All assets are not alike under GASB 34

Dennis H. Ross, P.E.
APWA Director of Professional Development

For many agencies, the requirement to account for governmental assets according to the guidance in Statement 34 of the Governmental Accounting Standards Board is here. GASB 34, officially titled Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments, represents one of the most significant changes in how government presents their annual financial statement.

Agencies with a combined annual budget in excess of $100 million will be required to use the new financial statements for the next accounting period starting after July 15, 2001. For agencies with smaller combined budgets, you have a year or two of breathing room left-but you should be thinking about how you are going to implement the new requirements.

Most of the requirements of GASB 34 relate to how the financial information is collected and presented and as such may not have much effect on public works and infrastructure management departments. However, if you have capital assets-it affects you!

GASB 34 requires government agencies to account for capital assets, and further defines a subset for "infrastructure assets," which can be treated differently. Public works departments probably have both capital assets and infrastructure assets, which may create some interesting challenges when you design a system for tracking and depreciating those assets.

Capital assets are defined as "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."1 As such, virtually anything of substance could be classified as a capital asset, subject to the reporting requirements of GASB 34.

Infrastructure assets are defined as "long-lived assets that normally are stationary in nature [emphasis added] and normally can be preserved for a significantly greater number of years than most capital assets."2 Statement 34 further provides examples of infrastructure assets: "Examples of infrastructure assets include roads, bridges, tunnels, drainage systems, water and sewer systems, dams, and lighting systems. Buildings, except those that are an ancillary part of a network of infrastructure assets, should not be considered infrastructure assets . . ."3

What does that mean in plain language? Most buildings like city halls, county courthouses, police stations, community centers, and even public works corporation yards are simply capital assets-not infrastructure assets for GASB 34 reporting purposes. Vehicles, heavy equipment, machinery, artwork, and those historical treasures that are stored in your warehouse are also capital assets.

Okay, so what is the difference? Capital assets must be inventoried and depreciated, which will be referred to as the "traditional depreciation approach." Infrastructure assets may be eligible for reporting under the "modified approach," which is essentially an asset management system that includes condition reporting.

Under the traditional depreciation approach, all assets must be inventoried, valued at historical cost, and depreciated. This creates some interesting challenges for many public agencies because the information on the original cost may no longer be available in the agency's files. Fortunately, GASB has allowed wide latitude in establishing historical cost4 and will allow assets placed in service before 1980 to be considered as fully depreciated-but they still must be inventoried.

All assets reported using the depreciation approach, including infrastructure assets, will need to be assigned a useful life over which the depreciation will occur. APWA frequently receives requests for standard lists of useful lives for capital assets. If it were only that easy: Because of the wide variation in quality of materials, quality of workmanship, use patterns, climate, preventative maintenance received, and too many other variables to mention, it is nearly impossible to develop a single useful life or even a range of useful lives that are meaningful over the entire nation.

Agencies should look to various trade and technical organizations for guidance on useful lives and might consider establishing guidelines within their geographic area. The local APWA chapter may be an ideal organization to develop local guidelines.

As an alternative to the traditional depreciation approach, which provides little useful information that operating departments can use to manage the assets, the GASB allows the use of a condition rating system for reporting infrastructure assets. Under the "modified approach"5 an agency must inventory the assets, establish the historical cost, and create an asset management system that reports the condition of the asset and compares that condition to a condition rating set by the public agency.

Public agencies are permitted wide latitude in how they organize their infrastructure assets. Infrastructure assets may be separated into networks and subsystems and reported in aggregate rather than to report each individual element. For instance, an agency could set up their roadway network to include street lights, signs, signals, drainage, street furniture, curb, gutter, in addition to pavement.

A little known fact is that you can mix and match using the depreciation approach for some networks and subsystems and the modified approach for others. Another wrinkle is that agencies can establish different capitalization thresholds for different types of assets. The State of Texas has established a $100,000 capitalization threshold for infrastructure assets and has provided an excellent guide for public agencies in Texas6.

Agencies should carefully plan the system of networks and subsystems so that the reporting correlates to how you want to manage the assets. Including street lighting in a roadway network or subsystem might not make sense if you want to separately manage the street light system or if responsibility for management is located in another division or department than the rest of the elements.

For a system to qualify under the modified approach it needs to meet three criteria:

  • It must have an up-to-date inventory of eligible infrastructure assets;
  • A condition assessment must be performed in a replicable manner and reported in a measurement scale (i.e., 1 to 5, 1 to 100) against established condition ratings;
  • Each year, the annual dollar amount to adequately maintain the infrastructure assets at or above the minimum condition rating set by the public agency must be disclosed.

Further, the system of condition rating should be easily understandable, for citizens, elected officials, and agency staff. It must be reproducible to the point that different professionals applying the principles set forth in the condition rating system could achieve the same rating. The minimum condition rating for each network and subsystem of infrastructure assets should be set by the elected body, in public meeting or hearing at a level that can be reasonably maintained to avoid having to publicly lower the minimum condition level sometime in the future.

Using the modified approach is probably the best way for public works officials to establish the true cost of maintaining infrastructure. Many agencies struggle to obtain adequate funding levels to prevent or recover from deferred maintenance. Establishing minimum condition levels and having that information presented every year in the agency's annual financial statement will make it difficult to ignore the impact of deferring infrastructure maintenance.

APWA's Board of Directors recognized this positive aspect and adopted a policy statement in December 2000 endorsing GASB Statement 34 and recommending that agencies use the modified approach where practical. GASB 34 may be one of the most effective tools that an infrastructure management department can have to combat deferred maintenance caused by inadequate funding levels.

Capital assets that do not meet the criteria for infrastructure assets (e.g., buildings, vehicles, equipment) do not currently qualify for reporting under the modified approach and must be reported using depreciation. However, development of asset management systems that provide condition ratings and preventative management for all capital assets should be encouraged, even if they cannot be used for reporting under GASB 34.

APWA members are encouraged to take an active role in planning and implementation of these new financial reporting systems to meet the requirements of GASB 34. Copies of GASB Statement 34 and an informative Implementation Guide are available from APWA and can be ordered through the website at

Dennis Ross can be reached at (816) 472-6100 or at

The GASB Statement 34 Super-Sized Session at APWA's Congress in Philadelphia will be held in Room 109AB of the Pennsylvania Convention Center, Tuesday, September 11, from 2:00-4:30 p.m.

1 GASB Statement 34: Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments, paragraph 19, page 11.
2 ibid
3 ibid
4 Acceptable methods of valuation include estimating current replacement cost and using a cost index to deflate the value to the approximate age. Anecdotal information such as budgets, staff reports, contract documents, annual reports, and other documentation could be sources of historical cost that would be acceptable for meeting GASB 34 requirements.
5 GASB Statement 34: Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments, paragraph 23, page 12.
6 See State Comptroller's website for a copy of the Capital Asset Guide (
Note: This guide is only valid for Texas agencies, but may provide valuable information that can be adapted by other agencies.