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STATEMENT 34 AND INFRASTRUCTURE ASSETS
Starting with the fiscal years ending June 30, 2002,state and local governments (SLGs) have been required by Government Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis- for State and Local Governments, to include infrastructure assets in their governmentwide statements.1
Statement 34 included several contentious provisions, among which was the requirement to depreciate infrastructure assets. The responses to the Statement's exposure draft included arguments that infrastructure assets should not be depreciated because they are intended to be preserved in perpetuity. Testimony was obtained from engineers and transportation finance officers on potential approaches to measuring whether infrastructure assets were being preserved. The Board concluded that a consistent method or measurement scale was not then available and that additional research was needed to develop a workable, comprehensive "preservation method." The Board did, however, recognize the limitations of depreciation expense as an estimate of the economic cost of using infrastructure assets and decided that an alternative to historical cost-based depreciation was desirable.2
Statement 34 permits use of the 'modified approach' as an alternative to the requirement to depreciate infrastructure assets (as long as certain conditions are satisfied). These conditions include the establishment of a minimum condition level for each class of infrastructure assets to which the government applies the modified approach, and use of an asset management system to document that infrastructure assets are preserved at (or above) the established condition level. The government must: disclose the minimum condition level it establishes; disclose the actual condition level of those assets; expense all maintenance and preservation costs (defined as all costs that maintain the assets or preserve their useful lives, other than those that result in additions or improvements), and compare the actual amount of maintenance and preservation expenses incurred with its estimate of the amount needed to maintain and preserve the assets at the established level.3 These disclosures are intended to permit users to verify that these un-depreciated assets are (like land) not being used up and, thus, are truly "permanent." The cost of infrastructure is included in the full economic resources measure of the cost of government services - either by recording depreciation expense or by reporting incurrence of sufficient expenses to preserve them....