GASB Update California Society of Municipal Finance Officers

GASB Update California Society of Municipal Finance Officers February 21, 2013 Michelle Czerkawski, GASB Project Manager The views expressed in this presentation are those of the speaker. Official positions of the GASB are determined only after extensive due process and deliberation.

Session Agenda �Board appointments �Recently issued Statements ◦ Review of effective dates ◦ Statements effective for 2013 FYEs—key provisions ◦ Statements effective for post-2013 FYEs —brief overview �Current-agenda projects

Current Board Members Member Term Expires Bob Attmore, Chair 2014 (retiring in 2013) Jim Brown 2017—first term Bill Fish 2016—first term Michael Granof 2015—first term David Sundstrom 2014—first term Jan Sylvis 2017 Marcia Taylor 2015 3

RECENTLY ISSUED STATEMENTS

Effective Dates—FYE June 30 � 2013 ◦ ◦ � Statement 60—Service Concession Arrangements Statement 61—Financial Reporting Entity Statement 62—Codification of AICPA & FASB Statement 63—Deferrals Presentation 2014 ◦ Statement 65—Assets & Liabilities—Reclassification & Recognition ◦ Statement 66—Technical Corrections ◦ Statement 67—Pension Plans � 2015 ◦ Statement 68—Pension Accounting for Employers & Nonemployer Contributing Entities ◦ Statement 69—Government Combinations & Disposals of Government Operations 5

2013 FYEs: Statement 60 Service Concession Arrangements (SCAs) Effective for Periods Beginning after December 15, 2011

Definitions �SCAs are a type of public-private or public-public partnership. �The term public-private partnership is used to refer to a variety of: ◦ Service arrangements ◦ Management arrangements ◦ SCAs 7

Scope � Transferor conveys to operator right & related obligation to provide public services through the operation of a capital asset in exchange for significant consideration ◦ Examples: Up-front payment, installment payments, new facility, improvements to existing facility � Operator collects & is compensated from fees from third parties � Transferor determines /has the ability to modify or approve: ◦ What services the operator is required to provide ◦ To whom the operator is required to provide the services ◦ Prices or rates that can be charged for the services � Transferor entitled to significant residual interest in the service utility of the facility at end of the arrangement 8

Facilities Associated with SCAs �If new & purchased/constructed by operator or existing that has been improved by the operator ◦ Transferor reports: �New facility or improvement—capital asset at fair value when placed in operation �Any contractual obligations—liabilities, with deferred inflow of resources 9

Upfront or Installment Payments �Transferor reports: ◦ Up-front payment or present value of installment payments—asset ◦ Any contractual obligations—liabilities, with deferred inflow of resources ◦ Revenue as deferred inflow of resources is reduced �Systematic & rational manner �Over term of the arrangement �Beginning when facility is placed into operation 10

Liabilities—Contractual Obligations �Liabilities either: at present value if significant & ◦ Directly relates to the facility �Relates to ownership of facility or arises from transferor’s responsibility to assure facility remains fit for particular purpose of arrangement �Examples: obligations for capital improvements, insurance, maintenance on the facility ◦ Relates to transferor commitment to maintain minimum/ specific level of service in connection with operation of facility �Examples: providing a specific level of police/emergency services for facility, or providing minimum level of maintenance to areas surrounding facility 11

2013 FYEs: Statement 61 The Financial Reporting Entity—Omnibus Effective for Periods Beginning after June 15, 2012 12

Significant Effects �Increased emphasis on financial relationships ◦ Raises the bar for inclusion �Refocused & clarified requirements to blend certain component units (CUs) �Improved recognition of ownership interests ◦ Joint ventures ◦ CUs ◦ Investments 13

Inclusion Criteria �Statement 14 required inclusion if potential CU is fiscally dependant ◦ Primary government has authority over: �Budget, or �Setting taxes & charges, or �Issuing debt �Statement 61 adds requirement for a financial benefit or burden before inclusion is required 14

Blending Requirements: Narrowed �Statement 14 requires blending if Primary Government (PG) & CU have “substantively the same” governing body �Statement 61 modifies that requirement to also include: ◦ A financial benefit/burden relationship, or ◦ PG has “operational responsibility” for CU �PG’s personnel manage activities of CU like a fund, program, or department of the primary government 15

Blending Requirements: Broadened �Include CUs whose total debt outstanding is expected to be repaid entirely or almost entirely by revenues of the PG ◦ Even if the CU provides services to constituents or other governments, rather than exclusively or almost exclusively to the PG 16

Note Disclosures �Clarifies that current disclosures require: ◦ Rationale for including each CU ◦ Whether CU is discretely presented, blended, or included as a fiduciary fund �No new disclosures �Practical consideration—can aggregate similar CUs for disclosure 17

2013 FYEs: Statement 62 Codification of Pre-November 30, 1989 FASB and AICPA Pronouncements Effective for Periods Beginning after December 15, 2011 18

Five Classifications � Conflict with or contradict GASB standards ◦ FASB Statement 4—Gain or loss on debt extinguishments ◦ FASB Statement 43—Compensated absences � Are not applicable to governments ◦ FASB Statement 84—Convertible debt � Rarely applicable (excluded) ◦ FASB Statement 19–Oil & Gas � Are applicable to governments ◦ FASB Statement 34—Capitalization of interest � Will be addressed in GASB projects (applicable, but excluded) ◦ APB Opinion 16—Business combinations 19

Basic Guidance �Statement 20 is superseded ◦ All applicable pre-11/30/89 standards are contained in the GASB’s codification ◦ All potentially applicable post-11/30/89 non-GASB standards will be “other accounting literature” �Guidance on 29 topics is brought into the GASB literature 20

Significant Topics �Special & extraordinary items (APB Opinion 30) �Comparative financial statements (ARB 43) �Related parties (FASBS 57) �Prior-period adjustments (FASBS 16 & APB Opinion 9) �Accounting changes & error corrections (APB Opinion 20 & FASBI 20) �Contingencies (FASBS 5 & FASBI 14) �Extinguishments of debt (APB Opinion 26 & FASBS 76) �Inventory (ARB 43) �Leases (FASBS 13, 22, 98 & FASBI 23, 26, 27) 21

Specialized Topics �Sales of real estate (FASBS 66) �Real estate projects (FASBS 67) �Research & development arrangements (FASBS 68) �Broadcasters (FASBS 63) �Cable television systems (FASBS 51) �Insurance enterprises (FASBS 60) �Lending activities (FASBS 91) �Mortgage banking activities (FASBS 65) �Regulated operations (FASBS 71, 90, 101) 22

2013 FYEs: Statement 63 Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position Effective for Periods Beginning after December 15, 2011 23

Background �Concepts Statement 4—five elements in a statement of financial position ◦ ◦ ◦ Assets Liabilities Deferred outflows of resources Deferred inflows of resources Net position �Differs from composition required by Statement 34 24

“New” Elements � Deferred outflows of resources � Deferred inflows of resources ◦ Consumption of net assets by the government that is applicable to a future reporting period ◦ Has a positive effect on net position, similar to assets ◦ Acquisition of net assets by the government that is applicable to a future reporting period ◦ Has a negative effect on net position, similar to liabilities � Net position ◦ Residual of all elements presented in a statement of financial position ◦ = Assets + Deferred Outflows – Liabilities – Deferred Inflows 25

Display Requirements �Deferred outflows of resources reported in a separate section following assets �Deferred inflows of resources reported in a separate section following liabilities �Net position components ◦ Resemble net asset components under Statement 34 �Net investment in capital assets �Restricted �Unrestricted ◦ Include the effects of deferred outflows & deferred inflows of resources �Governmental balance funds continue to report fund 26

Deferred Outflows/Inflows of Resources �Prior standards ◦ Statement 53—Derivative Instruments ◦ Statement 60—Service Concession Arrangements �Post-issuance standards ◦ Statement 65—Items Previously Reported as Assets & Liabilities ◦ Statement 68—Pensions ◦ Statement 69—Government Combinations 27

Later FYEs: Statement 65 Items Previously Reported as Assets and Liabilities Effective for Periods Beginning after December 15, 2012 28

Deferred Inflows of Resources �Grants received in advance of meeting timing requirement � Deferred amounts from refunding of debt (credits) � Proceeds from sales of future revenues � Deferred gain from sale-leaseback �“Regulatory” credits 29

Deferred Outflows of Resources �Grant paid in advance of meeting timing requirement � Deferred amounts from refunding of debt (debits) � Cost to acquire rights to future revenues (intra-entity) � Deferred loss from sale-leaseback 30

Outflows of Resources �Debt issuance costs (other than insurance) �Initial costs incurred by lessor in an operating lease �Acquisition costs for risk pools �Loan origination costs 31

Inflows of Resources �Loan origination fees �Commitment fees (after exercise or expiration) 32

Later FYEs: Statement 66 Technical Corrections— 2012 Effective for Periods Beginning after December 15, 2012 33

Conflicts �Statement 62 with ◦ Statement 13—Leases ◦ Statement 48 �Purchase of a loan or group of loans �Servicing fees related to mortgage loans �Statement 10 with ◦ Statement 54—Risk financing pools 34

Later FYEs: Statement 67 Financial Reporting for Pension Plans Effective for Fiscal Years Beginning after June 15, 2013 35

Overview �Approved June 2012 �Pension plans �Few accounting changes �Notes/RSI ◦ Changes to reflect new measures of employer liability ◦ Disclosure of annual rate of return �Implementation Guide planned for Q 2 2013 36

Later FYEs: Statement 68 Accounting and Financial Reporting for Pensions Effective for Fiscal Years Beginning after June 15, 2014 37

Overview �Approved June 2012 �Employer reporting & certain governmental nonemployer contributing entities �Changes in liability & expense recognition ◦ Break with funding measures ◦ Similar recognition for all types of employers (single, agent, cost-sharing) �Notes disclosure/RSI changes �Additional implementation guidance planned for Q 1 2014 38

Later FYEs: Statement 69 Government Combinations and Disposals of Government Operations Effective for Transactions Occurring in Financial Reporting Periods Beginning after December 15, 2013

Scope �Combinations in which no consideration is provided ◦ Government mergers ◦ Transfers of operations �Combinations in which consideration is provided ◦ Government acquisitions �Disposal of government operations 40

Mergers & Transfers of Operations �Assets & liabilities at carrying values ◦ Presumption of GAAP �Reporting ◦ Mergers �New entity �Continuing entity ◦ Transfers of operations �Adjustments ◦ Accounting principles, policies, & estimates ◦ Capital asset impairment ◦ Transaction eliminations 41

Acquisitions �Assets value (& liabilities) at acquisition ◦ Recognition based on GAAP applicable to state & local governments ◦ Market-based entry price measurements ◦ Exceptions �Difference between consideration given and net position acquired ◦ “Goodwill”—deferred outflow of resources ◦ Contribution received or reduction of noncurrent assets 42

Note Disclosures— All Combinations �General information ◦ Brief description of the combination & identification of the entities involved ◦ Date of the combination ◦ Primary reasons for the combination 43

Additional Note Disclosures �Mergers & transfers of operations ◦ Carrying values recognized as of the merger date ◦ Description of significant adjustments ◦ Amounts recognized �Acquisitions ◦ Brief description of consideration provided ◦ Total amount of net position acquired ◦ Brief description of contingent consideration arrangements

Disposals of Government Operations �Includes all disposals of operations (transfers or sales) ◦ Gains & losses reported as special items �Costs associated with disposals of government operations ◦ Consider only costs directly associated with disposal �Disclosures ◦ Description of the circumstances leading to the discontinuation ◦ Operations revenues, expense, & nonoperating items 45

CURRENT AGENDA PROJECTS 46

Projects in Process �Conceptual Framework—Recognition & Measurement Approaches ◦ PV—June 2011 �Economic Condition Reporting— Financial Projections ◦ PV—November 2011 �Financial Guarantees ◦ ED—June 2012 �Fair Value—Measurement & Application �GAAP Hierarchy �Other Postemployment Benefits 47