1. Pollution Remediation Obligations— the GASB Approach Wesley Galloway, GASB April 22, 2005 APPA Business & Financial Spring Meeting The views expressed in this presentation are those of Mr. Galloway. Official positions of the GASB are determined only after extensive due process and deliberation.

2. History 60’s—Growing Societal Concern 70’s—Pollution Prevention Laws Clean Water Act of 1970 Resource Conservation & Recovery Act of 1976 Clean Water Act of 1977 Analogous state laws

3. History 80’s—Pollution Remediation Laws Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (Superfund) Superfund Amendments and Reauthorization Act of 1986 Analogous state laws

4. Liability Standards Varies by state & law Liable under Superfund— Current & previous site owners & operators Disposers Transporters

5. Liability Standards Liability under Superfund— Strict Joint and several States share costs at orphaned NPL sites Private sites—10% of remedy and 100% of O&M Public facilities—50% of all response costs

6. Example County road dept. properly disposed of paint stripping chemicals But recycler did not

7. Liability Standards Safe harbor (under SARA) Innocent buyer who exercised due professional care in purchase

8. Map Features Water dischargers Superfund Hazardous waste Toxic releases Air emissions BRS Multi-activities Schools Hospitals Churches Populated Places Streets Streams Water Bodies Zipcodes CountiesWater dischargersSuperfundHazardous wasteToxic releasesAir emissionsBRSMulti-activitiesSchoolsHospitalsChurchesPopulated PlacesStreetsStreamsWater BodiesZipcodesCounties 2.0 mi across. Tips: Click on the map or choose another option.

9. Sites Needing Attention Source: 50 States Studies, ELI.org

10. Extant Guidance FAS 5, Contingencies SOP 96-1, Environmental Remediation Liabilities GASB 18, Landfills & FAS 143, AROs UN ISAR Position Paper in 1998 IPSAS 19 (IAS 37), Provision & Contingencies

11. Scope Pollution Remediation Obligations Except GASB 18 (landfills) No asset retirement obligations

12. Pollution Remediation Pre-cleanup site assessment, feasibility study, design, etc. Cleanup, neutralization, containment, disposal activities Oversight and enforcement costs Operation and maintenance of the remedy and monitoring

13. What/When is a Liability? GASB looked at 7 definitions 5 of 7 include notion of expected or probable sacrifice

14. What/When is a Liability? Report pollution “if” you find it Drilling in many cities finds pollution Dry cleaner double-standard No known cleanup technology Brownfield redevelopment Asbestos removal Orphaned gas wells—state liable? (Educating children)

15. Obligating Events Determine if recognizable when: Imminent threat compels action Violate pollution prevention permit Named as responsible party Named in lawsuit to enforce action Remediation commenced

16. Recognition Recognize components of liability as they become reasonably estimable Recognition benchmarks Administrative order benchmark Site assessment/investigation benchmark etc. Using expected cash flow technique

17. Two Contingencies Separately, Neither is Probable

18. Two Contingencies Together They Are Probable

19. Even “Remote” Contingencies Can Be Probable In the Aggregate

20. Measurement Cost accumulation, not fair value Expected cash flow, not best estimate Current value, not present value

21. Current Value Based on reasonable and supportable assumptions about future events Approved laws and reg.s Extant technology expected to be used

22. Which Costs? All direct costs attributable to remediation Entity must decide whether to include indirect and non- incremental costs

23. Debit Entry Generally Expense Can defer expense under FAS 71 Capitalize in certain situations Do NOT record liabilities for capitalizable costs!

24. Capitalization Capitalize if a.Cleanup to prepare property for sale (limited to fair value) b.Polluted property bought and cleaned for service (cap) c.Asset impaired and cleanup restores lost service utility (cap) For a. & b., capitalize only if incurred within reasonable period

25. Expected Recoveries Two types covered Payments from other PRPs Insurance recoveries Net against remediation expense/expenditures

26. Expected Recoveries If not realized or realizable— Offset against remediation liabilities Realized or Realizable Report separate recovery assets

27. Annual Accretion Adjust liability annually for changes Inflation or deflation Price increases/decreases for specific cost elements Changes in technology Changes in laws or regulations Same as Statement 18

28. Disclosures For recognized losses and recoveries if necessary to keep FS from being misleading, disclose: Nature & source of PRO Liability, if not apparent Methods and assumptions Potential for change in estimate Recoveries offsetting the liability

29. Disclosures For amounts not yet reasonably estimable General description of nature of PRO

30. Timetable Preliminary Views – March 2005 Exposure Draft – Dec. 2005 Statement – 3 RD quarter 2006