopeful for advance refunding

State treasurers gathered for a major conference in Washington Monday expressed concerns about the contentious Federal Data Transparency Act that became law last year.

A panel discussion exploring that and other important topics in public finance occurred at the National Association of State Treasurers conference, and was moderated by Rachel Eubanks, the Michigan state treasurer. The FDTA legislation, which is now law, requires muni issuers to reconfigure their disclosure packages in a machine-readable format, meaning no more PDF’s, which are the backbone of the EMMA system already in use.  

Matt Fabian, partner, Municipal Market Analytics revealed the names of software companies that have developed platforms to help enable the FDTA and private sector entities where the formatted data already exists. He also questioned the value of a system that’s currently under construction. 

“The private sector data is validated, accurate and is reasonably available, as opposed to the FDTA which will be just a tornado of garbage coming from all of these tiny issuers,” said Fabian.

The FDTA was passed late last year as a rider on a defense bill. Proponents of the legislation believe it will boost transparency in the muni market and bring in new participants while issuers are concerned about buying and maintaining new software platforms needed to install the system. The precise rules for how the legislation will be implemented and enforced are still being hashed out including an ill-defined exemption for small issuers.  

Emily Brock, federal liaison for the Government Finance Officers Association, said her organization remains staunchly opposed to the new law and pegs estimated implementation cots to issuers at $1.5 billion. 

Brock also discussed how the transition to FDTA could be accomplished without putting the cost burden onto the backs of issuers or investors.

“We’re at a precipice right now where we’re talking with Treasury, we’re talking with the SEC to say, ‘why don’t you pay for the data?'” The roles played by other stakeholders, including the Municipal Securities Rulemaking Board and the Governmental Accounting Standards Board also remain unclear to the discussion group. 

Brock joined other muni leaders in expressing hope for restoring advance refunding in the current Congress. The provision was killed off by the 2017 tax cuts legislation. Advance refunding allows outstanding bonds to be paid off on a tax-exempt basis with proceeds from new issues. 

She laid out a lobbying road map for treasurers headed to Capitol Hill on Tuesday. “Right now, there are only five Republicans on Ways and Means that voted for the tax cuts,” she said. “We have an advance refunding bill that’s going to be proposed by Ruppersberger out of Maryland and Kustoff out of Tennessee.”

Brock also acknowledged Senate support for restoring advance refunding via Sen. Roger Wicker, R-Tenn., and Debbie Stabenow, D-Mich.

The subject of the oncoming dispute over the debt ceiling and what effect it may have on the muni market was also broached Nick Key, assistant VP, federal government affairs, the Securities Industry and Financial Markets Association.

“When it comes to talking about the debt ceiling, everything’s on the table till It’s not,” he said.  “We definitely want to educate lawmakers and let them know about the importance of tax-exempt bonds just to make sure that they understand that no backroom deals are getting cut.”  

Key and his organization are also rooting for the re-introduction of the LIFT Act by Rep. Terri Sewell, D-Ala. The bill would benefit smaller municipalities by raising the limit on bank-qualified bonds to $30 million from $10 million. Bank-qualified bonds can bypass traditional underwriting, can be sold to local banks, and allows carrying costs to be deducted. The LIFT Act was originally included in the House’s Build Back Better Act that was scotched in the Senate.