GASB 34 Will Change

"Without a doubt," states the Government Finance Officers Association, "GASB Statement 34 represents the most important single change in the history of accounting and financial reporting for state and local governments." GASB Statement 34 requires local governments to change financial reporting within the next three years, some sooner. The changes will also cause many municipalities to review how they manage road and bridge maintenance.

The Governmental Accounting Standards Board (GASB) establishes financial accounting and reporting standards for state and local governments. Its Statement No. 34 is a 400-page book entitled Basic Financial Statements -- and Management’s Discussion and Analysis -- for State and Local Governments. Its intent is to make governmental entities more accountable to users of their services. It shifts the focus of financial reporting from accounting information to the long-term affects of financial decisions. Officials must describe these affects in a "management’s discussion and analysis."

They must also address new financial management subjects. A significant set of new subjects is "infrastructure" assets.

Reporting on infrastructure assets (long-lived capital assets such as roads and bridges) has been a contentious issue for many government preparers. Some say the value of the information doesn’t justify the cost, complexity and effort involved to collect it. GASB, however, concluded after extensive due process that infrastructure reporting is vital to demonstrating accountability for all governmental assets and the cost of its services. (Klasny and Williams)

In addition to roads and bridges, infrastructure assets include drainage systems, water and sewer systems, and lighting systems.

GASB has established phases for beginning Statement 34 reporting. Each phase is based on a government’s total annual revenues for the first fiscal year ending after June 15, 1999.

• Governments with revenues more than $100 million: implementation begins in the fiscal year after June 15, 2001.
• Governments with revenues between $10 and $100 million: implementation begins in the fiscal year after June 15, 2002.
• Governments with revenues less than $10 million: implementation begins in the fiscal year after June 15, 2003.

Road managers will have to estimate infrastructure values and historical costs. Statement 34 contains guidance for these estimates. It also provides alternatives for how a government manages and reports its road and bridge assets.

GASB 34 requires reporting capital assets by historical costs and depreciation. It also offers an alternative to reporting depreciation. An agency need not depreciate assets if it can show that:

• It manages assets using an "asset management system" for each infrastructure type, and
• It preserves its assets at established condition levels.

The asset management system must meet all of the following criteria:

1. An inventory of road and bridge assets.
2. Established condition levels for each asset.
3. Condition assessments performed at least every three years.
4. Estimated annual budgets to maintain each asset at or above the established condition level.

The municipality must document preservation above the established condition levels, and report results of its triennial inspections. Reporting must also include the estimated amount needed to maintain the established condition level and actual expenses.

Local agencies will have to decide between a depreciation and an asset management approach. The depreciation approach requires annual calculations and reports for specific assets. For bridges and road-related assets, the depreciation approach would provide accounting information only. A municipality would still have to fulfill the first asset management criteria -- an inventory of road and bridge assets. The depreciation approach will require a considerable amount of a road manager’s time. Yet, it will contribute little to road and bridge maintenance.

Asset management will likely appeal to managers who use such an approach for one or more of their assets. They have assessed conditions, and have planned, prioritized, and accomplished needed maintenance. They understand that this approach results in effective and efficient road and/or bridge maintenance.

In municipalities without that experience, the benefits of asset management will be less clear. Road managers and other officials will have to accept a new philosophy. They should, however, consider the asset management approach. Both approaches are expensive, but the asset management yields better road and bridge maintenance. The UNH T² Center can help municipalities apply the asset management approach.

With triennial condition assessments, use of the UNH T² Center's Road Surface Management System (RSMS) can satisfy the asset management criteria for roadways. The Sign Inventory Management System (SIMS) can help satisfy the criteria for traffic signs. The UNH T² Center is developing a Drainage Maintenance Asset Management System (DMAMS) to fulfill the criteria for culverts, catch basins, and shoulders and ditches. In workshops this fall, the UNH T² Center will train road managers and staff in how to use these asset management tools.

The UNH T² Center is developing systems and supporting software for maintenance management of sidewalks and streetlights. UNH T² Center staff will meet with New Hampshire's Master Road Scholars and other public works professionals, who helped make DMAMS a practical system. The goal is to complete them in 2001. They will be designed to meet GASB 34 asset management requirements.

The NHDOT bridge inspection program fulfills two of the asset management criteria -- an inventory and condition assessments. Workshops in 2001 will focus on the other two -- establishing condition levels and estimating annual budgets.

Before GASB 34 phases affect municipalities, the UNH T² Center will hold workshops for municipal managers and staff. It is considering other services. For example, since 1994 the UNH T² Center has helped over 60 New Hampshire municipalities implement RSMS. Each summer it has provided students to inventory roads, identify conditions, and operate the computer software. It will explore expanding this service to other assets

Please call the UNH T² Center with any suggestions for workshops or services. Also, call the Center with any questions or concerns.

Return to UNH T2 Center 33 College Road, Durham NH 03824 603-862-2826 Fax 603-862-2364