The lead-in-water crisis in Flint and the bankruptcy in Detroit were separate events that had a common theme: They had been caused in part by fiscal challenges decades in the making. Avoiding or limiting similar problems in the future could be tied to greater transparency in local fiscal reporting, say University of Michigan experts.
A pilot project by the Center for Local, State, and Urban Policy (CLOSUP) at U-M's Gerald R. Ford School of Public Policy, in partnership with the city of Flint, will examine whether a new fiscal reporting mechanism can help create that openness. The project is made possible through a $120,000 grant to U-M from the Charles Stewart Mott Foundation.
Audited Annual Comprehensive Financial Reports provide important information for understanding local fiscal health. But data in these reports in Michigan are currently provided as PDF documents, which severely limits their accessibility, comparability and usefulness for many stakeholders-especially those not trained in government accounting.
CLOSUP's Local Fiscal Health Project (LFHP) will work with Flint to implement an open data standard based on XBRL (Extensible Business Reporting Language) in reporting its audited accounts. XBRL is a standard that is already used by more than 100 agencies in 60 countries, including the U.S. Securities and Exchange Commission. Pilot projects and initial implementations of XBRL for local government reporting are taking place in Illinois, California and Florida.
The CLOSUP team, working with XBRL US, the U.S. arm of the global nonprofit that manages the open standard, will adapt and expand on existing data standards within the Michigan context to ensure quality and accessibility. The team has already converted a portion of Flint's 2020 Annual Comprehensive Financial Report into the new format.
The work will provide support and training for Flint to generate more of its financial data in XBRL format every year, and also look at the city's fiscal reporting for the last 20 years to see how using the open standard could have helped highlight fiscal difficulties.
This effort with Flint will help modernize and digitize municipal financial reporting in order to better share the information with the public, the state of Michigan and others.
"Financial transparency is essential to a healthy, responsive, and inclusive city government," said Robert Widigan, Flint's chief financial officer. "This partnership with the University of Michigan will position the city of Flint as a national leader in local government open data technology."
"This project ultimately is about improving a community's quality of life, because as local fiscal information becomes more available, a greater number of stakeholders will have eyes on the data and be able to act on potential problems long before they turn into crises," said Tom Ivacko, CLOSUP executive director.
Campbell Pryde, CEO of XBRL US, said it's exciting to expand such important efforts in the public sector.
"Our mission is to promote the widespread dissemination and transparency of financial information through the development of free, open data standards," Pryde said.
The project will include consultation with the Michigan Department of Treasury.
LFHP program manager Stephanie Leiser said the transparency of XBRL reporting can lead to better governance. In a recent working paper, written with former CLOSUP student policy analyst Capri Backus, Leiser argued that local fiscal health is more important than ever with U.S. democracy facing crises at all levels.
"Local communities are being asked to tackle some of the most important issues facing our country-the COVID-19 pandemic, systemic inequity, Black Lives Matter and police reform, and deteriorating infrastructure, among others," she wrote. "But what might it mean to reform policing or invest in infrastructure if we do not have a shared understanding of the fiscal context in which these decisions are made?"
In October, the House of Representatives passed H.R. 2989: Financial Transparency Act, which directs the seven major U.S. financial regulatory agencies to adopt consistent data formats, including directing financial regulators to make their reporting available as open data sources-electronically searchable, downloadable and without a paywall.
LFHP was launched in 2019. Working with academic researchers, Michigan's local government associations, the state treasury department and others, it aims to develop a deeper understanding of the fiscal health and fiscal challenges of local governments in Michigan. Early detection of potential problems is a core part of its mission.
