GASB 34--Methods for Condition Assessment and Preservation (2008)

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TRANSPORTAT ION RESEARCH BOARD WASHINGTON, D.C. 2008 www.TRB.org N A T I O N A L C O O P E R A T I V E H I G H W A Y R E S E A R C H P R O G R A M NCHRP REPORT 608 Subject Areas Planning and Administration GASB 34—Methods for Condition Assessment and Preservation Parsons Brinckerhoff Washington, DC Edward P. Chait Rockville, MD A N D Cambridge Systematics, Inc. Boston, MA Research sponsored by the American Association of State Highway and Transportation Officials in cooperation with the Federal Highway Administration

NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM Systematic, well-designed research provides the most effective approach to the solution of many problems facing highway administrators and engineers. Often, highway problems are of local interest and can best be studied by highway departments individually or in cooperation with their state universities and others. However, the accelerating growth of highway transportation develops increasingly complex problems of wide interest to highway authorities. These problems are best studied through a coordinated program of cooperative research. In recognition of these needs, the highway administrators of the American Association of State Highway and Transportation Officials initiated in 1962 an objective national highway research program employing modern scientific techniques. 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CRP STAFF FOR NCHRP REPORT 608 Christopher W. Jenks, Director, Cooperative Research Programs Crawford F. Jencks, Deputy Director, Cooperative Research Programs Gwen Chisholm Smith, Senior Program Officer Eileen P. Delaney, Director of Publications Maria Sabin Crawford, Assistant Editor NCHRP PROJECT 19-07 PANEL Field of Administration—Area of Finance Michael R. Shinn, Infrastructure Corporation of America, Brentwood, TN (Chair) Edgardo D. Block, Connecticut DOT David L. Huft, South Dakota DOT Stephen D. Maraman, Nebraska DOR Robin Naitove, Florida DOT J. Michael Patterson, Oklahoma DOT Michael G. Pavlides, PBS&J, Beltsville, MD Omar Smadi, Iowa State University Peter Stephanos, Federal Highway Administration, Washington, DC Duane K. Sullivan, Texas DOT Francine Shaw-Whitson, FHWA Liaison Thomas Palmerlee, TRB Liaison AUTHOR ACKNOWLEDGMENTS The research reported herein was performed under NCHRP Project 19-07 by PB in association with Edward P. Chait and Cambridge Systematics, Inc. Wayne McDaniel, AICP, Vice President Parsons Brinckerhoff Strategic Consulting, was the Project Director and Principal Investigator. The other authors of this report are Edward P. Chait, CPA, for- merly with PricewaterhouseCoopers; and Dr. Kumudu Gunasekera, Consultant, Parsons Brinckerhoff Strategic Consulting. C O O P E R A T I V E R E S E A R C H P R O G R A M S

NCHRP Report 608: GASB—Methods for Condition Assessment and Preservation updates the findings contained in NCHRP Report 522: A Review of DOT Compliance with GASB 34 Requirements. NCHRP Report 522 provided a comprehensive look at approaches taken by AASHTO member departments to comply with the requirements of Governmental Accounting Standards Board (GASB) Statement No. 34. NCHRP Report 608 provides a rec- ommended practices guide that identifies effective methodologies that integrate infrastruc- ture inventory, condition assessments, minimum acceptable condition levels, and funding decisions with GASB 34 reporting requirements and assesses the operational and financial impacts of reporting under GASB 34. This report will be helpful to professionals who work with state DOTs and local governments in the areas of finance, auditing, asset management, and policymaking. NCHRP Report 522 documents how the requirements set by GASB 34 were addressed and catalogs the various approaches that were implemented in the first year. Findings in NCHRP Report 522 revealed that additional, more detailed research was needed to answer some fun- damental questions including, what are the most effective methods for condition assess- ments for GASB 34 reporting and asset management and how are the variability and the reliability of condition assessment methods used in estimating expenditures for GASB 34 reporting? NCHRP Report 608 builds on the results of NCHRP Report 522. PB Strategic Consulting, in conjunction with Edward P. Chait, and Cambridge System- atics, Inc., conducted the research for NCHRP Project 19-07. To achieve the project’s objec- tive of assessing the operational and financial impacts of reporting under GASB 34, the research team performed a literature review and conducted a series of workshops and inter- views with representative transportation agencies, and other organizations that use effective methodologies for infrastructure inventory, condition assessments, minimum acceptable condition levels, funding decisions, and GASB 34 reporting requirements. NCHRP Report 608 documents the following: (a) the most effective methods for condi- tion assessments for GASB 34 reporting and asset management; (b) the variability and the reliability of condition assessment methods used in estimating expenditures for GASB 34 reporting; (c) the preferred methodologies used to develop minimum acceptable condition levels and the differences between the levels set for GASB 34 reporting and asset manage- ment; (d) effective methods that are used to estimate expenditures required to meet the minimum acceptable condition level; (e) a description of how agencies define and track cap- italization costs and preservation expenses; (f) effective approaches used to account for additions, retirements, and replacements of infrastructure assets in financial statements; (g) a review of the effect of bond ratings and factors that are important in the bond rating agen- cies’ review; and (h) the operational and financial impacts of reporting under GASB 34. F O R E W O R D By Gwen Chisholm Smith Staff Officer Transportation Research Board

The report includes a summary of the key findings from the workshops organized by key questions. Also in the report are the results from a peer exchange conference among the workshop participants and a Recommended Practices Guide.

1 Summary 3 Chapter 1 Background 3 The Selection of Workshop Interview Organizations 4 Workshop Questionnaire 5 Workshop Interviews 6 Chapter 2 Key Findings 6 Overall Key Findings 11 When Is Preservation Not Really Preservation? 13 Workshop-Specific Key Findings 19 Chapter 3 Workshop Reports 19 Florida DOT Workshop 33 Ohio DOT Workshop 46 Oregon DOT Workshop 59 Texas DOT Workshop 70 Washington DOT Workshop 82 Fitch Ratings (New York) 84 Governmental Accounting Standards Board (GASB) Workshop 85 Hillsborough County (Florida) Workshop 95 City of Saco Workshop 104 Washington (DC) Suburban Sanitary Commission (WSSC) Workshop 106 Chapter 4 Peer Exchange Conference Call (March 9, 2007) 106 Participating Agencies 106 Determination of Condition Targets 107 Methods of Condition Assessment 108 Categorization of Costs 109 Additions and Retirements 109 Bond Raters Interest 110 Usefulness of Information 111 Chapter 5 Recommended Practices Guide 111 Process for Setting Condition Targets 114 Methods of Condition Assessments 117 Link Between Condition Targets and Expenditure Requirements, Including Budgetary Requirements 118 Allocation of Costs Among Capital, Preservation, and Maintenance Categories 120 Accounting for Additions, Retirements, and Replacements of Infrastructure Assets 121 Potential Effect on Bond Rating 122 Operational and Financial Impacts of GASB 34 Reporting 123 Glossary 125 Appendix A Final Interim Report (July 1, 2005; Revised October 25, 2005) C O N T E N T S