GASB Pronouncement Update Ted Williamson, CPA, Partner May 12, 2016

 Pension-Related Pronouncements:  Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not Within the Scope of GASB Statement No. 68  Statement No. 78, Pensions Provided Through Certain Multi-Employer Defined Benefit Pension Plans Agenda 2

 OPEB-Related Pronouncements:  Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans  Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions Agenda 3

 Other GASB Statements:  Statement No. 72, Fair Value Measurement and Application  Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments  Statement No. 77, Tax Abatement Disclosures  Statement No. 79, Certain External Investment Pools and Pool Participants Agenda 4

 Other GASB Statements:  Statement No. 80, Blending Requirements for Certain Component Units  Statement No. 81, Irrevocable Split-Interest Agreements Agenda 5

GASB Statement No. 73

 Title: Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68  Effective Date: Fiscal years beginning after June 15, 2016 for employers not subject to GASB 68; fiscal years beginning after June 15, 2015 for plans not subject to GASB 67 and for the amendments to GASB 67 and 68 GASB Statement No. 73

 Certain pension plans were not subject to GASB Statements No. 67 or 68 because they were not administered through a trust or equivalent arrangement  Statement No. 73 applies the requirements of Statements No. 67 and 68 to such plans  However, for plans not administered through trusts, assets accumulated for pensions should not be considered plan assets Entities Not Subject to GASB 67 and 68

 Certain information required to be provided as notes to RSI regarding investment related factors significantly affecting trends in amounts reported  Accounting for separately financed specific liabilities of individual employer and nonemployer contributing entities  Timing of employer recognition of revenue for the support of nonemployer contributing entities not in a special funding situation Clarifications of GASB 67 and 68

GASB Statement No. 78

 Title: Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans  Effective Date: Fiscal years beginning after December 15, 2015 GASB Statement No. 78

 Some governments participate in cost-sharing multiple-employer plans that:  Are not a state or local government pension plan  Provide benefits to employees of both governmental and nongovernmental employers  Have no predominant state or local governmental employer, either individually or collectively  Governments involved in such plans have difficulty obtaining necessary information to implement GASB Statement No. 68 GASB Statement No. 78

 Accordingly, Statement No. 78 exempts such governments from most of the accounting and financial reporting requirements of Statement No. 68  Instead:  Pension expense is recognized for the employer’s required contributions to the plan for the reporting period  A payable is reported for unpaid amounts at the end of the reporting period GASB Statement No. 78

GASB Statement No. 74

 Title: Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans  Effective Date: Fiscal years beginning after June 15, 2016 GASB Statement No. 74

 Historically the treatment for Other Post Employment Benefits (OPEB) has mirrored the treatment for pensions  OPEB plans are substantially the same as pensions in that employees are compensated for service in a later period  GASB Statement No. 67 and 68 were issued  GASB Statement No. 74 and 75 restore parallel treatment for pension and OPEB financial reporting Background For 74 and 75 16

 Applies to OPEB plans—defined benefit and defined contribution—administered through trusts that meet the specified criteria  Contributions are irrevocable  OPEB plan assets are dedicated to providing OPEB to plan members  OPEB plan assets are legally protected  Not administered through trust?  Government would report assets in an agency fund Scope And Applicability 17

 Statement requires two financial statements— 1)Statement of fiduciary net position 2)Statement of changes in fiduciary net position Financial Statements 18

 Descriptive information about the plan  Details on plan investment policy and plan investments  Additional notes required for single-employer and cost-sharing OPEB plans  Components of net OPEB liability and related ratios  Assumptions used to measure total OPEB liability, discount rate and sensitivity analysis  10 years of select information in RSI Notes And RSI 19

GASB Statement No. 75

 Title: Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions  Effective Date: Fiscal years beginning after June 15, 2017 GASB Statement No. 75

 Applies requirements similar to GASB Statement No. 68 to OPEB employers  Single employer and agent employers would report a net OPEB liability equal to the present value of projected benefit payments less the OPEB plan’s fiduciary net position  Cost sharing employers would report a liability equal to their proportional share of the plan’s net OPEB liability  Note disclosures and RSI similar to GASB Statement No. 68 are also required GASB Statement No

 Equals total OPEB liability less the OPEB plan’s fiduciary net position  Total OPEB liability must be based on an actuarial valuation, performed every 2 years (minimum)  Alternative measurement allowed for small plans  Fiduciary net position comes from the plan financial statements  Like pension plans, OPEB plans will implement new standards before the employers Net OPEB Liability 23

 Recognize a liability equal to the net OPEB liability  Changes in the net OPEB liability during the year will either be reported as expense or deferred outflows/inflows of resources Single And Agent Employers 24

Components Of Expense 25 Changes in Net OPEB LiabilityOPEB Expense Deferred Inflows/Outflows 1-Employee work and earn benefits (service costs) x 2-Interest on total OPEB liability x 3-Change in total OPEB liability change in terms of OPEB benefits x change in assumptions about economic & demographic factors Amortize over service period actual economic & demographic results differing from assumptions Amortize over service period 4-Change in amount of OPEB plan net assets projected investment earnings x actual investment earnings differing from assumed earnings Amortize over 5 years all other x 5-Change in proportionate share (cost sharing plan only) Amortize over service period

 Descriptive information about the plan  Components of net OPEB liability and related ratios  Significant assumptions and other inputs used to calculate the total OPEB liability  Date of valuation  Basis for determining employer contributions  10 years of select information in RSI Notes And RSI 26

 Recognize a liability for its proportionate share of the collective net OPEB liability  Recognize OPEB expense and report deferred outflows/inflows of resources OPEB for its proportionate shares of those items  Notes and RSI requirements similar to single and agent employers Cost-Sharing Employers 27

GASB Statement No. 72

 Title: Fair Value Measurement and Application  Effective Date: Fiscal years beginning after June 15, 2015 GASB Statement No. 72

Definition  GASB Statement No. 72 defines fair value as: “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”  Thus, the objective of a fair value measurement is to estimate the exit price of assets and liabilities 30

Fair Value Hierarchy  GASB Statement No. 72 establishes a fair value hierarchy, similar to that set forth by FASB Statement No. 157 for for-profit and not-for-profit entities  Level 1 inputs : unadjusted market prices in active markets for identical assets or liabilities  Level 2 inputs : quoted prices for similar assets or liabilities or market-corroborated observable inputs  Level 3 inputs : unobservable inputs 31

Fair Value Hierarchy  The highest priority should be given to Level 1 inputs and the lowest priority to Level 3 inputs  Governments may use quoted prices obtained from third parties, such as pricing services or brokers, as long as the government has determined that the quoted prices provided by the third parties have been developed in accordance with the GASB’s guidance 32

Investments  GASB Statement No. 72 generally requires investments to be measured at fair value  The Statement defines an investment as: “A security or other asset that a government holds primarily for the purpose of income or profit, and the present service capacity of which is based solely on its ability to generate cash or to be sold to generate cash.” 33

Net Asset Value  GASB Statement No. 72 permits governments, as a practical expedient, to estimate the fair value of an investment that does not have a readily determinable fair value using the net asset value per share (or its equivalent) of the investment  This will be relevant to certain types of investments such as private equity funds, hedge funds and limited partnerships 34

Liabilities  GASB Statement No. 72 also indicates that fair value applies to certain liabilities, such as interest rate swaps and other derivatives  The fair value of such a liability would be the price to transfer it to a market participant at the measurement date 35

Donated Capital Assets  Certain types of donated capital assets are required by existing GASB pronouncements to be reported at fair value  GASB Statement No. 72 would require these items to instead be reported at acquisition value, which is defined as the price that would be paid for acquiring similar assets having similar service capacity as of the acquisition date 36

Disclosure Requirements  For recurring and nonrecurring fair value measurements:  The fair value measurement at the end of the reporting period  The level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1, 2, or 3)  A description of the valuation techniques and the inputs used in the fair value measurement 37

Disclosure Requirements  For nonrecurring fair value measurements, the reason for the measurement  For investments in entities that calculate a net asset value per share or its equivalent, information that helps users understand the nature and risks of the investments and whether the investments are likely to be sold at amounts different from net asset value per share 38

Example Disclosure – City Government 39

Example Disclosure – Pension Plan 40

Example Disclosure – Pension Plan 41 NOTE: This represents the fair value hierarchy table portion of the disclosure only, and excludes the narrative portions of this disclosure.

Example Disclosure – Pension Plan 42 NOTE: This table will be accompanied by additional narrative disclosures describing the fund strategies and how fair value has been calculated for each investment.

GASB Statement No. 76

 Title: The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments  Effective Date: Fiscal years beginning after June 15, 2015 GASB Statement No. 76

 (a) Officially established accounting principles – Governmental Accounting Standards Board (GASB) Statements  (b) GASB Technical Bulletins; GASB Implementation Guides; and literature of the American Institute of certified Public Accountants (AICPA) if specifically cleared by the GASB The New Hierarchy of GAAP

 Category (a) should be followed before category (b)  If categories (a) and (b) do not address the accounting treatment for a transaction or event (or a similar transaction or event), nonauthoritative literature may be used, after first considering GAAP for similar transactions  The nonauthoritative literature cannot conflict with or contradict authoritative GAAP The New Hierarchy of GAAP

 GASB Concepts  Pronouncements and other literature of the Financial Accounting Standards Board (FASB)  Federal Accounting Standards Advisory Board  International Public Sector Accounting Standards Board  AICPA (other than literature cleared by GASB) Nonauthoritative Accounting Literature

 Practices that are widely recognized and prevalent in state and local government  Literature of other professional associations or regulatory agencies  Accounting textbooks, handbooks and articles Nonauthoritative Accounting Literature

GASB Statement No. 77

 Title: Tax Abatement Disclosures  Effective Date: Fiscal years beginning after December 15, 2015  Requires disclosure of tax abatement information, including description of agreements, gross dollars abated, and commitments made GASB Statement No. 77

 A reduction in tax revenues that results from an agreement between 1 or more governments and an individual/entity  One or more governments promise to forgo tax revenues to which they are otherwise entitled AND  The individual or entity promises to take a specific action after the agreement has been entered into that contributes to economic development or otherwise benefits the government or its citizens  Includes tax abatements resulting from agreements of the government itself, or agreements of others that reduce the government’s tax revenues. Defining Tax Abatements 51

 Distinguish between agreements entered into directly, and those that are entered into by other governments  Disclosure information may be aggregated; individual display must be based on quantitative threshold  If agreement is directly with the government, should be organized by each major tax abatement program  If agreement is entered into by other governments, should be organized by the government that entered into the agreement, and the specific tax being abated  Disclosure commences in period in which agreement is entered into, and continues until agreement expires. New Note Disclosures 52

 Descriptive information:  Name and purpose of the tax abatement program  Specific taxes being abated  Authority under which agreements are entered into  Eligibility criteria for recipients  Mechanism by which taxes are abated  How taxes are reduced (reduction of tax liability, rebate, reduction of assessed value, etc)  How the amount is determined (specific $ amount or % of tax owed)  Provisions for recapturing abated taxes, if any  Types of commitments made by the recipients of the abatements New Note Disclosures 53

 The gross (accrual basis) amount by which the government’s tax revenues were reduced as a result of the agreements  If amounts are received/receivable from other governments in association with forgone tax revenue  Name of government  Authority under which amounts are paid  Dollar amount received or receivable  If government makes commitments (other than tax reduction) as part of agreement:  Type of commitment made  Most significant individual commitments made New Note Disclosures 54

GASB Statement No. 79

 Title: Certain External Investment Pools and Pool Participants  Effective Date: Fiscal years beginning after December 15, 2015 GASB Statement No. 79

 GASB 79 establishes how participants in external investment pools may measure and report their investments in response to changes contained in an SEC rule due to take effect April 2016  Establishes additional note disclosure requirements for governments that participate in qualifying pools. These required disclosures include information about limitations or restrictions on participant withdrawals. GASB Statement No. 79

 Participants in qualifying pool that measures its investments at amortized cost should disclose any limitations or restrictions on withdrawals  Redemption notice periods  Maximum transaction amounts  Pool’s authority to impose liquidity fees or redemption gates Disclosures 58

GASB Statement No. 80

 Title: Blending Requirements for Certain Component Units  Effective Date: Fiscal years beginning after June 15, 2016 GASB Statement No. 80

 Creates an additional blending criteria: when component unit is incorporated as a not-for- profit and the primary government is the sole corporate member, the component unit should be blended  Does not apply to component units included in the financial reporting entity via Statement No. 39 (i.e., most university foundations) GASB Statement No. 80

 Does not mean that all not-for-profits for which the primary government is the sole corporate member are component units  Still must go through existing component unit guidance first, and then if the not-for-profit is a component unit determine whether to discretely present or blend GASB Statement No. 80

GASB Statement No. 81

 Title: Irrevocable Split-Interest Agreements  Effective Date: Fiscal years beginning after December 15, 2016 GASB Statement No. 81

 Establishes accounting and financial reporting guidance for split-interest agreements, which are a type of giving arrangement used to provide resources to two or more beneficiaries  Examples include charitable remainder trusts, charitable lead trusts, and charitable gift annuities GASB Statement No. 81

 Statement applies to:  Irrevocable split-interest agreements  Created through trusts or equivalent arrangements  Statement specifically excludes beneficial interests in perpetual trusts  These should be evaluated as voluntary non- exchange transactions under GASB Statement No. 33. GASB Statement No. 81

 A government could have:  Remainder interest – The right to receive resources at the end of the agreement’s term  Lead interest – The right to receive resources throughout the agreement’s term  The government also may or may not be the intermediary for the trust:  The entity holding and administering the resources pursuant to the agreement GASB Statement No. 81

 When the government is the intermediary and has a remainder interest:  At inception, record an asset for the fair value of the trust assets, a liability for the amount due to third parties over the course of the agreement, and a deferred inflow for the government’s remainder interest  Disbursements to third parties reduce the liability  Liability and deferred inflow remeasured each year  Deferred inflow recognized as revenue upon termination of the trust Intermediary and Remainder Interest

 When the government is the intermediary and has a lead interest:  At inception, record an asset for the fair value of the trust assets, deferred inflow for the amount due to the government throughout the agreement, and a liability for the amount due to third parties upon termination  Disbursements to the government reduce deferred inflow and result in revenue being recognized  Liability and deferred inflow remeasured each year  Upon termination, liability and any remaining deferred inflow are eliminated Intermediary and Lead Interest

 When the government is NOT the intermediary:  At inception, record an asset and a deferred inflow for future distributions to be received  Asset and deferred inflow remeasured each year  Upon termination of the trust (for remainder interests), or as distributions are received (for lead interests), the deferred inflow is recognized as revenue Not the Intermediary