What's all this talk about GASB Statement 34?

In June 1999 the Governmental Accounting Standards Board (GASB) approved one of the most significant financial reporting requirements in its history. For the first time, governments will show all available resources and costs associated with those resources to provide for public services. More than 84,000 local jurisdictions, including state and local governments, will be affected. Statement Number 34 requires that state and local governments begin reporting on the value of their infrastructure assets and depreciate them over their useful life

Infrastructure assets are defined as long-lived capital assets that normally are stationary in nature and normally can be preserved for a significantly greater number of years than most capital assets. (i.e. roads, bridges, tunnels, dams, lighting systems, and water and sewer facilities.) Buildings, except those that are an ancillary part of a network of infrastructure assets, should not be considered.

Statistics concerning local resouces:

• Local roads represent 75% of the four million miles of U. S. roadways.
• 27% of the 159,000 bridges in the U.S. are on local collector roads
• 26% of the $ 100 billion spent on U. S. roads and bridges annually comes from local governments
• Local governments spend 34% of the annual budget for U.S. roads and bridges

Implementation for (valuing and) reporting infrastructure assets is based on annual revenues of the first fiscal year after June 15, 1999:

• Phase I governments (total annual revenues of $100 million or more) will begin after June 15, 2001
• Phase II governments (total annual revenues of $10 million or more) will begin after June 15, 2002
• Phase III governments (total annual revenues under $ 10 million) will begin after June 15, 2003

These dates apply to newly acquired or built infrastructure. Governments have four additional years to report all pre-existing assets. Annual revenues are primary government's primary governmental and enterprise funds, except for extraordinary items.

Smart Infrastructure Management = Quality Services for All Communities

In June 1999 the Governmental Accounting Standards Board (GASB) approved one of the most significant financial reporting requirements in its history. For the first time, governments will show all available resources and costs associated with those resources to provide for public services. More than 84,000 local jurisdictions, including state and local governments, will be affected. Statement Number 34 requires that state and local governments begin reporting on the value of their infrastructure assets and depreciate them over their useful life

Infrastructure assets are defined as long-lived capital assets that normally are stationary in nature and normally can be preserved for a significantly greater number of years than most capital assets. (i.e. roads, bridges, tunnels, dams, lighting systems, and water and sewer facilities.) Buildings, except those that are an ancillary part of a network of infrastructure assets, should not be considered.

Information disclosed in financial statements will help governments and its citizens:

• Assess government-wide financial positions to determine if they have improved or deteriorated as a result of the year's operations.
• Evaluate current-year revenues and see actual costs. This evaluation will determine if revenues were sufficient to pay for current-year services and will help users focus on the cost of providing government services and see how those services are financed.
• Make more in-depth comparisons between governments and evaluate efficiency and effectiveness
• See how the government finances its programs and invests in capital assets to ensure quality infrastructure far into the future.
• Be proactive in their preventative maintenance to optimize the useful life of an asset, reducing the need for large expenditures if a reactive approach were used.
• Make better-informed choices about the expenditures of public funds and appropriate levels of taxation.

The new GASB 34 requirements will affect general funds, bond ratings and special revenue funds and officials will be held accountable for what was budgeted at the beginning of the year. One of the most interesting changes has to do with the budget-to-actual comparisons. Budgeting includes both original and final budgeted amounts, actual amounts, and variance. Now users can see how the initial budgeted amounts were changed. Although federal and state funding will continue to be available for infrastructure, funding agencies will require better management practices that results in more accurate data as a qualification to receive these funds. Budgeted amounts are the most significant values in a governmental unit.

In addition, the public wants to know how much governments spend on infrastructure and how much they borrow to finance it. The public also wants to know if governments are caring for the infrastructure that has been built with public resources and if they are providing the needed services to their community in an efficient and cost-effective manner.

Get Ready ! You can take some of the necessary steps now!

Managing your community's resources doesn't have to be difficult. In fact, over time, your whole community will see the cost savings and improvements to the infrastructure and benefit from the quality of services provided.

Many communities have been using an asset maintenance and management system for years. Some systems are used effectively and some are not. But, for those who have not yet started, it's not too late. We can help you take the necessary steps now. Fragmented software programs (i.e., Inventory Management, Work Planning & Budgeting or Pavement Management) function independently, but with CitiTech's integrated system, useful and accurate information is maximized and can be shared with the entire organization. Accurate data and good asset management planning is an investment and will result in better decision making for your community's future.

Most important, an effective asset maintenance and management system allows you to view planned versus actual costs of labor, equipment and materials needed for maintenance, preparing budgets and analyzing the performance of actions taken.

Implementing an asset management system doesn't have to require a lot of time and money. CitiTech Management Software was designed to be flexible and affordable and grow as your changing needs grow. Organizations that are small and with limited resources, can start with the basic system and gradually add other modules as you need them. To start automating your government's activities, just add a project, some inventory (equipment and/or materials), and employees (labor costs). It's that simple!

Now, you're ready to set up your asset plan! Identify your assets and its condition. After that, it's just a matter of updating your maintenance plan, preventative maintenance plan, and improvement/replacement plans you've set forth for each asset. By doing this, you will always know the condition of your assets and the costs of maintaining those assets. Let's start by defining your estimated, asset-related costs of all infrastructure assets by determining the following.

• Original cost of asset
• Condition assessment plan
• Preventative maintenance plan
• Estimated actual costs of reactive maintenance
• Estimated years and costs of improvements until replacement
• Estimated year and cost of replacement

• Establish an historical cost for the asset less its estimated salvage value, then depreciate the asset

-- or --

• inventory and value all of your infrastructure assets
• think about what goes into keeping each of those assets functional, such as routine maintenance, design and construction through rehabilitation
• keep track of planned versus actual costs of maintaining and preserving your infrastructure assets
• establish ratings and perform condition assessments based on an approved measurement factors

1. The "Depreciation Method" is the simplest but has its drawbacks. This method does not account for maintenance efforts of repair and upgrading infrastructure, which can add value. It does not account for expenses and the effect they have on the useful life of the facility. It only reports past costs. Depreciation costs are determined by dividing the original cost of your asset by its useful life, and then show the end result as an expense. This determines the annual cost of the asset that can be depreciated each year. This method would be used if the requirements in the modified approach are not met.



2. The "Modified Valuation Method" presents a clearer picture and offers communities the opportunity to report actual costs incurred each year to maintain and preserve the quality of their assets to include predictive maintenance, repair, restoration, and replacement components. Governments may begin to use this method for reporting as long as at least one complete condition assessment is available and documented. Three guidelines must be followed to achieve this method:
1. Maintain a current inventory of all infrastructure assets.
2. Establish a condition rating to "evaluate and report on the current condition of all assets at least every three years. " Maintain the condition of that asset at a preferred rating, then review and rate the condition of that asset. Document the planned versus actual amounts resulting from the three most recent condition assessments to include dates. Compare estimated amounts at the beginning of the fiscal year with the amounts actually expensed for each of the past five reporting periods
3. "Estimate annual costs to maintain and preserve infrastructure assets":   Report the condition of your assets in your financial statement, and indicate how this condition compares with the policy you set forth. You also estimate and report (as an expense) all expenditures made (except for additions and improvements) to maintain the condition of your assets each year. Additions or improvements should be capitalized since they increase the capacity or efficiency of the asset rather than preserve the useful life of the assets. (Depreciation is not reported.)

It's Report Card Time!  Financial Managers Present the "Big Picture".

For the first time, government financial managers will present the "big picture" of its government-wide financial performance for the year and, governments that are complying with GASB 34 requirements will receive a qualified opinion from an auditor. Your government's reports should consist of:

1. Management's discussion and analysis to provide an overview of the government's financial activities. MD&A should include a comparison of the current year to the prior year and its analysis, both positive and negative, of significant changes in funds and significant budget variances. Reasons for these changes and any economic factors that may have played a role in these changes should also be addressed. Emphasis should be placed on the current year. A description of significant capital asset and long-term debt activity during the year, including a discussion of commitments made for capital expenditures, credit ratings, and debt limitations that may affect the financing of planned facilities or services. Finally, present a descriptive analysis of known facts or conditions that will have a significant effect on the financial position or will impact results in operation.
   
   
   Note: If this is the first period that this Statement is applied, governments are not required to restate prior periods for purposes of providing the comparative data. When prior-year information is available, a comparative analysis of government-wide data will be presented.
   
   During the transition period, governments should disclose a description of the infrastructure assets being reported and of those that are not.
   
   If determining the actual historical cost of general infrastructure assets is not practical, governments should report the estimated historical cost for major general infrastructure assets that were acquired or significantly reconstructed, or that received significant improvements, in fiscal years ending after June 30, 1980. Historical costs should be used if these type assets are acquired after the effective dates of this Statement.


2. Financial Statements - Statement of Activities include a government-wide financial statement to include net assets and activities and a fund financial statement and notes to the financial statements. Highlights concerning these Statements are noted below:

~ Government-wide Financial Statement:
1. Report individual functions of operations as the net (expense) revenue to make  taxpayers aware of the financial burden. It will identify how each function of the government draws from the general revenues or it's self-financing through fees and other aid.
2. As a minimum, governments should report direct expenses (those that are associated with a service, program or department.) Governments are not required to allocate indirect expenses, such as general government, support services, or administration to other functions. If administrative overhead charges are reported as a direct expense, this should be disclosed in the summary.
   Note:  All revenues are general revenues (and are reported after total net expense of the government's functions) unless they are required to be reported as program revenues.
3. The statement should separately report three categories of program revenues: charges for services, program-specific operating grants and contributions, and program-specific capital grants and contributions.
   Note:  Earnings on endowments or permanent fund investments should be reported as program revenues if restricted to a program identified in the agency's agreement.)
   1. Report as charges for services: revenues as a result of transactions by customers who purchase, use, or directly benefit from the goods, services, or privileges provided. These can be fees for specific services, such as water use or garbage pickup; licenses and permits; operating special assessments, such as for special street lighting. Also reported are payments from other governments that are exchange transactions, for example when one county reimburses another for services.
   2. Report program-specific operating grants and contributions, such as FEMA disaster grants, that are used either for operating expenses or for capital expenditures of the program.
   3. Report program-specific capital grants and contributions, such as those used for capital purposes to purchase, construct, or renovate capital assets associated with a specific program should reported separately as general revenues.
   Note:   "Special items" are transactions or events that are within the control of management events that are either unusual in nature orinfrequent in occurrence and should be reported separately at the end of the statement of activities. "Extraordinary Items" are transactions or events that are both unusual in nature and infrequent in occurrence and should be reported separately at the end of the statement of activities (after special items).



Other notes to the financial statement - Budget comparison  schedules for the reporting period should present:

1. the original budget - the first complete appropriated budget
2. the final appropriated budget - the adjusted original budget
3. actual inflows, outflows and balances stated on the government's budgetary basis

~ Fund Financial Statements are used to report governmental, proprietary and fiduciary funds to the extent that they have activities that meet the criteria for using those funds. This would be used to report additional and detailed information about the primary government. The financial statements required for governmental funds are: balance sheet and statement of revenues, expenditures and changes in fund balances.

3. Required Supplementary Information (RSI) is required to report infrastructure assets and details of your rating system. (RSI is also required for those agencies using the modified approach). This demonstrates whether resources were obtained and used in accordance with the governments legally adopted budget. Agencies using the modified approach should include a discussion of guidelines to report infrastructure assets as set forth above in Item 2.
   
   The disclosure should also include factors that significantly affect trends in the information reported in the required schedules, such as changes in:
1. the measurement scale
2. the basis for the condition measurement
3. the condition assessment methods

If there is a change in condition level, an estimate of the effect of the change on the estimated amount to maintain and preserve those assets for the current period should also be disclosed.

Note: Reporting for special-purpose governments engaged only in business-type activities (such as utilities) should submit financial statements, MD&A and other RSI.

4. An easy-to-read, descriptive analysis on what issues, decisions or conditions may have a significant effect on the financial position (net assets), future services or results of operations (revenues, expenses, and other changes in net assets). Comments should distinguish between information pertaining to the primary government and that of its component units. Professional judgment should be used as to whether addressing comments based on the component unit is significant.



5. Reporting of Capital Assets. (Infrastructure, land and improvements to land, easements, buildings and building improvements, vehicles, equipment, works of art and historical treasures, and all other tangible and intangible assets that are used in operations and that have initial useful lives extending beyond a single reporting period.) Capital assets should be reported at historical cost (or estimated historical cost) plus capitalized interest and ancillary charges such as, freight charges, site preparation costs and professional fees.
1. Depreciation Method - Capital assets should be reported net of accumulated depreciation in the statement of net assets. (Accumulated depreciation may be reported on the face of the statement or disclosed in the notes.) Capital assets should be depreciated over their useful lives unless they are either inexhaustible assets such as land and land improvements.
   Depreciation expense should be reported in the statement of activities. Shared capital assets (for example, a facility that houses the police department, the building inspector or the utility office) should be ratably included in the direct expenses of the appropriate functions
   Capital outlays and maintenance of public works or sanitation departments, for example, would be reported as a direct expense and, as a separate line item in the statement of activities.
   
2. Modified Approach Method - Do not report depreciation, nor capitalize any of the money spent. Capital Assets, such as land or infrastructure assets should be reported separately if the government has a significant amount of these assets. Also report major classes of assets, such as infrastructure, buildings and improvements, vehicles and equipment. Governments are not required to restate prior periods for purposes of providing the comparative data. Report, as an annual expense, all monies spent to maintain or improve the condition of the assets.

Examples for Complying with GASB-34

Example: MD&A for those using the depreciation method: (This example meets and exceeds what is required for the MD&A statement.)

ABC City manages its streets using a pavement management system. ABC's City policy is to maintain ___ percent of its streets at a pavement condition index of at least ___ (on a 100 point scale) and no more than ___ percent of its streets at a pavement condition index below ___. The most recent assessment found that ABC's City streets were within the prescribed parameters with ____ percent having a pavement condition index of ___ or better and only ___ percent of the streets having a pavement condition index below ___.

Example: Government Activities Analysis (This table exceeds the minimum requirements. The use of this table was based on professional judgement to help further explain the results of the MD&A.)

ABC City's five largest programs - police, fire, public works, education, and parks and recreation - as well as each program's net cost (total cost less revenues generated by the activities). The net cost shows the financial burden that was placed on ABC City's taxpayers by each of these functions.

Required Supplementary Information

Example: Budget Comparison Schedule (for Public Works & Sanitation Department only. The variance column is optional)

Example: Reporting with the Modified Approach:

Other ways your funding may be affected . . .

Water Infrastructure Network (WIN) has reported the need for "Clean and Safe Water in the 21st Century). The National Pollution Discharge Elimination System (NPDES) requires communities be responsible for maintaining clean water -- even the water that falls from the heavens into your neighbor's sewer drain. If not, you may be slapped with a heavy fine. These fines are used to help put on workshops to discuss and evaluate issues on pollution.

Managing the discharge of pollutants into receiving waters will be a must, i.e., catchbasins, storm drains, ditches and man-made channels.) Educating the public in managing precious resources is key! High costs to remedy the prevention of pollution in the community's waterways will involve all the community. "No Dumping" signs is only one way.

Even though the deadline for permit coverage is March 10, 2003, many Phase II governments will need to plan ahead. Three years is the maximum amount of time to issue a general permit. Others may have less than three years. You can start by gathering information required to receive your permit by that date.

• inventory your stormwater facility infrastructure
• write a stormwater pollution protection plan to include inspection and, establish six control measures

CMOM: A (soon-to-be) EPA requirement for sewer agencies

Capacity, Management Operation, and Maintenance (CMOM), an EPA requirement, will become part of NPDES permit requirements. CMOM is priority news for sewer agencies. Regulations will require that collection systems be actively managed, conditions assessed with full documentation and measurement of planned versus actual procedures for repair, upgrades, etc. In addition, agencies must evaluate their needs and put in place a technical and financial commitment for a long-range system asset rehabilitation and replacement program.

Documentation will be required, and reported annually, in order to apply for an NPDES permit

To avoid hefty fines, your CMOM plan should include:

1. Complete inventory of sewer system assets
.
2. Guidelines and documentation for determining the condition of these assets.

(Item 3 and 4 are where regulators will be looking and, is referred to as "long-term spill mitigation". You'll need proof of your agency's ability to plan and manage your system effectively for the long-term. This is so that it has adequate capacity and remains in good condition over the long-haul.)

3. Procedures for determining short-term-and long-term repair and upgrade needs with documentation of work completed versus work planned.
4. Summary of planned needs for long-range system asset rehabilitation and replacement. Also, documentation of technical and financial commitment to do the job correctly.