 National Association of Counties * Washington, D.C. Vol. 31, No. 12 * June 21, 1999 Previous story | Table of Contents | Next story GASB approves most significant change in
For the first time, a government’s financial reports will need to have information about the full cost of providing services to its citizens. Also for the first time, information about the government's infrastructure assets – bridges, roads, storm sewers – will be available. An additional feature of financial reports presented under the new standard is management's narrative analysis of the government's financial performance. "This is the most significant change to occur in the history of governmental financial reporting," said GASB Chairman Tom L. Allen. "Never before has the public been able to get a comprehensive overview of a state or local government’s finances in one place. This new financial reporting system will give citizens a clearer picture of what a government is doing with the taxes it collects: Are current revenues paying for current services, or will the services be paid for by the next generation? How much is invested in roads and bridges? Are taxes subsidizing the local public pool or are swimmers' fees covering operating costs? The new financial statements could help to answer those questions." While enthusiasm is high at GASB for the new rule, some other groups such as the Government Finance Officers Association (GFOA) are taking a much dimmer view. In a commentary published in the June 14 issue of The Bond Buyer, Jeffrey Esser, GFOA executive director, characterizes the new rule on infrastructure reporting as of "no practical value to decision-makers." The new GASB rule would have local and state governments report either that they are either consistently maintaining and preserving their infrastructure or estimating its historical costs and depreciating them over time. Esser points out that by focusing on infrastructure and setting accounting penalties for failure to report correctly, the GASB gives short shrift to other vital government services such as human services. "… A government would have to pay an accounting penalty for not maintaining its roads, but would face no adverse consequences as a result of failing to adequately fund other types of services," Esser wrote. Esser accuses GASB of making policy with accounting standards. "Although to someone with a hammer everything looks like a nail, not every public policy issue has an accounting solution. In Gofer’s view, GASB needs to return to focusing its attention on providing practical information for financial statement users and to leave policy decisions to city councils, county boards and state legislatures." Esser’s harsh words reflect an angered association, whose members voted earlier this month to withdraw the association’s financial support – some $400,000 – from GASB. However, GFOA officials say there are currently no plans to go through with the funding cut-off. The National Association of County Engineers (NACE), a NACo affiliate, has similarly critical views. "It appears that GASB is adding unneeded complexity to our public service responsibilities," says Tony Giancola, NACE executive director. Giancola characterized the new standards as unfunded mandates that will be very difficult to implement. Meanwhile, GASB officials maintain the new reporting system will help the public taxpayer to better understand the state of his or her local government’s financial health. "Reports prepared under the new standard will help to determine whether the government’s financial health is improving or deteriorating. The reports could provide vital information to a company planning to relocate to a particular state. They could help city council members better understand the long- and short-term implications of policy decisions. They could help investors better understand the financial health of governments participating in the financial markets. They could help taxpayers better assess the fiscal soundness of their elected officials’ actions," Allen said. The new GASB standard will begin to take effect for larger governments ($100 million or more in annual revenues) in fiscal years beginning after June 15, 2001. Medium-sized governments ($10 million–$100 million) have until fiscal years beginning after June 15, 2002 and smaller governments until fiscal years beginning after June 15, 2003. More details about the new financial reporting system can be found on GASB’s Web site, www.gasb.org. Copies of the new standard will be available at the end of June from GASB’s Order Department, telephone 203/847-0700, ext. 555. |
By unanimous vote, the Governmental Accounting Standards Board (GASB) has given the go-ahead to the most comprehensive, and controversial governmental accounting rule ever developed. The new standard, GASB says, will significantly change the way state and local governments report their finances to the public.