Look at Section 5313(d):
MANDATORY EXEMPTIONS FROM REPORTING REQUIREMENTS.--
(1) IN GENERAL.--The Secretary of the Treasury shall exempt, pursuant to section 5318(a)(6), a depository institution from the reporting requirements of subsection (a) with respect to transactions between the depository institution and the following categories of entities:
(A) ...
(B) A department or agency of the United States, any State, or any political subdivision of any State.
(C) Any entity established under the laws of the United States, any State, or any political subdivision of any State, or under an interstate compact between 2 or more States, which exercises governmental authority on behalf of the United States or any such State or political subdivision.
If (B) or (C) apply, then it's a Phase I exemption and that's the answer.
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...gone fishing.