• GASB and the User Community
• The User's Perspective
• User Guide Series

Coming to a CAFR Near You: The New Statistical Section, Part 1

            The statistical section is the part of a comprehensive annual financial report (CAFR) where governments present historical information—typically for the past 10 years—about their finances and operations and about their constituents and economy. Although the statistical section has proven to be brimming with valuable information to a wide variety of users of governmental financial information, the basic standards governing its preparation are over 25 years old. In that period, there were many changes in government finance, such as the diversification of the debt that governments issue and the revenues they collect—general obligation debt and the property tax are no longer uncontested kings. The CAFR that the statistical section appears in also has changed around it, most notably with the addition of government-wide financial statements prepared on a full accrual basis under GASB Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments.

            The statistical section standards also were problematic. They amounted to no more than a list of 15 schedule titles, which left many of the details regarding what to present and how to present it to the professional judgment of government finance officers. Consequently, considerable variation has developed—the information found in one government’s statistical section may be very different from what is in the next government’s statistical section. In addition, the standards were written in the context of general purpose local governments—cities, towns, villages. Other types of governments—for example, counties, states, school districts, colleges, airports—were left to determine how best to apply the standards. As a result, many schedules that did not appear relevant to them were simply not presented at all.

            Things are about to change. Governments are now in the fiscal year for which they have to implement GASB Statement No. 44, Economic Condition Reporting: The Statistical Section. This is the first of two articles describing how the information in the statistical section is changing, the new information that is being added, and the old information that may disappear. The article concludes in the next issue.

In a Nutshell: What Statement 44 Does and Does Not Do

            Statement 44 was intended to do four things. First, it adds new information to capture the changes that have taken place in government finance. For example, a new schedule is added to track changes in total indebtedness over the past 10 years, in addition to information about general bonded debt.

            Second, Statement 44 revises the current standards to make previously reported information more useful. It replaces the mishmash of information found in the “miscellaneous statistics” schedule with more comprehensive presentations of the information that CAFR users found most valuable in that schedule. Governments will now present 10-year trends in their employment, indicators of their operations, and statistics about their capital assets.

            Third, Statement 44 reorganizes the statistical section’s required information and clarifies the objectives of that information. This should enable governments other than general purpose localities to appropriately apply the standards to their own circumstances. There should no longer be any glaring gaps in the statistical section.

            Fourth, Statement 44 captures the new information governments are now reporting after implementation of Statement 34, including: full accrual financial information for the government as a whole, long-term debt ratios, and capital asset statistics.

            What Statement 44 does not do is change the status of the statistical section. It continues to be supplementary information and therefore is not audited. Governments are required to prepare a statistical section only if they present their financial statements in a CAFR. However, the GASB did make clear that any statistical section that accompanies a government’s financial statements, regardless of whether they are in a CAFR or not, should conform to Statement 44. If you see something called a statistical section included in a government’s financial report, you can expect that it contains the information that Statement 44 requires.

Reorganization and Explanation

            The information that governments were reporting in their statistical sections seemed to organize naturally into five categories—information about financial trends, revenue capacity, debt capacity, demographics and economy, and operations. Mindful of the difficulties that entities other than general purpose local governments had in applying parts of the standards, the GASB described the objectives of statistical section information and emphasized that a government, when specific requirements of Statement 44 do not seem applicable to it, should consider the overarching objective and what information could be provided to achieve it.

            In general, the GASB described the overall objectives of statistical information as providing additional historical perspective, context, and detail to help the reader utilize the information elsewhere in the financial report for the purpose of understanding and assessing a government’s economic condition. Although similar to the familiar term financial condition, economic condition is a more comprehensive concept of governmental financial health, encompassing financial position, fiscal capacity, and service capacity. Statement 44 proceeds to describe the objectives of the five categories of statistical section information:

• Financial trends information is intended to assist users in understanding and assessing how a government’s financial position has changed over time.
• Revenue capacity information is intended to assist users in understanding and assessing the factors affecting a government’s ability to generate its own-source revenues.
• Debt capacity information is intended to assist users in understanding and assessing a government’s debt burden and its ability to issue additional debt.
• Demographic and economic information is intended to (1) assist users in understanding the socioeconomic environment within which a government operates and (2) provide information that facilitates comparisons of financial statement information over time and among governments.
• Operating information is intended to provide contextual information about a government’s operations and resources to assist readers in using financial statement information to understand and assess a government’s economic condition.

Focus of the Statistical Section

            In general, the information in the statistical section should relate to the primary government. In other words, information about discretely presented component units—legally separate organizations for which the elected officials of the government are financially accountable, such as many public benefit corporations—typically would not be included. However, governments are required to use the same decision-making process they follow for deciding whether discretely presented component units should be included in the notes or in management’s discussion and analysis. The decision essentially boils down to the finance officer’s professional judgment as to whether information about the component unit is essential to fairly presenting information about the primary government.

Financial Trends Information

            Two new schedules will appear in the statistical section to report trends in the government-wide, full accrual information required by Statement 34. (See Figure 1 for a complete list of schedules a typical general purpose government would present. Figure 2 contains a list for a typical business-type government.) Governments will present the components of net assets—invested in capital assets net of related debt, restricted, and unrestricted—and changes in net assets. The change in net assets information will not be just revenues and expenses but all changes in net assets so that the schedule will drive toward the annual bottom line surplus or deficit. Ultimately, these schedules will cover the most recent 10 fiscal years. Initially, however, the schedules may contain only the most recent year, though the GASB encourages governments to initially extend as far back as the year they implemented Statement 34. Some business-type entities, such as airports or utilities, may have full accrual information that they can report for a full 10 years immediately, but most governments did not have such information before implementing Statement 34.

            The financial trends information in most statistical sections was previously limited to schedules of revenues and expenditures. Some governments presented the information for their general fund, some for all governmental funds, and others for the general fund plus select other funds. To ensure some conformity, Statement 44 requires that this information be provided for the governmental funds as a whole. Additionally, governments will present all changes in fund balance in order to lead to the annual total increase or decrease in fund balance.

            Statement 44 adds to this schedule the useful information that previously was presented in a separate schedule of debt service ratios. The schedule of changes in fund balance will show the principal and interest components of debt service separately and will present a new ratio of debt service expenditures to noncapital expenditures. The old debt service schedule divided debt service by total expenditures, but financial statement users have indicated to the GASB that dividing by noncapital expenditures is a more meaningful and less volatile measure.

            At the outset, the schedule of changes in fund balances may not have a consistent trend. Most governments should have ready access to the information necessary to flesh out the old revenue and expenditure schedules to create a full 10-year trend, and the GASB encourages governments to do so. However, the general minimum requirement of Statement 44 is prospective implementation—in other words, the schedule could have the old information prior to the implementation year and the new information afterwards. If a government does not revise the information for prior years, it is required to clearly note when the information changes and describe the nature of the difference in the information.

            The last of the four financial trends schedules also is new. Although some governments have presented trends in fund balances for some time, most did not. However, this information is clearly valuable to the public (see the article on fund balance in this issue). Therefore, Statement 44 requires the reporting of reserved and unreserved fund balances for the past 10 fiscal years. The schedule should show balances for (1) the general fund and (2) all other governmental funds in the aggregate. If a government designates a portion of its unreserved fund balance, it may report the designated and undesignated parts separately in the schedule, but it is not required to do so.

Figure 1. The Impact of Statement 44 on a Typical General Purpose Government’s Statistical Section

Revenue Capacity Information

            This may be one of the most important areas of clarification in Statement 44. The prior standards listed four property tax schedules—property values, overlapping tax rates, levies and collections, and principal taxpayers. Governments that did not have a property tax often did not present any schedules. In the general purpose local government context of the prior standards, the property tax was by far the most significant revenue over which such governments had control. Statement 44 clarifies that the standards were not intended to require exclusive reporting of property taxes but to focus on the most significant “own-source revenue” of the government—sales taxes, income taxes, water and sewer fees, and so on.

Figure 2. Applicability of Required Schedules to a Typical Business-Type Government

Figure 3. Sample Schedule of Principal Revenue Payers

            Some governments may not legally be allowed to identify individual payers; it is generally not allowed, for instance, to identify individual income tax payers. This is a prime situation in which governments are challenged to consider the overall objective of the required information. Such governments should present other information that conveys the degree to which they are or are not dependent on a small group of payers. At this point in the implementation of Statement 44, a clear trend has not developed, but the GASB has encouraged governments to consider information such as income tax revenue by income level.

            If a government’s revenue capacity schedules report a property tax, it will also present a schedule of levies and collections. This schedule is very similar to what governments have been presenting for many years but with a very significant change. The schedule continues to include the amount levied for each of the last 10 years, the amount collected prior to the end of each year, and the percentage collected. However, in the past, some governments have then reported the amount collected on each levy in subsequent years, whereas others have reported the amount collected each year on all prior levies. The latter information is no more than a breakdown of each year’s revenue between the current levy and prior levies. The GASB’s research found that that information is not as useful as the distinction between the portion of the levy collected in the first year and the portion collected in subsequent years, which Statement 44 now requires. With the amount collected during the period of the levy and the amount collected subsequently, the schedule can present a total amount collected for each levy and a total percentage of the levy collected. (See Figure 4 for a simple example of what this schedule might look like.)

Figure 4. Sample Schedule of Property Tax Levies and Collections

   

Debt Capacity Information

Figure 5. Sample Ratios of Outstanding Debt Schedule