WASHINGTON - The costs of implementing the Governmental Accounting Standards Board's new financial reporting model could range from $35,000 to $500,000 for cities, $35,000 to $2 million for counties, and $2 million to $4 million for states, according to a Standard & Poor's survey.
The estimated costs were based on responses from about two-thirds of the 40 state and local governments that completed the survey on the new GASB 34 model.
But LaVerne Thomas, an associate director at Standard & Poor's, said yesterday during a teleconference that about one-third of the respondents have not been able to quantify the costs of implementing the new model.
"I think it's significant that governments are still wrestling with how much this is going to cost," she said. Most of the cost stems from the need to update financial reporting systems and add or train staffs, according to the survey.
The survey also found that all but one of the respondents to the survey plans to implement GASB 34, and that almost half of the respondents plan to implement the new model early. GASB 34 is supposed to take effect on a three-year phased in basis that will not begin until after June 15, 2001, for large governments.
The new financial reporting model was unanimously adopted by GASB on June 10, 1999, after 10 years of development. It is expected to dramatically change the way governments report their finances to the public and to significantly expand the amount of information that is made available in financial statements. The model sets forth new generally accepted accounting principals that state that local governments will have to follow in order to obtain clean opinions on their annual financial statements from auditors.
Until now, most governments' financial statements have been fund-based and focused on the short-term financial picture. But under GASB 34, governments for the first time will have to issue two government-wide financial statements that are prepared with accrual accounting to provide long-term and well as short-term financial pictures and more comprehensive information.
One will be a statement on net assets that shows all assets and liabilities. Governments will have to take into account the status of their infrastructure, such as roads and bridges, in determining their assets. They will have to include all outstanding debt, rather than just a year of principal and interest payments, in tallying up their liabilities. The other statement will describe governmental activities or services, their costs, and whether they are financed by self-generating revenues or other revenues, such as from taxes.
Governments will have to report separately on their major funds and, for the first time, will have to include a management, discussion, and analysis section in the beginning of their financial statements that compares that fiscal year to previous years and describes any major changes or trends.
Hyman Grossman, Standard &Poor's managing director for public finance, said yesterday that although GASB 34 will require state and local governments to make major changes in their accounting systems, it will help not only credit rating agencies, but also taxpayers and investors, to get a better picture of a government's financial condition.
The rating agency sent its survey asking questions about the implementation of the new model to about 100 state and local governments. It will continue sending the survey to governments and collecting responses for another six months or so, Grossman said.
GASB 34 was extremely controversial when proposed, which led the Government Finance Officers Association to advise its members to adopt it only if the benefits outweigh the costs. But the Standard & Poor's survey showed that only one of the 40 respondents had decided not to implement the new model. That government is not a frequent issuer in the capital markets, Thomas said.
"Those implementing it early are the higher-rated credits that tend to already have in place databases as well as collection procedures and staff," she said.
Almost half the governments that responded to the survey said they already have in place an asset-reporting database that includes infrastructure. Most respondents also said that they expect to depreciate their infrastructure, rather than use a modified approach under which their infrastructure assets would be valued each year and investments made routinely to keep the infrastructure near its original value.
Those participating in the teleconference said they expect more issuers will move to the modified approach after a few years as they become more familiar with the new model.
According to Grossman, it will take at least two or three years to understand the differences between governments' current financial statements and the ones they prepare under GASB 34. "We don't expect any sudden rating changes," he said. "This is an evolutionary process."
