Prefunding Public Sector Retiree Health Benefits: The California Example

Most state and local governments have historically funded their retiree health care benefits on a pay-as-you-go basis. This has resulted in massive amounts of unfunded liability in many states including the five largest states of California, Florida, Illinois, New York and Texas. Recent accounting and reporting rules changes by the Governmental Accounting Standards Board has made these liabilities more visible and has resulted in more attention being paid to this problem. California has adopted a plan to pay off its huge unfunded retiree health benefit liability by 2044. It might serve as an example for other states with similar problems.

Insights from Academic Participation in the FAF's Initial PIR: The PIR of FIN 48

SYNOPSIS In 2009, the Financial Accounting Foundation (FAF) determined that the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB) standard setting process required a formal review to monitor and address issues that can arise after the implementation of accounting standards. The FAF selected FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, as the initial post-implementation review (PIR) standard. This paper informs the academic community about the PIR process and provides an academic perspective on the initial PIR of FIN 48. In particular, we demonstrate the role of the academic literature using the FIN 48 literature review prepared as part of the PIR process.

An Analysis Of The Readability Of The MD&As Of Small, Medium, & Large Revenue Generating Cities

Studies assessing the annual reports of publicly held corporations have shown mixed results in regard to the readability levels of those reports. Recently, the Governmental Accounting Standards Board adopted GASB 33, 34, and 35 in which specific guidelines are outlined for the reporting of governmental entities. Are the Comprehensive Annual Financial Reports (annual reports) of the governmental entities understandable to the average user?This study argues that the Managements Discussion and Analysis, the summary portion of the governmental annual report, is not understandable to the average reader. The sample was equally divided among small, medium, and large revenue-generating cities that were early adopters of GASB 34. Readability was determined using the Flesch-Kincaid readability formula from the GRAMMATIK II software. The results show that the Managements Discussion and Analyses are understandable to the average twelfth grade reader. Furthermore, the writers style and sentence structure remained at a level consistent with the readability level.

Framework for Inspection, Maintenance, and Replacement of Corrugated Steel Culvert Pipes

A framework for inspection, rehabilitation, and replacement of corrugated steel culvert pipes (CSCP) is developed. It is expected to lead to developing a culvert information management system (CIMS), wherein justification and need are based on recent Governmental Accounting Standards Board (GASB) requirements. The CIMS will assist in evaluating infrastructure assets and facilitate comparing present costs of preserving infrastructure. Benefits include long-term savings from adopting optimized preventive maintenance strategies. CSCP condition states are used to express the extent of deterioration. Rehabilitation options and recommendations are given for deteriorated CSCPs. These options will be incorporated into the proposed CIMS, which uses survival probabilities based on the CSCP condition state during the previous year. Survival probabilities within Condition States 1, 2, and 3 are computed on the basis of corrosion research data. However, implementing the proposed CIMS requires field data for CSCPs or laboratory tests that mimic field conditions. The proposed CIMS can analyze decisions to inspect, rehabilitate and replace, or do nothing at both project and network levels. At the project level, inspection or rehabilitation and replacement costs are compared with failure risks and costs. At the network level, associated costs are optimized to meet the annual maintenance budget by prioritizing CSCPs needing inspection and rehabilitation and replacement. The proposed CIMS can also be used to estimate the required annual budgetary allocation for a stipulated planning horizon and to maintain or improve the aggregate condition state of the CSCP network or to maintain or improve the total highway CSCP network asset value, thereby meeting GASB 34 requirements. The optimum sequential path in the annual decision-making process may then be determined using a combination of operations research tools.

Modifying Local Agency Pavement Management System to Support Governmental Accounting Standards Board 34 Requirements

The Metropolitan Transportation Commission pavement management system (MTC PMS) has been used by many cities and counties in the United States for more than 15 years. MTC PMS was evaluated to determine the extent to which the software can support the Governmental Accounting Standards Board (GASB) 34 reporting requirements, established in 1999. A local agency PMS can take information from a pavement network database to produce useful reports, which can be utilized jointly with the information from other assets managed by an agency to support the requirements for a comprehensive asset management system and other reporting requirements. The objective of this study was to elaborate GASB 34 requirements for reporting infrastructure assets, examine the capabilities of MTC PMS in supporting those standard requirements, and recommend any modifications of MTC PMS needed to better support GASB 34. It is evident from the study that MTC PMS has the capability, to some extent, of supporting GASB 34 for reporting on a pavement network according to both the GASB 34 reporting methods: the depreciation method and the modified approach. It partially supports the prerequisites for using the modified approach, which require that the managing agency have an asset management system with certain designated characteristics. Some modifications of MTC PMS software were proposed to make this management system more effective as a tool supporting an asset management system and overall GASB 34 requirements.

The Ridgely House Venture: Triple Net Commercial Lease/Purchase Case

This case examines the tax, financial accounting, and governmental reporting consequences of a private Developer's actual purchase, renovation, and transfer of Ridgely House—an historical building in Ridgely, Maryland—to the Town of Ridgely. In short, the Developer purchases the building for $110,000 and incurs $190,000 in renovation costs to convert the property to a Town Hall and Police Station. He then “leases” the property back to the Town under terms and conditions outlined in a lease/purchase agreement (which can be viewed on the Web at http://faculty.ssu.edu/∼kjsmith/ridgely.htm). The case is constructed from the background information and actual lease/purchase agreement provided by the Developer. The terms of the agreement raise several questions regarding the proper tax and financial accounting treatment of various aspects of the transaction. The Developer (lessor) questions whether the transaction is to be reported for tax and financial-reporting purposes as a rental or a sale, if the property qualifies for a federal historical tax credit, and what net cash flow can be expected from the project. As an optional assignment (at the instructor's discretion), the Town (lessee) questions whether it has entered into an operating or capital lease, how to record the transaction in accordance with Governmental Accounting Standards Board (GASB) guidelines, and what disclosures are required on its Statement of Financial Position. The case background, key lease/purchase agreement terms, and actual lease/purchase agreement provide the prerequisite material for solving the case requirements. In addition, outside resources (textbooks, online tax and financial accounting web sites, etc.) should be consulted in the process of seeking solutions to the questions posed by the Developer and the Town Commissioners. It is suggested that solutions to the case requirements be presented to the instructor in the form of an Executive Summary with supporting documentation and schedules.