Time to Bring California Out of the Municipal Reporting Stone Age
California brands itself as the global leader in technology and innovation. Yet when it comes to modernizing state and municipal government financial reporting, the Golden State is stuck in the digital stone age.
Currently, California’s local governments submit their Annual Comprehensive Financial Reports (ACFRs) — audited financial statements, detailing financial positions and changes in a PDF format, required by the California State Controller’s Office. These documents are often hundreds of pages long, replete with complex accounting terminology and a lack of uniformity between various types of government municipalities and special districts’ reporting. For those who are not CPAs or experts in municipal finance, making sense of this data is nearly impossible.
Instead, California should take the lead in advancing the latest technology: machine-readable formats for its (ACFRs) and single audits such as the freely licensed, open standard called eXtensible Business Reporting Language (XBRL).
XBRL would transform the ease of access and use of municipal financial data statewide. In this format, government financial reporting would be available in a consistent, comparable, and computer-readable form. The simplest way to think of XBRL is as a barcode for financial data where information is tagged to improve searchability, digital sharing, analysis, and automation.
XBRL is already the global standard for corporate financial reporting. It has been widely adopted and used in 65 countries worldwide, helping to increase corporate transparency and improve the efficiency of capital markets.
The federal government has taken a proactive step toward XBRL standards with the Financial Data Transparency Act (FDTA) of 2022, mandating federal regulators create machine-readable reporting standards. With these new standards, the FDTA paves the way for states to begin adopting machine-readable formats. Now, states are grappling with how to adapt to these federal requirements while addressing logistical, technological, and budgetary challenges.
California Policy Center is helping lead the way in advocating for more efficient municipal reporting. Last week, CPC partnered with XBRL US to host the Modernizing Municipal Reporting Conference. This issue was a key focus of the conference, featuring keynote speaker California State Treasurer Fiona Ma, CPA, and former State Senator John Moorlach, Director of the Center for Public Accountability at California Policy Center. In their remarks, both Ma and Moorlach highlighted the flaws in California’s current financial reporting systems and the need for modernization.
For years, Moorlach has been at the forefront of pushing for more transparency and accessibility in fiscal reporting. In 2019, then-Senator Moorlach put forward SB 598 with the public support of Treasurer Ma. The bill would have required state and local governments to submit machine-readable financial reports. The bill passed through both state houses with strong bipartisan support, yet Governor Newsom refused to sign it. Newsom claimed the switch to machine-readable reports would impose “additional unbudgeted costs for the state and contains implementation provisions that are problematic.”
Newsom’s opposition to SB 598 was especially ironic given that he authored Citizenville: How to Take the Town Square Digital and Reinvent Government, a 2013 book that criticizes government for failing to embrace modern technology.
Why is machine-readable fiscal reporting such a big deal?
As it currently stands, there is no official database of state and local audits that is complete and easily accessible to the public. The State Controller offers a portal for data, but the unaudited financial data on that site often diverge from the official ACFRs. If, for instance, a California resident wants to know accurate data on how much debt their local government has before voting to approve a new bond measure or supporting a new sales tax, they can try to look for their local government’s annual comprehensive financial report online. But a significant number of municipalities do not even post their latest ACFRs or are several years behind in reporting their financials.
California Policy Center (CPC) has sought to fill the void of this lack of transparency in financial reporting with CPC’s Local Fiscal Health Dashboard. The dashboard provides both in-depth breakdowns of ACFR financial data and health, as well as the ACFR PDF for all cities, counties, and school districts with available data.
In addition, John Moorlach, as director of CPC’s Center for Public Accountability, tracks and ranks cities across the state based on their current financial status using their audited financial reports. Incredibly, Moorlach has identified cities that have failed to submit timely audited statements as far as 2019–2020.
The failure to modernize municipal reporting isn’t just an inconvenience—it’s a transparency crisis. When local governments fail to post up-to-date audits or leave residents sifting through hundreds of pages of complex financial statements, accountability suffers. How are local government officials supposed to effectively manage their budgets if they don’t have accurate annual audit reports?
Progress is being made elsewhere. Florida has implemented XBRL for local government financial reporting, while North Carolina and Utah actively monitor financial statement submission timeliness and penalize municipalities/local governments that are tardy.
With the rapidly advancing state of technology, artificial intelligence, and machine learning, California is equipped to take a leadership role in making financial data more accessible.
Californians should voice their frustrations with the lack of financial transparency and encourage the state legislature to back and pass an updated version of Moorlach’s SB 598.
A good place to start is the draft bill linked here, still in need of a legislative author.
It’s time for the Golden State to lead—not lag—in financial transparency.
Andrew Davenport is a Policy & Research Associate with California Policy Center.
