# Presentation: 905916

## What is GASB Statement 34?  How will it affect us? 

**What is GASB Statement 34?  How will it affect us? **

- Sue McNeil
- Director
- Urban Transportation Center
- University of Illinois, Chicago

## Asset Valuation GASB 34

- Requirements:
- state and local agencies to include the value of physical assets in their financial statements
- value based on depreciated historical cost, or historical cost without depreciation if the agency can demonstrate that they:
- have an inventory of assets
- perform condition assessment at least every 3 years
- have spent funds sufficient to maintain the infrastructure assets at an established level of condition.

## WHAT IS ASSET MANAGEMENT?

-    Asset management is a systematic process of maintaining, upgrading and operating physical assets cost-effectively. It combines sound business practices and economic theory, and it provides tools to facilitate a more organized, logical approach to decision- making.  Thus, asset management provides a framework for handling short- and long-range planning.

## Asset Valuation

- Driving forces
- Mechanisms
- Government Accounting Standards Board (GASB) 34
- Mechanics

## Asset Valuation Driving forces

- Public skepticism of government
- Focus on the use of private sector management practices in the public sector
- Interest in privatization

## Asset Valuation Mechanisms

- Government Performance and Results Act and similar state legislation
- Self reporting of economic value
- GASB 34

## SURVEY RESPONSES

- Received responses from shaded states

## SURVEY RESPONSES(CONTINUED)

- States Attempting Asset Valuation -- 13
- four methods      --	1	(La)
- three methods --	8
- two methods   --	2
- one method       --	2

## Asset Valuation GASB 34

- Issues
- Confusion between economic and financial value
- Implications for policy making, funding etc
- Cost to implement

## Mechanics of (Methods for) Asset Valuation (Examples)

- Book value
- Written down replacement cost
- Market value
- Equivalent present worth in place
- Productivity realized value

- (Source: Lemer)

## Illustration

- Replacement cost highway - $1m/mile
- Historical cost
- 15 year old highway
- CCI 1993 / CCI 1998 = 0.6903
- => $0.69 m/mile
- Book value
- Expected life 25 years
- Depreciation = 60% (straight line)
- => $0.27m/mile

## To Depreciate or Not?

- Depreciating your assets implies you are not maintaining
- Not depreciating requires an “asset management system” to demonstrate that you have maintained the condition of your assets and that you have expended funds to maintain the assets

## Case Study - City of Hopkins, Minnesota

- Located West of Minneapolis
- Settled 1854
- Population ~16,500
- 4 square miles
- 98% developed
- AA Bond Rating

## Pavement Management in Hopkins

- 1994 implemented the Infrastructure Consultant (ICON) developed by GoodPointe Technology Corporation
- All sections inventoried
- 3-year inspection cycle using PCI (0-100)
- 1994
- 1997
- 2000

## Hopkins - Infrastructure

## Complying with GASB 34

- What are the assets worth?
- What funding level does Hopkins need to invest to maintain the network at an acceptable level?

## What are the assets worth?

- Replacement cost - $2.15 per square foot - Total value = $20.8 m
- Depreciated value
- For assets build prior to 1980
- 76% of the network
- Value = $0
- For assets built or reconstructed after 1980
- 24% of the network
- Value = $5.8 m

## Depreciated value

- Based on
- overlay unit cost - $0.70/ sq ft
- reconstruction unit cost - $2.70 / sq ft
- overlay life - 23 years
- reconstruction cost - 29 years
- straight line depreciation
- conversion to current dollars using the highway construction cost index

## Summary- value of pavement assets

## What is the appropriate funding level?

- Determine benchmark
- Local - PCI = 65
- Collector - PCI = 70
- Determine scenarios that match expectations
- Determine annual budget
- Local - $275,000 per year
- Collector - $100,000 per year
- Document expenditures

## Sample output from ICON

## Issues and Lessons

- Mismatch between annual reporting and inspection every 3 years.
- May want to include assets constructed prior to 1980
- GASB allows for any consistent method. Depreciated book value may not be the most useful version of “value”
- If PMS is used, implementation effort in minimal

## Recommendations

- Engineers need to work with financial managers.
- Ask questions - for example:
- Are you managing your inventory?
- Is your inventory complete and up to date?
- How do you want to categorize your assets?

## Issues

- Role of performance versus value in decision making
- Role of performance versus value in accountability
- Relationship to life cycle cost analysis