GASB 34

I am seeking information on how libaries and their parent municipalities are, or will be, dealing with the new audit requirements that will soon be required as a part of GASB 34.


For more information see:
http://www.sco.state.id.us/web/dsaweb.nsf/pages/gasb34.htm

GASB 34 will be implemented for fiscal years beginning after June 15, 2001 (for large entities), with a three-year phase-in of the standard for all government jurisidictions. Most observers are describing it as the most monumental change in government financial reporting in American history. The common wisdom is that failure to follow the guidelines set by the Government Accounting Standards Board will cost communities dearly when their bonds are rated.

Traditionally, state and local governmental agencies have used cash accounting methods to report infrastructure assets like roads, bridges, water and sewer facilities and, of course libraries. With cash accounting,the capital cost of an infrastructure investment appears in an agency’s annual financial report during the year in which the cost of construction is incurred. The value of existing physical assets do not appear on financial reports.Using cash accounting methods, the value of all physical assets is effectively off the books. In actuality, of course, physical assets such as roads and bridges and library buildings continue to have value, or usefulness, long after agencies have incurred the cost of construction. Just as cars depreciate in value, the value or usefulness of roads, bridges, and libraries declines over the course of many years, typically 20–50 years.

Accrual accounting, the type required of most businesses keeps infrastructure assets on the books. The Governmental Accounting Standards Board has been carefully studying the valuation of government capital investments for many years. The board issued its first concept statement regarding this issue in 1987, but only in the next few years will it require local governments to use accrual accounting.

The idea appears to be to set an amount in annual audits that clearly identifies the current and ongoing cost of capital assets. My research with Federal State Cooperative Service data for HAPLR indicates the following. Annual capital spending nationwide in 1998 amounted to 13 cents for every operating dollar reported. In 1998, on average nationwide, $3 per capita was spent on capital assets and $24 per capita on operting cost. A ten year trend analysis for Wisconsin found similar results- roughly 16 cents on the operating dollar.

Another way to approach the problem would be to estimate the number of square feet of building space needed on a per capita basis and then multipy the results times a reasonable per square foot cost(including shelving and computer infrastructure, of course). National data are unavailable at present, but for those states with data, the norm appears to be somewhere between 0.8 and 1.9 square feet per capita. A reasonable cost per square foot, amortized over a 20 or 30 year period would yield a target sum.

Is $150 to $200 per square foot (including equipment and technology) a reasonable estimate? Is 0.8 to 1.9 square feet per resident a reasonable estimate?

Whether you know or care about GASB 34, if you have suggestions on how to calculate long term capital costs for a geographic area, please contact me.

It seems to me that libraries in special districts with taxing authority will be especially interested. Communities in which elected officials have coasted for years by putting off needed infrastructure improvements will undoubtedly be terrified by this new accounting standard.

If you know of other listservs or sources for information on this issue, please advise.


Thomas J. Hennen Jr.
thennen@haplr-index.com
http://www.haplr-index.com
Voice: 262-886-1625
Fax: 262-886-5424
6014 Spring Street
Racine, WI 53406

Thomas J. Hennen Jr.
thennen@haplr-index.com
http://www.haplr-index.com
Voice: 262-886-1625
Fax: 262-886-5424
6014 Spring Street
Racine, WI 53406

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