GASB issues new reporting rules

The Governmental Accounting Standards Board (GASB) recently lifted the curtain on its long-awaited new framework for state and local government financial statements. Issued in June and approved by unanimous vote, the new rules will be used by local governments to report their finances to the public. The rules will change the way government financial information is communicated to citizens, the media, creditors, bond raters, legislative oversight bodies and any other entity with an interest in how a government is doing financially.

For the first time, financial reports must show comprehensive information about the cost of providing government services. Additionally, they must show all of a government’s assets and liabilities, including its infrastructure. Finally, governments now will present in narrative form an analysis of their financial activities during the year.

Currently, state and local government annual financial reports focus on the individual “funds” of government. Because the number of funds can run into the dozens or even hundreds, it can be difficult for financial statement readers to understand their meaning, how they interact with one another and how they relate to the government’s overall financial well-being.

The rules will add important information to the current fund accounting approach by requiring financial information from a total government perspective without regard to the unique fund structure of each government. That approach will offer much more useful and understandable information to those interested in the “big picture” and those interested in comparing a government to similar governments.

The costs of government services – and who pays those costs – are an important focus of the new rules. Depending upon the level of detail a local government reports, readers will see specific facilities and functions, such as golf courses and garbage collection, and answer questions about whether those activities pay for themselves. Additionally, readers will be able to tell whether current citizens paid for the year’s services or whether costs were shifted to future taxpayers.

Information on local infrastructure will include the cost and anticipated life of local roads, bridges, sewer and water systems and other capital assets. Governments following an alternative method of reporting infrastructure also will report information about their conditions. Since state and local governments invest from $140 billion to $150 billion annually in the construction, improvement and rehabilitation of capital assets, that information should be very interesting to local taxpayers.

In fact, infrastructure expenditures represent more than $1 out of every $10 spent by state and local governments, and the majority of infrastructure investment is financed by borrowing. Consequently, the need for public accountability is significant.

Yet, current governmental fund financial reporting omits any information on infrastructure assets and does not allocate capital asset expense over the useful lives of those assets.

The data produced by the new reporting rules should help decision-makers make more informed decisions and allow persons outside government to better understand government finances.

GASB worked with its advisory council and with people in all areas of government finance, accounting and auditing, as well as with citizens’ groups to develop the model. User focus groups were held around the country, and the public was invited to offer written and oral comment.

The new rules will be phased in starting June 30, 2002, for the largest governments, with one additional year for medium-sized and two additional years for smaller governments.