HomeMy WebLinkAboutAgenda Report - April 21, 1999 E-04AGENDA TITLE: Resolution in Opposition of GASB Plans to mandate Infrastructure Reporting in
Financial Statements
MEETING DATE: April 21, 1999
PREPARED BY: Finance Director
• RECOMMENDED ACTION: That the City Council adopt the attached Resolution joining
Government Financial Officers Association (GFOA) in opposing GASB's mandate to include
Infrastructure Assets such as roads and bridges in the annual Financial Reports.
BACKGROUND INFORMATION: The Governmental Accounting Standards Board (GASB) plans to pro-
mulgate a new governmental financial reporting model for state and local governments in June 1999. One
of the more controversial features of this new model is the treatment for infrastructure assets (e.g., roads,
bridges). Traditionally, state and local governments have not been required to report infrastructure assets
of the general government be included in their financial reports. The GASB now plans to require that
infrastructure assets be reported and depreciated in the financial statements of state and local
governments. GFOA is greatly concerned about the potential costs involved with implementing
infrastructure reporting.
GFOA has been guided in developing its position by the view that changes in financial reporting should be
justifiable on the basis of their anticipated practical benefits. Infrastructure reporting and depreciation, in
GFOA's view, do not meet this test. Not only is the historical cost of an infrastructure asset irrelevant to
decision making, but also the allocation of that cost to subsequent periods in the form of depreciation
expense is at best irrelevant, and at worst misleading.
GFOA's Executive Board, at its most recent meeting, voted unanimously in favor of a policy that:
• Opposes the mandatory reporting of infrastructure assets on the statement of position,
and
• Opposes the depreciation of those assets.
GFOA then urges all members to communicate with GASB the concern regarding infrastructure reporting
in the financial statements of state and local governments.
Attached is the City of Lodi's letter to GASB.
FUNDING: None
Prepared by: Ruby R. Paiste, Accounting Manager
1
APPROVED:
H. Dix6n Flynn -- Ci Manager
r4 el
Vicky McAthle
Finance Director
RESOLUTION NO. 99-59
A RESOLUTION OF THE LODI CITY COUNCIL IN OPPOSITION TO
THE GOVERNMENTAL ACCOUNTING STANDARDS BOARD'S
(GASB) PLAN TO MANDATE INFRASTRUCTURE REPORTING IN
FINANCIAL STATEMENTS
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WHEREAS, the Governmental Accounting Standards Board (GASB) plans to promulgate a new
governmental financial reporting model for state and local governments in June 1999; and
WHEREAS, traditionally, state and local governments have not been required to report
infrastructure assets of the general government in their financial reports; and
WHEREAS, GASB now plans to require that infrastructure assets be reported and depreciated in
the financial statements of state and local governments, and the Government Financial Officer's
Association (GFOA) is greatly concerned about the potential costs involved with implementing
infrastructure reporting; and
WHEREAS, the GFOA has been guided in developing its position by the view that changes in
financial reporting should be justifiable on the basis of their anticipated practical benefits; and
WHEREAS, the GFOA does not feel that infrastructure reporting and depreciation meets this
criteria; and
WHEREAS, not only is the historical cost of an infrastructure asset irrelevant to decision making,
but the allocation of that cost to subsequent periods in the form of depreciation expense is at best
irrelevant, and at the worst misleading; and
WHEREAS, recently GFOA's Executive Board voted unanimously to oppose the mandatory
reporting of infrastructure assets on the statement of position and also to oppose the depreciation of those
assets.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Lodi hereby opposes
the Governmental Accounting Standards Board's plan to require mandatory reporting of infrastructure
assets on the statement of position and further opposes the depreciation of those assets.
Dated: April 21, 1999
I hereby certify that Resolution No. 99-59 was passed and adopted by the Lodi City Council in a
regular meeting held April 21, 1999 by the following vote:
AYES: COUNCIL MEMBERS — Hitchcock, Mann, Nakanishi, Pennino and Land (Mayor)
NOES: COUNCIL MEMBERS — None
ABSENT: COUNCIL MEMBERS — None
ABSTAIN: COUNCIL MEMBERS — None
ALICE M. REI CHE
City Clerk
99-59
CITY COUNCIL
KEITH LAND, Mayor CITY OF L O D I
PHILLIP A. PENNINO
Mayor Pro Tempore
SUSAN HITCHCOCK CITY HALL, 221 WEST PINE STREET
STEVE MANN P.O. BOX 3006
ALAN NAKANISHI LODI, CALIFORNIA 95241-1910
(209)334-5634
FAX (209) 333-6795
March 26, 1999
Mr. Tom Allen, Chair
Governmental Accounting Standards Board
401 Merritt 7
P.O. Box 5116
Norwalk, CT 06856-5116
Dear Mr. Allen,
H. DIXON FLYNN
City Manager
JENNIFER M. PERRIN
City Clerk
RANDALL HAYS
City Attorney
I am writing on behalf of the City of Lodi to express our deep concern regarding the Governmental
Accounting Standards Board's (GASB) plan to require that infrastructure assets such as roads and
bridges be reported and depreciated in the financial statements of state and local governments.
Our government is proud of its commitment to high quality financial reporting. At the same time, we
see financial reporting as a means rather than an end in itself. That is to say, the cost of financial
reporting must be justifiable on the basis of the practical benefits it provides. In our view, infrastructure
reporting and depreciation, which would undoubtedly entail a significant investment of government
resources, clearly do not meet this practicality test. Not only is the historical cost of an infrastructure
asset completely irrelevant to decision making, but the allocation of that cost to subsequent periods in
the form of depreciation expense is at best irrelevant, and at worst misleading. Nor could we support
infrastructure reporting "options" that would effectively infringe upon our government's prerogative to
make its own public policy decisions regarding expenditures for infrastructure as opposed to
expenditures for other services to citizens.
Therefore, we urge the GASB in the strongest terms to pursue every possible means of eliminating or
reducing the potentially significant costs associated with infrastructure reporting. By doing so, we are
persuaded that the GASB would contribute immeasurably to the acceptance and ultimate success of the
new governmental financial reporting model.
Sincerely yours,
4Land e
Mayor