GASB 34 Infrastructure Reporting

GASB-34 Infrastructure Reporting Methods and Guidelines For County Highway Departments

MCEA GASB 34 TASK FORCE 1 Rationale for Reporting Infrastructure in Annual Financial Statements

GASB instituted the infrastructure reporting requirements of GASB 34 to assist users of state and local governmental financial reports perform the following functions with respect to the governments infrastructure assets:

Determine whether current-year revenues were sufficient to cover the cost of current-year services Assess the service efforts and costs of programs Determine whether the government’s financial position improved or deteriorated as a result of the year’s operations Assess the government’s financial position and condition Assess the service potential of physical resources having useful lives that extend beyond the current period.

2 Time Line for GASB 34 Compliance -

3 KEY REQUIREMENTS FINANCE DEPT. DUTIES: Management’s discussion & analysis (M.D.A.) Government wide financial statements Assets Activities Separate statements for key funds Accrual accounting COUNTY HIGHWAY DEPT. DUTIES: Capital asset reporting Includes infrastructure

4 GASB 34 Definition Of Infrastructure w Long lived capital assets that normally are stationary in nature and normally can be preserved for a significantly greater number of years than most capital assets w Excludes buildings, except those that are an integral part of the infrastructure system w Major general infrastructure assets can be reported on the basis of a network or a subsystem of a network

5 Infrastructure Reporting

Roads, bridges, tunnels, drainage systems, water and sewer systems, dams, lighting systems, etc.

Reporting options Standard method – Depreciation accounting Modified method – Asset management basis

Assets should be divided into Classes (Categories) and Sub-systems

6 Standard Method Record historic cost when built

Allocate net cost (historical cost less salvage value, if applicable) over asset’s useful lifetime in a systematic and rational manner.

Report assets net of accumulated depreciation

7 Modified Method

Infrastructure need not be depreciated if managed via a qualified asset management system. Need to have up-to-date inventory of assets Officially establish condition maintenance goals Need to conduct condition assessments Use consistent, reproducible procedure Perform assessment at least every three years Annually estimate funding required to maintain assets at target condition level. Document & assure that assets are being maintained at target condition level via results of last three condition assessments Accounting: Expense repairs / Capitalize upgrades.

8 Tradeoffs between infrastructure reporting options Method Standard Modified Pros wEasy to implement wSubstantial wLow overhead management database wEasy to report wEmphasis on maintenance Cons wNo management value wSubstantial wPublic may view results administrative burden to as “condition” statement set up and operate instead of historical cost wStill need to maintain report. asset records wIf can’t maintain condition levels, must revert to historical cost.

9 Suggested Categories (Classes) Roads Bridges Right of way Suggested Sub-systems Surface type Urban Rural Number of lanes

10 Recommended Asset Lifetimes

Roads 50 years

Bridges 75 years

Right-of-way Not depreciated

11 Standard Method Worksheet and Report Examples

Example 1 – Deflation Method

12 Method of Determining Historical Cost and Depreciated Values

2001 cost

2001 cost deflated to year built cost Build year cost

Build year cost depreciated to reporting year

13 Deflation Method: Roads are listed by segment, bridges by number and road crossing Category Subsystems are identified and 2001 costs are estimated (See slide no. 16) 2001 costs are deflated to the build year and then are depreciated to the report year Current year depreciation, accumulated depreciation and net values are shown by segment and totaled by category (See next slide for notes.)

14 NOTES • Need not report on projects completed before 1980 • State Aid Needs Road Segments are available in Excel format on the State Aid Web Site • Bridge deck area and year built are available from Bridge Data sheets • 2001 square foot bridge costs used are from June 2002 County Screening Board Data Book • Right of way costs are for purchase year • Report both fee and permanent easement purchases • Right of way costs are NOT depreciated • Right of way widths are available on Needs Sheets • 2001 right of way costs were furnished by county assessor and were deflated to purchase year • Straight line depreciation was used 15 Sub-systems (2001 Costs per mile used by Winona County)

CODE ROAD TYPE 2001 COST UB URBAN BITUMINOUS 1,243,000 UC URBAN CONCRETE 1,847,000 RB RURAL BITUMINOUS 573,000 RC RURAL CONCRETE 785,000 RA RURAL AGGREGATE 384,000 RS RURAL SOIL SURFACE - 4UB 4 LANE URBAN BITUMINOUS - 4UC 4 LANE URBAN CONCRETE - 4RB 4 LANE RURAL BITUMINOUS - 4RC 4 LANE RURAL CONCRETE -

16 Deflation Factors Converted to year 2001 Base Year

FEDERAL HIGHWAY ADMINISTRATION PRICE INDICES

ACTUAL BASE YEAR ACTUAL BASE YEAR YEAR 1967 1977 1987 2001 YEAR 1967 1977 1987 2001 1950 66.6 0.13 1976 93.4 56.3 0.39 1951 81.8 0.16 1977 100.0 59.8 0.41 1952 84.1 0.16 1978 70.7 0.49 1953 81.0 0.15 1979 85.5 0.59 1954 76.4 0.15 1980 97.2 0.67 1955 74.3 0.14 1981 94.2 0.65 1956 84.0 0.16 1982 88.5 0.61 1957 87.7 0.17 1983 87.6 0.60 1958 85.6 0.16 1984 92.6 0.64 1959 82.0 0.16 1985 102.0 0.70 1960 80.1 23.0 0.16 1986 101.1 0.70 1961 80.7 0.15 1987 100.0 0.69 1962 83.8 39.0 0.16 1988 106.6 0.74 1963 86.4 39.9 0.17 1989 107.7 0.74 1964 86.9 40.2 0.17 1990 108.5 0.75 1965 90.3 41.7 25.0 0.17 1991 107.5 0.74 1966 96.1 44.4 0.18 1992 105.1 0.73 1967 100.0 46.2 0.19 1993 108.3 0.75 1968 103.4 47.8 0.20 1994 115.1 0.79 1969 111.8 51.7 0.21 1995 121.9 0.84 1970 125.6 58.0 34.8 0.24 1996 120.2 0.83 1971 131.7 60.8 36.8 0.25 1997 130.6 0.90 1972 63.9 38.6 0.27 1998 126.9 0.88 1973 70.8 42.5 0.29 1999 136.5 0.94 1974 96.3 57.9 0.40 2000 145.6 1.01 1975 96.7 58.1 0.40 2001 144.8 1.00 17 WINONA COUNTY CSAH ROADS This information was downloaded from the 2001 Needs Study. The 2001 cost is based on each segment length and the costs per mile shown on the previous slide. The Deflation Factor is taken from the Federal Highway Administration Price Indices (see next slide). The Build Year Cost is 2001 cost * Deflation factor (based on year of graded). The Beginning Year Value is the deflated cost /estimated life * (estimated life - age beginning year). The One Year Depreciation is deflated cost / estimated life. Accumulated Depreciation is deflated cost – beginning years value + current year depreciation. End of Year Book Value is beginning year value less current years depreciation. Work in Year 2001 RD NO Code DESCRIPTION LENGTH Progress Const. Cost 5 RB CO RD 125 TO 1.3 M W OF CSAH 12 1.00 1995 573,000 5 RB 1.3 MI W TO 0.1 MI W OF CSAH 12 1.20 1997 687,600 5 RB 0.1 MI W OF CSAH 12 TO CSAH 12 0.10 1997 57,300 9 RA 3.4 MI N CSAH 12 TO 1.7 MI SW OF TH 61 4.50 1987 1,728,000 12 RB CSAH 7 TO 2.0 MI E 2.00 1981 1,146,000 12 RB CSAH 5 TO CSAH 16 0.30 1997 171,900

Deflation Build Year Age Begin. Current Yr Accum. End of Year Factor Cost Beg Year Yrs. Value Deprec. Deprec. Book Value 0.84 481,320 5 433,188 9,626 57,758 423,562 0.90 618,840 3 581,710 12,377 49,507 569,333 0.90 51,570 3 48,476 1,031 4,126 47,444 0.69 1,192,320 13 882,317 23,846 333,850 858,470 0.65 744,900 19 461,838 14,898 297,960 446,940 0.90 154,710 3 145,427 3,094 12,377 142,333

18 WINONA COUNTY BRIDGES

1 0-149 FT 85.00 /FT 2 150-499 FT 78.00 /FT 3 OVER 500 FT 70.00 /FT

Structure Work in Year Bridge # Road # Bridge Type Length Sq. Ft. Description Progress Const. 2001 Cost 85525 2 BRIDGE 34 1,190 RUSH CREEK 1981 101,150 95414 2 BRIDGE 27 1,643 STREAM 1981 139,655 85526 4 BRIDGE 90 3,060 MONEY CREEK 1984 260,100 L1307 5 BRIDGE 64 2,048 PINE CREEK 1987 174,080 96756 7 BOX CULVERT DOUBLE10 2,121 DRY RUN 1989 180,285 85J04 7 BOX CULVERT SINGLE30 3,049 PINE CREEK 1996 259,165

Build Year Age Begin Begin Year Current Years Accumulated End Year Book Deflation Factor Cost Year Value Depreciation Depreciation Value

0.65 65,748 21 47,338 877 19,286 46,462 0.65 90,776 21 65,359 1,210 26,628 64,148 0.64 166,464 18 126,513 2,220 42,171 124,293 0.69 120,115 15 96,092 1,602 25,625 94,491 0.74 133,411 13 110,286 1,779 24,903 108,508 0.83 215,107 6 197,898 2,868 20,077 195,030 19 WINONA COUNTY - RIGHT OF WAY

2001 Cost Per Acre Municipal $ 261,000 2001 Cost Per Acre Rural $ 1,800 Acres = (R.O.W. width - 66 ft)*R.O.W. length

Road R.O.W. R.O.W. Year No. Description Length Width Acres Purchased 5 Rural CO RD 125 TO 1.3 M W OF CSAH 12 1.00 200 8.12 1995 5 Rural 1.3 MI W TO 0.1 MI W OF CSAH 12 1.20 130 3.88 1997 5 Rural 0.1 MI W OF CSAH 12 TO CSAH 12 0.10 66 0.00 1997 9 Rural 3.4 MI N CSAH 12 TO 1.7 MI SW OF TH 61 4.50 100 2.06 1987 12 Rural CSAH 7 TO 2.0 MI E 2.00 66 0.00 1981 12 Rural CSAH 5 TO CSAH 16 0.30 66 0.00 1997

2001 Deflation End of Cost Factor Year Value 14,618 0.84 12,279 6,982 0.90 6,284 - 0.90 - 3,709 0.69 2,559 - 0.65 - - 0.90 -

20 Winona County – Retroactive Infrastructure Reporting Values At End of Year 2001

TOTAL ACCUMULATED BEGINNING YEAR CURRENT YEAR DEPRECIATION END OF YEAR BUILD YEAR COST VALUE DEPRECIATION END OF YEAR BOOK VALUE

COUNTY ROADS $ 2,026,668 $ 1,553,274 $ 40,533 $ 513,927 $ 1,512,740

COUNTY STATE AID ROADS $ 24,880,029 $ 19,851,427 $ 497,601 $ 5,526,203 $ 19,353,826

COUNTY BRIDGES $ 5,525,709 $ 4,658,579 $ 73,676 $ 940,806 $ 4,584,903

$ 32,432,406 $ 26,063,279 $ 611,810 $ 6,980,936 $ 25,451,469

RIGHT OF WAY $ 2,012,496

WORK IN PROGRESS $ 1,459,125

21 Standard Method Worksheet and Report Examples

Example 2 – Actual Cost Method

22 CASS COUNTY ROAD CONSTRUCTION–1980-2001 CSAH Reg CSAH Mun. Co. Rds Bridges Right-of-way

1980 CSAH 28 $163,329.33 CSAH 29 $153,859.20 CSAH 47 $237,873.19 $10,470.85 CSAH 206 Mun $134,951.91 CSAH 29 Mun $49,963.48 NOTE: CSAH 1 $63,011.12 Total 1980 $618,072.84 $184,915.39 $0.00 $0.00 $10,470.85 ------

1981 Construction CSAH 7 $570,203.80 CSAH 11 $208,590.16 CSAH 58 $209,197.71 historical Bridge on #67 $496,226.60 Bridge on #115 $61,936.28 CSAH 77Mun $58,643.44 costs taken CSAH 50 $35,408.10 CSAH 5 & 8 $71,351.09 from Cass Totals 1981 $1,094,750.86 $58,643.44 $0.00 $558,162.88 $0.00 ------

County 1982 CSAH 42 $447,642.53 $55,708.45 CSAH 47 $198,257.13 Annual CSAH 49 $508,580.94 $20,421.68 CSAH 18 & 77 (Mun) $129,235.78 C.R. 153 $78,598.14 Reports by C.R. 108 $54,321.74

Totals 1982 $1,154,480.60 $129,235.78 $132,919.88 $0.00 $76,130.13 year. ------

1983 CSAH 36 $293,045.49 $28,602.21 CSAH 49 $407,780.41 CSAH 4 $470,197.38 C.R. 122 $256,664.87 $7,512.09

Totals 1983 $1,171,023.28 $0.00 $256,664.87 $0.00 $36,114.30 ------

1984 CSAH 36 $311,476.24 CSAH 42 $323,929.42 CSAH 1 Mun $86,098.30 CSAH 77 Mun $265,005.43 Bridge on #1 $145,800.41 CSAH 74 & 65 $400,618.00

Totals 1984 $1,036,023.66 $351,103.73 $0.00 $145,800.41 $0.00

1985 Bridge on #55 $40,204.51 C.R. 136 $103,683.10 CSAH 203 Mun $95,699.67 CSAH 3 $960,132.92 CSAH 3 $875,912.67 CSAH 8 $867,738.32

Totals 1985 $2,703,783.91 $95,699.67 $103,683.10 $40,204.51 $0.00 ------

CSAH Reg CSAH Mun. Co. Rds Bridges Right-of-way 23 CASS COUNTY CSAH DEPRECIATION SCHEDULE

VALUE of Asset DEPRECIATION CALCULATED VALUEVALUES of Asset Year Original Current Year Beginning BalanceTotal Accumulated DepreciationCurrent YearTotal Accumulated Deprec.Remaining Balance Acquisition Cost Additions/RetirementsAnd Addition/Retirements Beginning of Year Depreciation End of Year End of Fiscal Year

1980 $618,072.84 $358,482.25 $259,590.59 $12,361.46 $271,952.05 $346,120.79 1981 $1,094,750.86 $656,850.52 $437,900.34 $21,895.02 $459,795.36 $634,955.50 1982 $1,154,480.60 $715,777.97 $438,702.63 $23,089.61 $461,792.24 $692,688.36 1983 $1,171,023.28 $749,454.90 $421,568.38 $23,420.47 $444,988.85 $726,034.43 1984 $1,036,023.66 ** $683,775.62 $352,248.04 $20,720.47 $372,968.52 $663,055.14 1985 $2,703,783.91 $1,838,573.06 $865,210.85 $54,075.68 $919,286.53 $1,784,497.38 1986 $1,389,837.54 $972,886.28 $416,951.26 $27,796.75 $444,748.01 $945,089.53 1987 $2,399,460.58 $1,727,611.62 $671,848.96 $47,989.21 $719,838.17 $1,679,622.41 1988 $1,863,006.22 $1,378,624.60 $484,381.62 $37,260.12 $521,641.74 $1,341,364.48 1989 $1,155,302.59 $878,029.97 $277,272.62 $23,106.05 $300,378.67 $854,923.92 1990 $1,072,083.93 $836,225.47 $235,858.46 $21,441.68 $257,300.14 $814,783.79 1991 $1,843,147.49 $1,474,517.99 $368,629.50 $36,862.95 $405,492.45 $1,437,655.04 1992 $2,480,516.70 $2,034,023.69 $446,493.01 $49,610.33 $496,103.34 $1,984,413.36 1993 $2,674,711.78 $2,246,757.90 $427,953.88 $53,494.24 $481,448.12 $2,193,263.66 1994 $1,277,719.13 $1,098,838.45 $178,880.68 $25,554.38 $204,435.06 $1,073,284.07 1995 $2,415,518.48 $2,125,656.26 $289,862.22 $48,310.37 $338,172.59 $2,077,345.89 1996 $3,811,794.38 $3,430,614.94 $381,179.44 $76,235.89 $457,415.33 $3,354,379.05 1997 $1,216,392.57 $1,119,081.16 $97,311.41 $24,327.85 $121,639.26 $1,094,753.31 1998 $2,040,935.31 $1,918,479.19 $122,456.12 $40,818.71 $163,274.82 $1,877,660.49 1999 $6,070,990.54 $5,828,150.92 $242,839.62 $121,419.81 $364,259.43 $5,706,731.11 2000 $2,441,100.06 $2,392,278.06 $48,822.00 $48,822.00 $97,644.00 $2,343,456.06 2001 $0.00 $4,215,543.19 $4,215,543.19 $0.00 $84,310.86 $84,310.86 $4,131,232.33

$41,930,652.45 $4,215,543.19 $38,680,234.00 $7,465,961.64 $922,923.91 $8,388,885.55 $37,757,310.09

Total original costs and adjustments $46,146,195.64

**Beg. Bal. = Original Acq. Cost /50yrs/29 remaining years Accum. Depr. = Original Cost/50yrs*21 years life already spent Current Year Depreciation = Original Acq. Cost / 50 years

24 Cass County – Retroactive Infrastructure Reporting Values At End of Year 2001 (These are values required by GASB 34 for the county’s financial report.

Accumulated Value Depreciation Net Value

Roads - CSAH Reg. $46,146,196 $8,388,886 $37,757,310 Roads - CSAH Mun. $5,280,090 $105,602 $5,174,488 Roads - C.R. $5,925,762 $118,515 $5,807,247 Total Roads $57,352,048 $21,096,850 $36,255,198

Bridges $1,922,406 $277,931 $1,644,475

Right of Way $787,873

Work in Progress $977,833

25 NOTE:

The degree of consistency among reporting entities in how and when they respond to GASB 34 will affect the usefulness of reported infrastructure information for rating analysis and joint resolution of future reporting issues

It is critical that reporting entities clearly describe the assumptions and methodologies used to report on the value and condition of their infrastructure assets so that differences may be taken into account in assessing the results

This information must be disclosed in the notes to the financial statements.

26 Infrastructure Fixed Asset Policies

• GASB34 requires that a fixed asset policy, which identifies your reporting and procedural methodology be prepared and adopted • County financial officers will likely merge the Road and Bridge infrastructure fixed asset policy into the county’s general fixed asset policy

27 Following are two examples of Road and Bridge Infrastructure Fixed Asset Policies

28 Example No. 1 – Cass County

INFRASTRUCTURE FIXED ASSET POLICY

ROADS DEFINITION: Roads include, but are not limited to, road surface, sub-surface, water/sewer, drainage, signs and lighting for all County State Aid Highways and all County roads in Cass County. Road costs include, but are not limited to, construction labor, construction equipment time, materials signs, lighting, sewers, landscaping, bike paths, overhead, etc….

RETROACTIVELY: We will account for infrastructure capital assets acquired or significantly reconstructed, or received significant improvement in the fiscal years from 1980 forward. Roads will be depreciated out using straight-line depreciation with a fifty -year life, with no residual value.

PROSPECTIVELY: We will capitalize the verified costs of all major construction contracts, exclusive of purchased right-of-way. Overlays will be capitalized only if they represent a major increase in efficiency or extend the useful life. An overlay which gets the road to the end of its useful life, will be expensed. In the event that a road is resurfaced or reconstructed before it is fully depreciated, the remaining value will be written off in the year the contract is finalized. Roads will be depreciated out using straight-line depreciation with a fifty-year life with no residual value.

29 BRIDGES

DEFINITION: Bridges include all bridges on Cass County Roads as defined by the Minnesota Department of transportation. Bridge costs include, but are not limited to construction costs as evidenced by the contract, for bridge work, approach work, guardrails, sidewalks, signage and lighting. In the event that the highway department installs the bridge (culverts), we will capitalize th e labor, equipment, materials and overhead associated with the job. If the total bridge cost is over one hundred thousand dollars, we will value our share at full value. If not, we will list it at a zero value.

RETROACTIVELY: We will value the bridge system at its current replacement value and deflate it using the FHWA cpi index. Bridges older that 75 years will be treated as fully depreciated. Bridges will be depreciated out using straight-line depreciation with a seventy-five year life with no residual value.

PROSPECTIVELY: We will capitalize the cost of construction as verified by the contract costs. Deck overlay and deck rehabilitation projects will be capitalized only if they represent a major increase in efficiency or extend the useful life. An overlay or rehabilitation that gets the bridge to the end of its useful life will be expensed. Bridges will be depreciated out using straight-line depreciation with a seventy -five year life with no residual value. RIGHT OF WAY

DEFINITION: Right of Way shall only include permanent easements and deeded property acquired for highway purposes. Right of way cost will include, but not be limited to, the purchase price from the landowner, the cost of attorney fees in court cases, relocation fees, filing fees, deed tax and reimbursement of pre-paid real estate taxes to the former landowner. All other expenditures including appraisal fees and title opinions will be expensed.

RETROACTIVELY: We will account for all right of way purchased from the year 1980 forward. Right of way will not be depreciated.

PROSPECTIVELY: We will capitalize the purchase of the right of way using the cost definition above. All other costs will be expensed. Right of way will not be depreciated. WORK IN PROGRESS

Construction projects that are accumulating expenses and could take more than a year to reach completion will be tracked in a “work-in-progress” category until such time as they are placed into service. An example would be preliminary design and engineering costs, and environmental assessment type costs which accumulate prior to contract letting. Another example would be a road section that is graded one year and surfaced the following year. The grading portion would be “work in progress”. Once it is surfaced, it would be considered complete and “in service”. The total cost of these projects would then be moved from work in progress and would begin to depreciate.

30 Example No. 2 – Winona County INFRASTRUCTURE FIXED ASSET POLICY

GASB 34 requires that we begin to book the infrastructure as assets. It requires us to record assets expensed in the past (retroactively) and book the current expenditures as assets as we move forward (prospectively). The following categories of infrastructure fixed assets have been identified: Roads, Bridges and Right-of-way. All amounts will be rounded to the nearest whole dollar. We will account for each as follows: ROADS DEFINITION: Roads include, but are not limited to, road surface, sub-surface, drainage, signs and lighting for all County State Aid Highways (CSAH 1-54) and all County roads (CR 102-129) in Winona County. Road costs include, but are not limited to, construction labor, construction equipment time, materials signs, lighting, sewers, landscaping, overhead, etc….

RETROACTIVELY: We will value the road system at its current replacement value and deflate it using the FHWA cpi index. Roads will be depreciated out using straight-line depreciation with a fifty-year life for bituminous, concrete and gravel roads with no residual value.

PROSPECTIVELY: We will capitalize the cost of all competitively bid construction contracts as verified by actual project costs. In addition, external design work will be capitalized. All other costs will be expensed. Overlays will be capitalized only if they represent a major increase in efficiency or extend the useful life. An overlay, which gets the road to the end of its useful life, will be expensed. In the event that a road is resurfaced or reconstructed before it is fully depreciated, the remaining value will be written off in the year the contract is finalized. Roads will be depreciated out using straight-line depreciation with a fifty-year life for bituminous, concrete and gravel roads with no residual value. BRIDGES

DEFINITION: Bridges include all bridges on Winona County Roads as defined by the Minnesota Department of transportation. Bridge costs include, but are not limited to construction costs as evidenced by the contract for bridge work, approach work, guardrails, sidewalks, signage and lighting. In the event that the highway department installs the bridge (culverts), we will capitalize the labor, equipment, materials and overhead associated with the job. If the total bridge cost is over one hundred thousand dollars, we will value our share at full value. If not, we will list it at a zero value.

31 RIGHT OF WAY

RETROACTIVELY: We will value the right of way system at its current replacement value and deflate it using the FHWA cpi index. Right of way will not be depreciated.

PROSPECTIVELY: We will capitalize the purchase of the right of way using the cost definition above. All other costs will be expensed. Right of way will not be depreciated.

WORK IN PROGRESS

Construction projects that have been awarded and are taking one or more years to complete will be tracked in a “work- in-progress” category until such time as they are placed into service. Once it is “in service”, the total cost of the project would then be moved from work in progress and would begin to be depreciated.

32 CONCLUSIONS

GASB 34 may induce changes in how we do business – but this may not become apparent for some time yet. It’s an accounting standard – not a management tool. The choice between Standard and Modified infrastructure reporting will vary with each entities particular circumstances.

33 IMPLEMENTATION

January – Annual Minnesota County Engineers Association Conference presentation February - Examples and instructions distributed by e-mail and/or State Aid website May – Annual Highway Accountants Conference – Panel Discussion – Questions and Answers