Environmental Costs as Incurred
By Donald Sutherland, posted February 2, 2000
The new sweeping standard approved by the not-for-profit Government Accounting Standards Board (GASB) on June 10, 1999, requires municipalities and states to disclose in full detail the costs of all government services including water and sewage services, landfill clean up and closure, and environmental liability compliance costs.
Government accounting regulators approved the new accounting standard to force state and local governments to disclose environmental liability and cleanup costs in financial reports as the costs occur . Currently, these costs only have to be reported when they are paid out, which allows fiscal problems to be masked from taxpayers.
"With GASB Statement No.34, Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments, environmental liabilities will be pulled into government activities statements and will be recorded as under the year incurred not the year they are paid," says David Dean, director of research at GASB.
"In the case where a state or a municipality is a primary potential responsible party to a Superfund site or any waste landfill, liability and cleanup costs are to be reported as they are being used now and not under post closure case reporting, which can run five, 10, or even 60 years down the road," he says.The new standard will take effect in three phases depending on the size of state and local budgets: Phase 1 affects states and cities with budgets with $100 million or more in annual revenue in fiscal years beginning after June 15, 2001; Phase 2 affects states and cities with at least $10 million but less than $100 million in revenues after June 15, 2002; and Phase 3 affects municipalities with less than $10 million in revenue after June 15, 2003.
According to GASB officials, masking of fiscal problems can be done by many municipalities because they don't have laws on their books mandating GASB's rules, but increasingly underwriters are demanding audited statements in accordance with these rules prior to issuing bonds. Municipal bond traders, creditors, and elected officials are also demanding that these governments financially account for themselves in the same fashion as U.S. companies.
“They can choose not to use GASB standards, but all states prepare financial statements in accordance with national Generally Accepted Accounting Principals, which follows our rules," says Ken Sherman, senior project manager at GASB. "We are always influenced by user groups and their needs, which are compelling reasons to municipalities to issue financial statements using GASB even if the law doesn't require it.”
The Government Accounting Standards Board was created in 1984 to establish standards of financial accounting and reporting for state and local government bodies. GASB standards guide the preparation of governments' external financial reports. The group's mission is to establish government accounting and financial reporting standards that will provide useful information to guide and educate the public, including issuers, auditors and users of financial reports.
The new GASB accounting initiative comes on the heals of the April 1999 adoption by the Environmental Council of States of core performance measures to be used by all states in refining their state government environmental performance reporting to the U.S. Environmental Protection Agency.
The core performance measures developed under a joint program with the not-for-profit Environmental Council of States and the EPA under the National Environmental Performance Partnership System cover such factors as outdoor and indoor air quality, toxins in the workplace, radiation, acid rain, waste management, safe drinking water, groundwater quality, pesticide residues, and watershed protection.
What effect the new GASB Statement No.34 and current GASB Statements No.18 (landfill cleanup and closure) and No.10 (general liability) will have on the state financial reporting of Environmental Council of States’ core performance measures has apparently not been reviewed by state environmental officials.
“I presume we are using appropriate current GASB standards for our environmental performance reporting, but I am an economist, and I don't deal with accounting standards,” says Steve Adams, an economist in the office of strategic projects and planning at the Florida Department of Environmental Protection.
Environmental officials in Colorado, Wisconsin, Ohio, and Minnesota also expressed similar clueless responses. "We do self assessment including CPMs, but how it is audited on a state basis I honestly can't answer," says Ed Kitchen, rules coordinator in the director's office of the Ohio EPA.
State financial auditors and directors contacted in the same states didn't know about the Environmental Council of States core performance measures but did know how environmental GASB was reported.
“We comply with current environmental GASB standards and report the estimates for total future liability and clean up costs of landfills, Superfund sites, and petroleum tanks based on current costs,” says Margaret Jennnigef, financial reporting director in the Minnesota Department of Finance.
An official with the National Association of State Auditors, Comptrollers, and Treasurers did speculate the union of core performance measures with environmental GASB could backfire on reporting agencies. "This new model will move governments towards accrual accounting where you will possibly realize more environmental expenses then previously reported," says Kinney Poynter, the association’s deputy executive director. "That could have a negative impact on the ECOS core performance measures."
No state Environmental Council of States official contacted could speculate on the merger of core performance measures with environmental GASB, but a merger could set a national precedent for codified government enforced financial environmental performance reporting.
Donald Sutherland is a freelance writer based in Hopkinton, MA and a member of the Society of Environmental Journalists. His last RiskWorld story was “Superfund Awakes in State Supreme Courts.”
© Donald Sutherland 1999
Related Links
Government Accounting Standards Board (GASB)
http://www.gasb.org/
Rutgers GASB News
http://www.rutgers.edu/Accounting/raw/gasb/news/index.html
National Association of State Auditors, Comptrollers, and Treasurers
http://www.sso.org/nasact/nasact.htm
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Posted February 2, 2000
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