News - Bill's Blog

Pensions, OPEB… is ‘deferred maintenance’ the next shoe to drop?

December 13, 2019

A member of Truth in Accounting’s Board of Directors has been urging us to take a closer look at government financial reporting for infrastructure and related maintenance requirements. This is an area of growing interest and concern. 

Governments have undertaken to provide a wide variety of resources like roads, water and wastewater management facilities, and physical plants (like schools) that need ongoing maintenance as well as occasional large refurbishment and/or replacement projects. 

Historically, however, many governments have accounted for these activities on a “pay-as-you-go” basis, expensing large maintenance projects as they are undertaken. A growing number of interested parties suspect that this accounting has combined with other incentives to lead government officials to delay needed maintenance and repair.

Some people believe the dollar amounts of delayed but necessary spending are so large they warrant recognition as a new liability on the balance sheet, along the lines of “deferred maintenance obligations.” 

Many governments looked the other way while pension and other retirement benefit obligations bloomed off the balance sheet. Unfortunately, “deferred maintenance” may be a candidate for the next flower to blossom. 

It’s worth taking a cautionary note. Construction and related industries provide critical services for governments. Unfortunately, in more than a few places (like Illinois), they have also been fodder for worthy concern about the cost and value provided to citizens and taxpayers in an area that can be abused by corruption. It is also possible that some people are exaggerating the problem.

The Governmental Accounting Standards Board (GASB) does not have any current research project dedicated to this issue. However, they do have a broader “Capital Assets” project that includes these considerations. It was added to GASB’s research agenda in August 2019. It listed 11 main research areas, including how governments capitalize assets, depreciate them, estimate their service lives, and assess changes in their condition over time. 

The last of the 11 listed areas in GASB’s “Capital Assets” project dealt specifically with deferred maintenance. It called for research into how governments collect, estimate and report deferred maintenance needs, and whether those estimates should be in external financial reports.

Truth in Accounting will be taking a closer look at government reporting in this area – including at the federal government level as well as state and local governments.

 

 
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