NCHRP Project 1904 A Review of DOT Compliance with GASB 34 Requirements Interim Report

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NCHRP Project 19-04A Review of DOT Compliance
with GASB 34 RequirementsInterim Report

• Presentation to AASHTO
• June 9, 2003

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Consultant Team

• PBConsult - prime contractor
• PricewaterhouseCoopers LLP - accounting
• NuStats survey administration
• Cambridge Systematics technical review

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Survey Methodology

• Review of prior surveys Tennessee DOT, NASACT,
  Georgia DOT
• Phone interviews with 11 DOTs
• Draft survey prepared
• Survey pre-test with Louisiana and Texas
• Revised survey submitted to NCHRP Panel
• Further revisions based on Panel comments
• Revised survey approved by Panel
• Survey administered by NuStats

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Survey Conclusions (1)

• Higher percentage of States selected depreciation
  approach than previously indicated, probably due
  to difficulties in implementing modified approach
• Underlying consideration in selection of approach
  was potential impact on department funding
• States selecting depreciation approach had wide
  range of reasons, mostly reasons for not
  selecting modified approach
• States selecting modified approach cited useful
  information and Department philosophy
• A majority of states (75-80) believed that the
  GASB 34 exercise generated useful information

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Survey Conclusions (2)

• In general, more certainty of purpose on
  mechanics of reporting requirements than on asset
  management aspects
• For example, difficulty reported in estimating
  expenditures necessary to achieve targeted
  conditions
• Number of asset classes varied widely from one
  up to ten perhaps more than GASB anticipated?
• Implementation costs were reasonable - generally
  under 500K for those states reporting an
  estimate

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Survey Conclusions (3)

• Modified approach states more likely to start the
  process earlier
• Modified approach states more likely to believe
  that exercise improved communications
• Great diversity of approach in calculating
  historical cost, cost allocation among capital,
  preservation and maintenance categories, and
  capitalization procedures
• Many states expressed interest in receiving
  survey findings

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• Section 1 Overview Questions
• Section 2 Depreciation
• Section 3 Modified Approach
• Section 4 Organization and Decision Making
• Section 5 Costing Methodology
• Section 6 Condition Assessment

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Reporting Methods Used

• A majority of states selected the depreciation
  approach, but only by a relatively small margin.

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Reporting Methods Used
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Combined Approach DOTs

• Texas
• Depreciation Bridges, Buildings, Rail Systems,
  Equipment
• Modified Entire Road Network
• Idaho
• Depreciation Bridges, Rest Area Buildings
• Modified Roads

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Were alternate approaches seriously considered?

• 13 states chose the depreciation approach without
  considering different perspectives on the
  reporting method
• 14 states chose the modified approach without
  considering different perspectives on the
  reporting method

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Which method is more helpful for making finance
and management decisions?

• States that chose the modified approach tend to
  view the modified approach as the more helpful
  one (18/22), while states using the depreciation
  approach are more split on this issue
• 10 states indicated that neither method was
  helpful for decision-making

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Regardless of which method your agency uses,
which method do you feel is more challenging to
implement and report?

• States that chose the depreciation approach tend
  to view the modified approach as more challenging
  to use (19/28), while states using modified are
  more split on this issue

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The Single Most Challenging GASB 34
Implementation Issue for DOTs
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Selecting Depreciation Approach

• There were broad range of reasons provided for
  selecting the depreciation approach, but most
  were reasons for not selecting modified

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GASB publications provide specific guidance for
allocating costs among capital, preservation and
maintenance categories. Survey responses suggest
that not all states are following these
guidelines.
Cost Allocation Policies

• (73) If the expenditure increases the capacity
  or efficiency of an asset, it is treated as a
  capital asset.
• (70) If the expenditure extends the useful life
  of an asset, it is treated as a capital asset.
• (63) If the expenditure neither increases
  capacity/efficiency nor extends the useful life
  of the asset, it is a maintenance cost.
• ( of states reporting that they follow this
  guideline)

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Historical Cost was the most commonly used
method for calculating the beginning value of
assets for the depreciation calculation
Historical Cost Favorite Method
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Modified Approach

• Unlike with depreciation states, most of the
  reasons supplied for the approach selected were
  reasons for doing modified, not reasons for not
  doing depreciation. The most important reasons
  were more useful information and consistency with
  department philosophy.
• Interestingly, modified states reported little
  difficulty in convincing others that this
  approach would provide better information.

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GASB publications provide specific guidance for
allocating costs among capital, preservation and
maintenance categories. Survey responses suggest
that not all states are following these
guidelines.
Reported Policies

• (95) If the expenditure increases the capacity
  or efficiency of an asset, it is treated as a
  capital asset
• (50) If the expenditure extends the useful life
  of an asset, it is treated as a preservation cost
• (82) If the expenditure neither increases
  capacity/efficiency nor extends the useful life
  of the asset, it is a maintenance cost
• ( of states reporting that they follow this
  guideline)

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Historical Cost Calculation
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The Decision-Makers

• 66 of all DOTs used committees for major
  decision making and policy development

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When asked if implementing GASB 34 improved lines
of communication among the engineering, finance
and maintenance departments,
Communication Issues
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Those who agreed that GASB 34 improved lines of
communication (25 states) were then asked if they
thought the communication improvement would
result in improved funding allocations between
expansion and preservation
Improved Communication Improved Allocation?
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There is an apparent lack of standardization of
policies for when to capitalize project costs
Lack of Uniform Approach
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New Ways in Which DOTs Plan to Use Information
From Their Condition Assessments

• (24 states) No new plans to use the information,
  other than to comply with GASB 34.
• (17 states) Aid in budgeting and funding
  requests.
• (16) Strategically allocate dollars to parts of
  the system with the greatest need.
• (15) Development of long range plans.

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DOTs View of Overall Usefulness of Information
From GASB 34 Reporting

• A majority of DOTs report that the additional
  information required by GASB 34 will be useful
  for a variety of purposes.
• A minority (13) indicate that it will not be
  useful.