GASB 34 Compliance. Retrospective Valuation of ODOT Infrastructure. A Proposed Approach

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1 GASB 34 Compliance Retrospective Valuation of ODOT Infrastructure A Proposed Approach ODOT s GASB 34 compliance effort consists of primarily two processes: 1. Retrospective reporting and 2. Prospective reporting. This summary addresses retrospective reporting. Retrospective reporting is the valuation of infrastructure in service at June 30, Issues: The primary issues are identified as follows: Method of reporting Infrastructure in Ohio to be reported by ODOT Identification and classification of infrastructure assets Historic valuation methods to be used Background: GASB Statement 34 requires state and local governments to report infrastructure assets and other capital assets, i.e. land, in their financial statements at actual or estimated historical cost. Retrospective reporting is encouraged for fiscal years beginning after June 15, It is ODOT s intent to begin retrospective reporting for periods beginning after June 15, Reported assets must be either depreciated or reported on a modified approach. The modified approach may be used so long the agency uses an asset management system that has an up-to-date inventory of eligible infrastructure assets performs condition assessments and summarizes results using a measurement scale Annually estimates the amount to preserve assets at an established and disclosed level of condition

2 To meet the second requirement governments should document that complete condition assessments are done in a consistent manner at least every 3 years. results of the three most recent complete condition assessments give reasonable assurance that assets are preserved at or above the levels established and disclosed. If the above requirements are met, the assets are not depreciated expenditures to maintain are expensed and additions and improvements are capitalized if capacity or efficiency are increased. If the aforementioned requirements are no longer met, the assets are required to be depreciated in subsequent reporting periods. The following required supplementary information (RSI) is mandatory for assets reported on a modified basis The three most recent condition assessments and dates thereof; and the estimated annual amount to preserve the condition level established compared with the amount actually expensed for each of the past 5 years. In the year of transition (fiscal year 2002 for the state), only the most recent condition assessment and the estimated and actual preservation costs for fiscal year 2002 are required. the basis for the condition measurement and measurement scale used to assess and report condition. the condition level at which the government intends to preserve its eligible infrastructure assets and factors that significantly affect trends of information reported in the required schedules. Method of Reporting ODOT has chosen to use the modified approach to reporting infrastructure assets. It is ODOT s opinion that the modified approach will provide financial statement users a truer presentation of ODOT s balance sheet and expenditures. ODOT s existing inventory

3 systems provide an up-to-date inventory of infrastructure assets which will be valued at estimated historical cost. State Infrastructure Reported by ODOT It was necessary to make a determination of which infrastructure in the state will be reported by ODOT. ODOT will report the infrastructure it is required to maintain. For the most part, Ohio Revised Code (ORC) determines the infrastructure that ODOT is required to maintain. In addition to reporting on infrastructure that it is required to maintain, ODOT will report on all infrastructure it may be required to maintain on request, i.e state highways in villages (less than 5,000 population). Lane miles in cities over 5,000 in population will not be reported by ODOT even though ODOT by choice may maintain certain roads in the city. A reporting matrix prepared in cooperation with the state auditor will summarize reporting responsibilities by agency Classification of Assets Infrastructure assets are classified into two networks; paving and bridges. Land is not an infrastructure asset. It is a high value capital asset and valuation is required by GASB 34. The preceding breakdown is consistent with our inventory systems and allows for the clearest delineation and most accurate valuation of assets. Historic Valuation Methods Following is a description of the historic valuation process and methods for each classification of assets. It should be noted that ODOT s present inventory systems neither utilize a capitalization threshold nor do they include cost data. We have not attempted to impose an artificial threshold for the purpose of implementing GASB 34. Paving Historic Valuation Technical Services Department (TSD) performs an annual inventory of state and interstate highways in conjunction with an annual review of the paving condition. Inventory results are maintained in an inventory system. The inventory system includes identification of lane miles by 4 lane and 2 lane miles. The ODOT Paving department estimated the cost per lane mile of both 2 lane and 4 lane paving. The lane mile cost is multiplied by lane miles to arrive at paving cost before appurtenant and incidental costs. Based on a review of prior year costs, the Estimating Department provided a percentage of paving cost for appurtenant and incidental items. The percentages (one for 2 lane and one for 4 lane) are applied to paving cost. The total current costs are indexed to 1983 costs, the estimated average age of ODOT highways (see example 8, page 244 of the implementation guide) based on a 35 year design life per the Paving department.

4 With the assistance of the Facilities and Real Estate departments a separate valuation was made of rest areas. The rest area valuation, excluding rest area land, is included with paving rather than shown as a separate item because it is not material in comparison with the paving or overall infrastructure valuation. The rest area in service date is known. The replacement cost is indexed to the in service date. Bridge Valuation The Structures department maintains an inventory of state bridges. ODOT will report on all bridges over 10 feet in length, approximately 15,000 bridges. The Bridge Inventory System (BIS) data includes the in service year and the square foot deck area of each bridge. It does not include cost. The square foot replacement cost was estimated based on reports of bridge cost from An extended period (14 years) was used because annual construction costs vary significantly by the types of bridges built in each particular year. By including costs over a 14 year period we attempt to achieve a representative sample of bridge types and costs. The aforementioned costs were indexed to 1999 to arrive at 1999 replacement cost for each year. The indexed 1999 replacement cost for each year were totaled and divided by the total deck area built for the period to arrive at the average replacement cost per square foot. The average square foot replacement cost was multiplied by the total deck area for all state bridges to arrive at the total replacement cost. Total replacement cost is allocated to each year based on the deck area put in service for the year. The replacement cost allocated to the year is indexed to the year built to arrive at the historic cost for each year. In a 1995 BMS subcommittee report, the Structures department determined that design cost is 11.6% of construction costs. The aforementioned design cost % is multiplied by construction cost and added to construction cost to arrive at the total historic cost of bridges. Land Valuation Based on over 2,300 samples, Technical Services department computed an average number of acres for each type of highway including interchanges. The average was multiplied by the length of each highway type to arrive at the total system number of acres. The acres were then identified by district and classified by rural or urban. The Real Estate department estimated the value per acre of rural and urban acres in each district and computed the replacement cost for each district. The value was added for all districts and divided by the total number of acres to arrive at a state wide cost per acre average. A problem encountered was how to determine when the land was purchased. Tech Services identified acres added after 1990 and after Average acquisition dates of 1995 and 1985 were used for acres acquired in these periods. However, 95% of system acres were acquired prior to Indexed construction costs from 1914 to 1980 were used to allocate the estimated replacement cost of land acquired prior to We favored this approach over using the average age of the highways, 17.5 years, because in

5 most cases the land was acquired considerably earlier than the existing paving. The land was acquired when the original roadway was put in, not when the highway had its last major refurbishment. Rest area land is included in land cost. Acres per rest area were determined by the Facilities department. The average cost per acre for the district per the Real Estate Department study were applied to the rest area acres. All costs were indexed to the appropriate year of acquisition. Condition Assessments and Policies Paving and bridge condition assessments are prepared annually. In conjunction with the condition assessments, policy statements defining acceptable deficiency levels will be prepared.