The National Academies

NCHRP 19-04 [Completed]

A Review of DOT Compliance with GASB 34 Requirements

  Project Data
Funds: $324,855
Research Agency: PBConsult Inc.
Principal Investigator: Frank Smith
Effective Date: 4/24/2002
Completion Date: 1/31/2004

Background: In June 1999, the Governmental Accounting Standards Board (GASB) approved Statement No. 34: Basic Financial Statements--and Management's Discussion and Analysis--for State and Local Governments. Among its many new provisions, GASB 34 requires that state and local governments begin to report on the cost of their infrastructure assets, including roads and bridges. Most of the infrastructure in the United States is built and maintained by public sector agencies, and state departments of transportation (DOTs) are among the largest agencies that will be impacted significantly by these new requirements. How DOTs respond to GASB 34 may have significant impacts on statewide costs of public borrowing, public perceptions of how well the agency is managing its infrastructure programs, the long-term costs of infrastructure programs, and the portion of agency funds devoted to construction versus preservation.

GASB provides flexibility on how infrastructure agencies should respond to Statement No. 34's infrastructure reporting requirements. Each jurisdiction can choose either to report how much of the original cost of the asset has depreciated over time or to use a modified approach using accepted asset management principles to report the cost to maintain and renew the asset annually. Because this flexibility will likely result in inconsistencies in implementation, there is interest among agencies in comparing experiences. In addition, higher costs in public borrowing from the bonding community may result from these inconsistencies or from the inadequacies of a DOT's financial statement or a State's Comprehensive Annual Financial Report (CAFR) in reflecting the requirements of GASB 34.

There is a need to summarize the approaches taken by DOTs to comply with GASB 34, in order to encourage the development and implementation of a more useful set of policies and methodologies for reporting on infrastructure assets.

Objective: The objective of this project is to catalogue and analyze the approaches taken by AASHTO member departments to comply with the requirements of GASB 34, with an emphasis on documenting why and how the approaches were implemented. Additionally, the project will provide an assessment of the impact of GASB 34 on transportation finance and management of transportation assets.

Tasks: Accomplishment of the project objectives will require the following tasks: (1.) Conduct a review of previous surveys, existing literature, and current studies on the approaches taken or planned by state DOTs to comply with the requirements of GASB 34. (2.) Develop a survey methodology and instrument to compile a comprehensive database of detailed information on how each DOT has responded to the GASB 34 requirements. This information will include the approaches DOTs have taken and why, how they were implemented, problems encountered, resulting changes in practice, and lessons learned. The information gathered should include, but not be limited to, the following:
  • Approach used to comply with GASB 34 (i.e., modified, depreciation, or a combination of the two);
  • Categories of assets that are included in the agency's financial reports and how assets are grouped for reporting cost and condition;
  • Capitalization approaches used (e.g., methods of determining historical cost, amount to capitalize on new assets, when to include new assets on the financial accounts, and when to take assets off the books);
  • Methodologies used to measure asset condition, establish minimum acceptable levels, and determine funding levels required to meet these levels (i.e., modified approach);
  • Methodologies used to determine and monitor useful asset life (i.e., depreciation approach);
  • Other DOT decisions made to implement or interpret GASB 34 requirements (e.g., capitalization threshold, categorization of maintenance versus preservation versus additions/improvements);
  • Impact of state budget policies on the approach taken to comply with GASB 34;
  • Impact of GASB 34 on budget policies and management practices;
  • Implementation strategies (e.g., internal multidisciplinary task force or outside consultant);
  • Support provided to local government agencies for infrastructure reporting;
  • Level and source of resources devoted to this effort -- now and planned in the future;
  • Communication strategies (e.g., "managing the message"); and
  • Problems, outstanding issues, and lessons learned (e.g., feedback from auditors, the financial community, the public, and legislators).

The survey should also request, where available, the basic financial statements from each DOT (or State when presented in the State's CAFR), including the notes and required supplementary information. (3.) Submit the proposed survey instrument to NCHRP for review and approval. (4.) Conduct the approved survey. Prepare an analysis of the results and summarize the approaches taken by DOTs to comply with GASB 34 requirements. This summary should be presented in a practical, easy-to-read format, suitable for posting in electronic format on the World Wide Web or for distributing on a CD-ROM. The detailed survey results should be stored in a standard electronic database format as one of the project deliverables. (5.) Based on the survey results, identify the key issues (i.e., those issues that are most important, advantageous, or problematic) faced by the DOTs in meeting the GASB 34 requirements. Provide a short list of DOTs that have been particularly thorough, innovative, or representative in their approaches to meeting the GASB 34 requirements, in particular with respect to the key issues identified. (6.) Deliver an interim report documenting the results of Tasks 1 through 5. The contractor will be required to meet with the project panel to present a summary analysis of the survey results, key issues, and proposed list of case studies for further analysis. (7.) Conduct case study analyses of 4 to 6 DOTs approved by the project panel. In this analysis, the contractor should evaluate the particular approaches used by the DOT to meet the GASB 34 requirements in terms of the level of success or satisfaction with the approach, problems encountered, impacts on management practices, and lessons learned. The analysis should include the perspectives of all stakeholders, including engineering, financial, audit, management, and legislative. (8.) Prepare and submit a stand-alone catalogue that summarizes the approaches taken by AASHTO member departments to comply with the requirements of GASB 34. Based on the results of Tasks 1 through 7, this catalogue should include conclusions and recommendations that will assist DOTs in the development and implementation of useful, effective, and consistent policies and methodologies for financial reporting on infrastructure. (9.) Submit a final report that documents the entire research effort. The final report should also identify information gaps and research needs. The report should be accompanied by a PowerPoint presentation that presents a summary of the project objectives and findings aimed at a target audience of DOT executive management.

Status: The final report has been published as NCHRP Report 522 and NCHRP Web Document 63.

Product Availability: No products are currently available.

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