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Implementing GASB Statement No. 49: Implementing GASB Statement No. 49: A Cooperative Effort in New York A Cooperative Effort in New York

September 24, 2008September 24, 2008

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Implementing GASB Statement No. 49: A Implementing GASB Statement No. 49: A Cooperative Effort in New YorkCooperative Effort in New York

GASBS 49 OverviewGASBS 49 Overview OSCOSC

– AssessmentAssessment– OutreachOutreach– MethodologyMethodology

DECDEC– BackgroundBackground– Challenges, Methodology, and ResultsChallenges, Methodology, and Results

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Overview of GASBS 49Overview of GASBS 49

Establishes standards for accounting and financial reporting for Establishes standards for accounting and financial reporting for pollution remediation obligations. Explains when pollution pollution remediation obligations. Explains when pollution remediation obligations should be reported and how to determine remediation obligations should be reported and how to determine the liability.the liability.

Applies to all State and local governments. Applies to all State and local governments.

Addresses when and how to report known pollution. The Standard Addresses when and how to report known pollution. The Standard does not require governments to find pollution. does not require governments to find pollution.

Effective for years beginning after December 15, 2007. Effective for years beginning after December 15, 2007. Governments with sufficient and verifiable information should Governments with sufficient and verifiable information should apply the Statement retroactively to all prior periods presented.apply the Statement retroactively to all prior periods presented.

Defines five obligating events that determine when a pollution Defines five obligating events that determine when a pollution remediation obligation should be recognized as a liability. remediation obligation should be recognized as a liability.

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Overview of GASBS 49, continuedOverview of GASBS 49, continued

The five obligating events are triggered when the governmentThe five obligating events are triggered when the government:: 1. is compelled to take remediation action because pollution creates an 1. is compelled to take remediation action because pollution creates an

imminent endangerment to public health or welfare or the imminent endangerment to public health or welfare or the environment.environment.

2. is in violation of a pollution prevention-related permit or license.2. is in violation of a pollution prevention-related permit or license.

3. is named, or evidence indicates that it will be named, by a regulator 3. is named, or evidence indicates that it will be named, by a regulator as a responsible party or potentially responsible party for remediation, as a responsible party or potentially responsible party for remediation, or as a government responsible for sharing costs.or as a government responsible for sharing costs.

4. is named, or evidence indicates that it will be named, in a lawsuit to 4. is named, or evidence indicates that it will be named, in a lawsuit to compel the government to participate in remediation.compel the government to participate in remediation.

5. commences, or legally obligates itself to commence, cleanup 5. commences, or legally obligates itself to commence, cleanup activities.activities.

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Overview of GASBS 49, continuedOverview of GASBS 49, continued Obligations that can be reasonably estimated should be expensed, Obligations that can be reasonably estimated should be expensed,

except under certain conditions where obligations can be capitalized. except under certain conditions where obligations can be capitalized.

The liability should include direct expenses ( for example payroll, The liability should include direct expenses ( for example payroll, materials, equipment, and legal and professional services) as well as materials, equipment, and legal and professional services) as well as indirect expenses (for example, general overhead).indirect expenses (for example, general overhead).

The amount to report is calculated based on an expected cash flow The amount to report is calculated based on an expected cash flow

measurement technique. measurement technique.

If the liability cannot be reasonably estimated, then a government will If the liability cannot be reasonably estimated, then a government will describe the nature of the pollution remediation in the notes to it’s describe the nature of the pollution remediation in the notes to it’s financial statements.financial statements.

Under specific circumstances obligations are capitalized. Under specific circumstances obligations are capitalized.

Obligations may be reduced by recoveriesObligations may be reduced by recoveries..

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Footnote DisclosureFootnote Disclosure

The following elements relative to pollution remediation should The following elements relative to pollution remediation should be disclosed: be disclosed:

The nature and source of pollution remediation obligations The nature and source of pollution remediation obligations (for example, federal, state or local laws or regulations).(for example, federal, state or local laws or regulations).

The amount of the estimated liability, the methods used for the The amount of the estimated liability, the methods used for the estimate, the potential for changes in the amount due to such estimate, the potential for changes in the amount due to such items as price changes, new technology, or applicable laws or items as price changes, new technology, or applicable laws or regulations.regulations.

Estimated recoveries that could reduce the liability. Estimated recoveries that could reduce the liability.

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AssessmentAssessment

OSC surveyed all State agencies in April, 2007 in order to define the population OSC surveyed all State agencies in April, 2007 in order to define the population of State agencies that are involved in pollution remediation situations as of State agencies that are involved in pollution remediation situations as defined by the Standard. The survey listed the five obligating events and asked defined by the Standard. The survey listed the five obligating events and asked the Commissioners to respond whether any of those events have occurred. The the Commissioners to respond whether any of those events have occurred. The initial outreach effort surveyed 75 agencies which resulted in 61 responses.initial outreach effort surveyed 75 agencies which resulted in 61 responses.

OSC compared the results of the survey with the DEC State Environmental OSC compared the results of the survey with the DEC State Environmental Audit Report, which is issued annually, to ensure that all agencies that report Audit Report, which is issued annually, to ensure that all agencies that report to DEC as having pollution remediation also reported the same information to to DEC as having pollution remediation also reported the same information to OSC. OSC.

Based on the information obtained from the survey and from other reports, Based on the information obtained from the survey and from other reports, OSC determined which agencies would be responsible for reporting under OSC determined which agencies would be responsible for reporting under GASBS 49 as of March 31, 2008. This date was used so that the beginning fund GASBS 49 as of March 31, 2008. This date was used so that the beginning fund balances at 4/1/08 could be restated to reflect the result of implementation of balances at 4/1/08 could be restated to reflect the result of implementation of the Standard. the Standard.

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OutreachOutreach OSC and KPMG have met with individual agencies to discuss applicability of OSC and KPMG have met with individual agencies to discuss applicability of

the Standard as well as possible recognition methodologies and timeframe for the Standard as well as possible recognition methodologies and timeframe for implementation.implementation.

OSC has hosted Interagency Workshops along with KPMG. OSC has hosted Interagency Workshops along with KPMG.

OSC invited the State University of NY, the City University of NY, and the OSC invited the State University of NY, the City University of NY, and the Public Benefit Corporations (44 entities) to this forum in order to ensure that Public Benefit Corporations (44 entities) to this forum in order to ensure that adoption of the Standard by these entities occurs concurrently with the State’s adoption of the Standard by these entities occurs concurrently with the State’s implementation. This is necessary because these entities are reported in the implementation. This is necessary because these entities are reported in the State’s GAAP basis financial statements. State’s GAAP basis financial statements.

When requested, OSC provided a worksheet template to agencies as to what When requested, OSC provided a worksheet template to agencies as to what costs make up the liability.costs make up the liability.

OSC continues to communicate with agency personnel responsible for OSC continues to communicate with agency personnel responsible for developing the estimated liability.developing the estimated liability.

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MethodologyMethodology Pollution remediation sites are inventoried by the agency Pollution remediation sites are inventoried by the agency

responsible for monitoring them. responsible for monitoring them.

The number of sites per agency will vary. The number of sites per agency will vary.

Agencies with just a few sites may find it very easy to determine an Agencies with just a few sites may find it very easy to determine an estimated liability.estimated liability.

Agencies with many sites may have difficulty gathering data from Agencies with many sites may have difficulty gathering data from all sites in order to estimate the liability. all sites in order to estimate the liability.

Statistical sampling is an acceptable method of estimating the Statistical sampling is an acceptable method of estimating the pollution remediation liability. Sampling will enable an agency to pollution remediation liability. Sampling will enable an agency to extrapolate known data from smaller groups of sites to all sites in extrapolate known data from smaller groups of sites to all sites in the population so that an estimate for the entire population can be the population so that an estimate for the entire population can be developed. developed.

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MethodologyMethodology

Pollution remediation obligation may be embedded in a larger Pollution remediation obligation may be embedded in a larger project. It is necessary to identify whether a project includes project. It is necessary to identify whether a project includes pollution remediation, and estimate the liability that pertains to the pollution remediation, and estimate the liability that pertains to the pollution remediation piece of the project. pollution remediation piece of the project.

For purposes of the following two examples, assume that that the For purposes of the following two examples, assume that that the criteria for capitalization are not met.criteria for capitalization are not met.

– Replacing tile flooring that contains asbestos is an example. The portion Replacing tile flooring that contains asbestos is an example. The portion of the project that relates to the removal of the asbestos is expensed of the project that relates to the removal of the asbestos is expensed under GASBS 49. Therefore, it is necessary to identify the cost under GASBS 49. Therefore, it is necessary to identify the cost associated with the asbestos removal and expense that portion of the associated with the asbestos removal and expense that portion of the project. project.

– Another example of an embedded cost is the repainting of a bridge, Another example of an embedded cost is the repainting of a bridge, whereby old paint needs to be removed first. The old paint contains a whereby old paint needs to be removed first. The old paint contains a mixture of asbestos and lead. The removal of the old paint is expensed mixture of asbestos and lead. The removal of the old paint is expensed under GASBS 49 (not capitalized).under GASBS 49 (not capitalized).

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MethodologyMethodology

Limitations of the current accounting systems may make estimation of the Limitations of the current accounting systems may make estimation of the total outstanding obligation difficult. total outstanding obligation difficult.

It may be necessary to combine information from multiple systems in order to It may be necessary to combine information from multiple systems in order to arrive at the total outstanding liability.arrive at the total outstanding liability.

The method used to determine the liability as well as the dollar amount of the The method used to determine the liability as well as the dollar amount of the estimates are subject to audit. estimates are subject to audit.

OSC has been in contact with the project team responsible for setting up the OSC has been in contact with the project team responsible for setting up the new accounting system so that the liability and associated costs can be tracked new accounting system so that the liability and associated costs can be tracked in the system.in the system.

OSC is in the process of updating the Agency Financial Reporting Package OSC is in the process of updating the Agency Financial Reporting Package (AFRP) Internet Application to include reporting of pollution remediation (AFRP) Internet Application to include reporting of pollution remediation obligations.obligations.

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Background Background NYS Department of Environmental ConservationNYS Department of Environmental Conservation

Two enforcement programs affected by Two enforcement programs affected by GASBS 49GASBS 49

– State Superfund ProgramState Superfund Program

– Spill Response ProgramSpill Response Program

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Background Background NYS Department of Environmental ConservationNYS Department of Environmental Conservation

State Superfund Program – Identify and characterize suspected inactive

hazardous waste disposal sites– Investigate and remediate inactive hazardous waste

disposal sites that pose a significant threat to public health and the environment

– Administered by the Department of Environmental Conservation (DEC), Division of Environmental Remediation

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Background Background NYS Department of Environmental ConservationNYS Department of Environmental Conservation

State Superfund Program characteristics – Universe of sites relatively stableUniverse of sites relatively stable

As of March 31, 2008, DEC identified 2,266 sites under the Superfund Program that needed to be evaluated. Of those sites identified, 1,390 have been investigated and either cleaned up or were determined to not require any further action. The remaining 876 sites are either currently being addressed or will be in the near future.

– Long (multi-year/decade) process from Long (multi-year/decade) process from investigation to final clean-upinvestigation to final clean-up

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Background Background NYS Department of Environmental ConservationNYS Department of Environmental Conservation

State Superfund Program characteristics continued

– Most require long term Site ManagementMost require long term Site Management– Most Superfund sites are cleaned up by Most Superfund sites are cleaned up by

Responsible Parties (RP) however, State is Responsible Parties (RP) however, State is required to cleanup if they do notrequired to cleanup if they do not

– As of 4/1/2008 there were 227 Superfund projects As of 4/1/2008 there were 227 Superfund projects being cleaned up by the Statebeing cleaned up by the State

– These 227 represent a liability that These 227 represent a liability that must be estimated under GASBS 49

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Background Background NYS Department of Environmental ConservationNYS Department of Environmental Conservation

NYS Spill Response Program – NYS Navigation Law requires all unpermitted

releases of petroleum to be reported to DEC – Respond, investigate and remediate incidents

reported– May involve long term site management– Administered by the DEC, Division of

Environmental Remediation

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Background Background NYS Department of Environmental ConservationNYS Department of Environmental Conservation

NYS Spill Response Program continued

– Annually, 16,000 incidents reported to DEC – 97% of spills are cleaned up by the RP– 3% are cleaned up by State because the RP is

unknown or is financially unable or unwilling to clean up the release

– These 3% “State Lead Spills” create a liability that must be estimated under GASBS 49

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Background Background NYS Department of Environmental ConservationNYS Department of Environmental Conservation

NYS Spill Response Program continued – Spills are generally cleaned up quickly (75% Spills are generally cleaned up quickly (75%

closed in less than 2 years) resulting in a large closed in less than 2 years) resulting in a large turn-over of sitesturn-over of sites

– Over 86% of spills cost less than $50,000 each to Over 86% of spills cost less than $50,000 each to cleanupcleanup

– The 14% that cost more than $50,000 account for The 14% that cost more than $50,000 account for 86% of expenditures 86% of expenditures

– Based on data from State Fiscal Years 05/06, 06/07 and 07/08Based on data from State Fiscal Years 05/06, 06/07 and 07/08

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Challenges NYS Department of Environmental ConservationNYS Department of Environmental Conservation

Large number of sites in two separate programs.

Neither program set up to track long term liability

Existing site tracking databases not linked to the State’s accounting data systems

Limited resources available to conduct the required annual analysis

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Methodology Methodology NYS Department of Environmental ConservationNYS Department of Environmental Conservation

Two Approaches to Assessing LiabilityTwo Approaches to Assessing Liability

– Superfund Program - Estimate liability based on project phase and existing records

– Spill Response Program – Estimate current liability for a statistical sample of active State lead sites with accommodation for significant outliers

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Methodology Methodology NYS Department of Environmental ConservationNYS Department of Environmental Conservation

State Superfund ProgramState Superfund Program – Remedial Investigation – Use average cost for

recently completed RIs ($331,000) prior to remedy selection

– For Remedial Design Use the Record of Decision (ROD) cost estimate

– Remedial Action - Use the ROD cost estimate– For Site Management use ROD cost estimate – Liability is adjusted as phase is completed

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Methodology Methodology NYS Department of Environmental ConservationNYS Department of Environmental Conservation

Petroleum Spill Program Statistical ApproachPetroleum Spill Program Statistical Approach– Random sample the 1463 State Lead Spills open as Random sample the 1463 State Lead Spills open as

of 4/1/08of 4/1/08– Sample size - 91 with a 95% confidence levelSample size - 91 with a 95% confidence level– Project managers estimate liability for each of the Project managers estimate liability for each of the

91 sites91 sites– Any site known to managers where liability is Any site known to managers where liability is

expected to exceed $1 million not part of the expected to exceed $1 million not part of the sample are added in as outlierssample are added in as outliers

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Results Results NYS Department of Environmental ConservationNYS Department of Environmental Conservation

State Superfund Program analysis still under State Superfund Program analysis still under reviewreview– Need IT system modifications and “canned” Need IT system modifications and “canned”

reportsreports– Need to gather ROD data and enter into tracking Need to gather ROD data and enter into tracking

systemsystem– Less onerous using data maintained for program Less onerous using data maintained for program

purposes rather than creating a completely new purposes rather than creating a completely new data setdata set

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Results Results NYS Department of Environmental ConservationNYS Department of Environmental Conservation

Petroleum Spill Program Statistical ApproachPetroleum Spill Program Statistical Approach

– Manageable workloadManageable workload

– Easily defended with backup audit documentsEasily defended with backup audit documents

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Contact InformationContact InformationOffice of the State ComptrollerOffice of the State ComptrollerBureau of Financial ReportingBureau of Financial Reporting

Suzette Baker, Assistant DirectorSuzette Baker, Assistant Director518-486-1234518-486-1234

sbaker@osc.state.ny.us

Timothy Reilly, ManagerTimothy Reilly, Manager518-473-8983518-473-8983

treilly@osc.state.ny.us

Maria Moran, Senior AccountantMaria Moran, Senior Accountant518-474-3691518-474-3691

mmoran@osc.state.ny.us

Department of Environmental ConservationDepartment of Environmental ConservationDavid Finlayson, Section Chief of Fiscal ManagementDavid Finlayson, Section Chief of Fiscal Management

518-402-9718518-402-9718djfinlay@gw.dec.state.ny.usdjfinlay@gw.dec.state.ny.us