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SB-598 Open Financial Statements Act.(2019-2020)

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Date Published: 04/12/2019 04:00 AM
SB598:v97#DOCUMENT

Amended  IN  Senate  April 11, 2019
Amended  IN  Senate  April 02, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Senate Bill No. 598


Introduced by Senator Moorlach

February 22, 2019


An act to amend Sections 12410.5, 12460, 13291, 27002, 53607, 53646, 53661, 53663, and 53891 of, to add Section 53898 to, and to add and repeal Chapter 23.5 (commencing with Section 7540) to Division 7 of Title 1 of, the Government Code, relating to public agency financial reporting, and making an appropriation therefor. reporting.


LEGISLATIVE COUNSEL'S DIGEST


SB 598, as amended, Moorlach. Open Financial Statements Act.
Existing law, the Financial Information System for California (FISCal) Act, establishes the FISCal system, a single integrated financial management system for the state, and requires the Department of FISCal to maintain and operate that system upon its full implementation and final acceptance. Existing law requires various state and local agencies to provide financial reports, as provided.
This bill would enact the Open Financial Statements Act. The bill would establish the Open Financial Statement Commission, consisting of 9 members. The bill would require authorize the commission to contract, through an open and competitive request for proposal process, with vendors possessing the necessary software and financial data standards development expertise to build one or more eXtensibleextensible Business Reporting Language (XBRL) taxonomies suitable for public agency financial filings and create a software tool that enables a public agency to easily create Inline eXtensible Business Reporting Language (iXBRL) documents consistent with these taxonomies. Commencing with the 2021–22 fiscal year, the bill would require that any financial statement required by other law to be submitted or filed by a public agency be filed in iXBRL and to meet the validation requirements of the relevant taxonomy. The bill would make conforming changes to various other laws requiring state and local agencies to file or submit financial statements or reports. However, if the commission fails to adopt a prototype iXBRL taxonomy software and filing system for implementation by December 31, 2021, the bill would dissolve the commission and make the requirement that a public agency file financial statements in iXBRL inoperative. The bill would appropriate $1,000,000 from the General Fund to the commission to be used for purposes of the Open Financial Statements Act, subject to specified restrictions. The bill would require the commission, by January 1, 2021, to report to the Legislature and make recommendations regarding how and whether to transition financial reporting by state and local agencies to a machine readable format. The bill would repeal the Open Financial Statements Act as of January 1, 2025.

By requiring local agencies to submit various financial statements and reports in iXBRL, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Vote: TWO_THIRDSMAJORITY   Appropriation: YESNO   Fiscal Committee: YES   Local Program: YESNO  

The people of the State of California do enact as follows:


SECTION 1.

 Chapter 23.5 (commencing with Section 7540) is added to Division 7 of Title 1 of the Government Code, to read:
CHAPTER  23.5. Open Financial Statements

7540.
 This chapter shall be known, and may be cited, as the Open Financial Statements Act.

7540.1.
 The Legislature finds and declares all of the following:
(a) Most local agencies submit two sets of annual financial statements to the Controller: a single audit reporting package in portable document format (PDF) and a financial transactions report. This dual reporting requirement creates an extra burden on local agencies and creates the risk of the Controller receiving inconsistent data.
(b) Other public entities, including the state, separately reporting component units of the state, and public pension systems, also file audited financial statements in PDF, rendering them difficult to analyze.
(c) Transitioning these documents to machine readable formats will ease the identification of fiscally distressed local governments and increase liquidity in the municipal bond market.
(d) It is therefore the intent of the Legislature to study whether to transition financial reporting by state and local agencies to a machine readable format. format, such as Inline eXtensible Business Reporting Language (iXBRL).

(e)It is further the intent of the Legislature to replace PDF audited financial statements with filings that utilize Inline eXtensible Business Reporting Language (iXBRL) and to establish iXBRL audited financial statements as the only annual financial filing required from state and local agencies.

7540.2.
 For purposes of this chapter:
(a) “Commission” means the Open Financial Statement Commission.
(b) “Financial statement” means any financial report or statement that a public agency is required by any state or local law to submit.
(c) “iXBRL” means Inline eXtensible Business Reporting Language.
(d) “Public agency” means any state agency, department, board, or commission, county, city, special district, or other political subdivision.
(e) “XBRL” means eXtensible Business Reporting Language.

7540.3.
 (a) There is hereby established in state government the Controller’s office the Open Financial Statement Commission.
(b) The commission shall consist of the following nine members:
(1) A representative from the Controller’s office, who shall serve as the chair of the commission.
(2) A representative from the Treasurer’s office. office, to be appointed by the Treasurer.
(3) A representative from the California State Auditor’s Office, to be appointed by the California State Auditor.
(4) A representative of a city or a county.
(5) A representative of a special district.
(6) A researcher who has knowledge and experience in government accounting, affiliated with either the University of California or the California State University.
(7) A municipal bond investor.
(8) An information technology professional employed in the private sector.
(9) A person with knowledge and experience in data modeling for open data standards.
(c) Except as otherwise provided in paragraph paragraphs (2) and (3) of subdivision (b), members of the commission shall be appointed by and serve at the pleasure of the Controller.
(d) Meetings of the commission shall be open and public in accordance with the Bagley-Keene Open Meeting Act (Article 9 (commencing with Section 11120) of Chapter 1 of Part 1 of Division 3 of Title 2).
(e) The commission may employ staff as may be necessary for the performance of its duties under this chapter.

(f)If the commission is dissolved pursuant to subdivision (c) of Section 7540.4, this section shall be inoperative as of the date of the dissolution of the commission.

7540.4.
 (a) (1)The commission shall may contract, through an open and competitive request for proposal process and consistent with Section 12100 of the Public Contract Code, with vendors possessing the necessary software and financial data standards development expertise to do both of the following:

(A)

(1) Build one or more XBRL taxonomies suitable for public agency financial filings.

(B)

(2) Create an open source software tool that enables a public agency required by other law to file or submit a financial statement to easily create iXBRL documents consistent with the taxonomy or taxonomies developed pursuant to subparagraph (A). paragraph (1). The open source software tool created pursuant to this subparagraph paragraph shall have no restriction on its use.

(2)The commission may require the use of an existing XBRL taxonomy or taxonomies if the commission deems it prudent to do so in order to reduce costs or increase comparability between entries

(b)(1)(A)The commission shall require vendors contracted with pursuant to this section to complete a prototype XBRL taxonomy and filing system no later than March 31, 2020. The commission shall evaluate the prototype taxonomy and specify any changes it deems appropriate.

(B)No later than June 30, 2020, the commission shall submit a report to the Legislature describing the prototype XBRL taxonomy and filing system and stating whether or not the commission will implement that prototype XBRL taxonomy and filing system.

(2)(A)If the commission disapproves a prototype XBRL taxonomy and filing system pursuant to paragraph (1), it shall either instruct the vendor to make necessary changes or contract with a different vendor. No later than March 31, 2021, the commission shall determine whether or not to implement the revised prototype XBRL taxonomy and filing system.

(B)If the commission requires changes to a prototype XBRL taxonomy and filing system pursuant to this paragraph, then no later than June 30, 2021, it shall submit a second report to the Legislature, containing the same information specified in subparagraph (B) of paragraph (1) with respect to the revised prototype XBRL taxonomy and filing system.

(3)A report submitted to the Legislature pursuant to this subdivision shall be submitted in compliance with Section 9795.

(c)If the commission fails to adopt a prototype XBRL taxonomy and filing system for implementation by December 31, 2021, the commission shall be dissolved as of that date.

(b) (1) No later than January 1, 2021, the commission shall report to the Legislature and make recommendations regarding how to transition financial reporting by state and local agencies to a machine readable format. The report shall include, but not be limited to, the following information:
(A) The cost of creating an XBRL taxonomy, as described in subdivision (a).
(B) The cost of creating an open source software tool, as described in subdivision (a).
(C) The amount of time necessary for public agencies to transition to a machine readable format.
(D) The cost of transitioning all public agencies and how the transition would be funded.
(E) Recommendations regarding whether such a transition is the most cost-effective method of preparing financial statements.
(2) The report required to be submitted pursuant to this subdivision shall be submitted in compliance with Section 9795.

7540.5.

(a)(1)Subject to subdivision (b), for the 2021–22 fiscal year and each fiscal year thereafter, any financial statement required by other law to be submitted or filed by a public agency shall be filed in iXBRL, using the XBRL taxonomy developed by the commission pursuant to Section 7540.4, and shall meet the validation requirements of the relevant taxonomy.

(2)Notwithstanding any other law, except as provided in subdivision (c) of Section 12410.5, this section shall supersede any requirement that a public agency submit or file a financial statement in any other electronic format or provide a financial statement in an electronic spreadsheet. If any public agency is unable to utilize iXBRL for its own internal purposes with respect to a particular financial statement, the public agency shall convert a financial statement filed in iXBRL into a usable format for its internal purposes for that financial statement.

(b)If the commission is dissolved pursuant to subdivision (c) of Section 7540.4, this section shall be inoperative as of the date of that dissolution.

7540.6.

The commission shall identify and recommend to the Controller changes to the budgetary-legal basis annual report required by Section 12460 for the purpose of ensuring that report complies with the requirements of Section 7540.5.

7540.7.

(a)The sum of one million dollars ($1,000,000) is hereby appropriated without regard to fiscal year from the General Fund to the commission, to be used for purposes of carrying out its duties under this chapter, subject to the following restrictions:

(1)The moneys appropriated by this section shall not be used for compensation of members or staff of the commission.

(2)No more than one hundred thousand dollars ($100,000) of the moneys appropriated by this section may be used for expenses incurred in relation to meetings of the commission.

(b)If the commission is dissolved pursuant to subdivision (c) of Section 7540.4, any unencumbered balance of the moneys appropriated pursuant to this section as of the date of that dissolution shall revert to the General Fund.

7540.5.
 This chapter shall remain in effect only until January 1, 2025, and as of that date is repealed.