GASB 34 vs Asset Management

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Tennessees Approachto Capitalization
GASB Statement 34 Compliance Peer Exchange What,
Why, and How Nashville, Tennessee April 25-27,
2001
Presented by
Mike Shinn, Chief of Administration Tennessee
Department of Transportation
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Session Topics

• Guidance on how to develop the necessary
  information for capital asset reporting without
  unnecessary work
• Knowledge of the transition provisions for
  infrastructure asset reporting
• Understanding of the modified approach allowed
  for reporting infrastructure assets
• Methods to obtain and use an asset management
  system

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Capital Asset Definition
Land, improvements to land, easements,
buildings, building improvements, vehicles,
machinery, equipment, works of art and historical
treasures, infrastructure, and all other tangible
or intangible assets that are used in operations
and that have initial useful lives extending
beyond a single reporting period.
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Infrastructure definition
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. Examples of
infrastructure assets include roads, bridges,
tunnels, drainage systems, water and sewer
systems, dams, and lighting systems.
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Infrastructure Reporting Requirements

• Report at historical cost
• Report net of accumulated depreciation
• Depreciate over the useful life of the asset
• Report depreciation expense using a systematic
  and rational approach

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Changing the Perception and Attitude of the
Operating Departments

• Operating departments with infrastructure
  management responsibility must be part of the
  solution
• Change management is critical to successful
  implementation of GASB 34

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Capitalizing (sic.) on the OpportunityOffered by
GASB 34

• Engineers and finance officers will become fast
  friends
• Full impact of infrastructure assets will be
  highly visible
• Asset management systems will emerge

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Creating a New Relationship Between Finance
Officers and Infrastructure Managers

• Cooperative relationships will be essential
• Infrastructure managers and financial managers
  must work in a collaborative environment

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• Transition Provisions and Key Dates

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Effective Dates- Determine Basis for Reporting

• Based upon the governments 1st fiscal year
  ending after 6/15/99
• Determine value of GeneralCapital Assets
• Determine total annual revenues

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Effective Dates -New Infrastructure

• Phase 1 Government Revenues 100 Million and More
  - Years Beginning After June 15, 2001
• Phase 2 Government Revenues10 Million to 100
  Million - Years Beginning After June 15, 2002
• Phase 3 Government Revenues Less than 10 Million
  - Years Beginning After June 15, 2003

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Effective Dates - Infrastructure Retroactive
Reporting

• Phase 1 Governments retroactive implementation no
  later than years beginning after June 15, 2005
• Phase 2 Governments retroactive implementation no
  later than years beginning after June 15, 2006
• Phase 3 Governments are not required to report
  retroactively

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Modified approach requirements

• Use an asset management system that has three
  defined features

• Up-to-date inventory of assets
• Perform condition assessments and summarize the
  results
• Estimate the amount to maintain and preserve the
  assets at government established condition level

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Advantages and Drawbacks of the Modified Approach

• Advantages
• Information Can Be Used for Operations Planning
• Focuses on Outcomes and Asset Condition
• Extends Life of Infrastructure by Minimizing
  Deferred Maintenance
• Drawbacks
• Requires Systematic Asset Management Process
• Declining Condition will be Obvious to Informed
  Citizens

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Whats Different From An Accounting Standpoint?

• Preservation costs are expensed under modified
  approach and capitalized under the traditional
  depreciation method

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• The Tennessee Approach
• Modified - We will not depreciate.

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Team made up of

• Right of Way
• Maintenance
• Design
• Structures
• Finance
• Computer Technology

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TDOT Original Approach

• Right-of-way was calculated from our Roadway
  Information System (actual inventory). Present
  Value came from the State Property Tax Division.
  These numbers were then factored back to a base
  year of 1980.
• Bridges were divided into short and long span,
  given a value and factored back to 1980 as the
  base year.
• Roadway was separated by lane miles, given a
  present day value and calculated back to 1980.
• Other assets were calculated the same as our
  current method.

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• TDOT
• Current Approach

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Source of Historical Information

• 1914 through 1964 - AASHO - The First Fifty Years
• 1965-Present - TDOT Financial Statements

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(No Transcript)
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Tennessee Department of TransportationActual
Construction Costs
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Tennessee Department of TransportationActual
Construction Costs
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Tennessee Department of TransportationActual
Construction Costs
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Right of Way

• State Comptrollers Office - Property Tax
  Division(also Division of State Audit)
• Tennessee Roadway Information System (TRIMS) for
  areas owned by the State (if not on TRIMS, use
  average area)

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ROW Land Value Estimate
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ROW Land Value Estimate
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ROW Land Value Estimate
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Infrastructure AssetsBridges
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Infrastructure AssetsRoadway
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Tennessee Department of TransportationSummary of
Infrastructure Costs
xxx

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Buildings

• Rest Areas
• District/County sites
• Regions
• Welcome Centers
• Radio Tower Sites

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Required Financial Statements

• Basic Financial Statements
• Statement of Net Assets
• Statement of Activities
• Balance Sheet
• Reconciliation of Balance Sheet to Statement of
  Net Assets
• State of Revenue, Expenditures and Changes in
  Fund Balances
• Reconciliation of Statement of Revenues,
  Expenditures and Changes in Fund Balances to the
  Statement of Activities
• Managements Discussion and Analysis (MDA)
• Budgetary Comparison Schedules

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Future Considerations
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How will we keep up with added inventory?
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How will we determine at what level we will
maintain our assets?
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How will we use data to make decisions?

• Current ProcessFunds determined to be available
  in budget process work that can be done
• Future ProcessSystem or process tells us what
  assets we need to maintain funds are made
  available

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• How will we measure performance?
• What standards will we hold ourselves to?

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For a copy of this presentation, go to the
address below to download this file.
www.tdot.state.tn.us/chief_of_administration/index
.htm
Look for the link To Download Asset Management
Presentation by Mike Shinn