Peter,
Your questions are good ones, but the answers are not simple.
- The GASB pronouncement would apply to all levels of government.
However, obtaining full disclosure and transparency is a different
matter. For example, several years ago the FASB issued FAS #143 which
deals with disclosure of asset retirement obligations, the most important
of which are environmental liabilities. Most accounting firms choose to
interpret the standard as not requiring meaningful disclosure. Thus, the
FASB was forced to issue FIN 47 effective December 2005 in order to
emphasize that they meant what they said in FAS #143.
So the real
question is how would government accountants choose to interpret the
requirements of the
new GASB? Most
likely we will not know until the GASB issues interpretive guidance on the new
standard. My
belief is that the intent of the GASB is to require full disclosure and
recording of all
current and future
environmental liabilities at all levels of government, federal, state and
local. The
reality is that
such across the board implementation at all levels of government will require
enormous
financial resources
and a commensurate upgrade in technical ability not currently available in most
cities.
You also asked
about the impact on the federal deficit. Remember, the key impact of the new
GASB
Pronouncement is on
the balance sheet of government and not the income statement. Therefore,
there would be a
minimal impact on the current budget (and deficit). It is only when resources
are
devoted to the
remedial activities that we will see a major budgetary impact. Unfortunately,
only states
and cities will be
required under current law to address the information disclosed about
environmental
conditions at sites.
Under current law it is not as certain that the booking and disclosure of
environmental
liabilities would necessarily lead to rapid remediation of such liabilities.
Witness the
backlog of
superfund cleanups which are addressed only as funds become available.
- I am much more optimistic that the new standards would have a
favorable impact on the state and
local governmental levels. The recording and disclosure
of environmental liabilities at the state and
local government level would be required independent of
the particular state and local brownfields
programs. As I have previously stated, the recordation
of such liabilities will have an adverse
impact on state and local governments’ balance sheets,
especially vis-à-vis the ratings of credit
agencies. The rational response of localities would be
to mitigate the balance sheet impacts by
addressing the environmental liabilities through state
and local brownfields programs. Thus, the new
GASB requirements will probably result in an
acceleration of remedial efforts under these programs in
order for governments to relieve themselves of these
liabilities.
Since state and local governments would be under extreme
pressure to transfer these liabilities to
private sector redevelopers, it is urgent that we
prepare ourselves as citizens to be certain that as such
accelerated redevelopment takes place it does not result
in a lessening of standards that would be
protective of human health and the environment. I would
hope that state and local governments would
choose to give developers tax and entitlement
incentives. I fear that it would be cheaper for them to
simply relax environmental standards.
I am not sure that the accounting regulatory community
(GASB and FASB) is even aware of the
environmental social changes that would result from this
proposed pronouncement. We live in
interesting times.
Bruce
-----Original Message-----
From: peter
[mailto:petestrauss1@comcast.net]
Sent: Friday, April
21, 2006 12:26 PM
To: 'Bruce-Sean Reshen'; 'Jim
McRitchie'; lsiegel@cpeo.org; 'Brownfields Internet Forum'; 'Beth Grigsby'
Subject: RE: [CPEO-BIF] GASB
Accounting for Pollution Remediation
I have two questions for
this group:
1. Does the GASB standard
apply to federal property, such as DOE sites? If yes, what would be the
effect on overall deficit? If no, should it?
2. With regards to the
Brownfields program, would the GASB standard discourage state and local
governments from participating in the program (i.e., would those entities not
want to know about potential liabilities)?
Thanks,
Peter Strauss
From:
brownfields-bounces@list.cpeo.org [mailto:brownfields-bounces@list.cpeo.org] On Behalf Of Bruce-Sean Reshen
Sent: Thursday, April 20, 2006
3:43 PM
To: 'Jim McRitchie';
lsiegel@cpeo.org; 'Brownfields Internet Forum'; 'Beth Grigsby'
Subject: RE: [CPEO-BIF] GASB
Accounting for Pollution Remediation
Importance: High
I believe Beth Grimsby’s
comment is in error. Not only would the proposed new GASB standard not
retard the redevelopment of brownfields, its impact may be to accelerate
redevelopment of sites in the hands of governmental units.
First, it is important to
state that this proposed standard would not impact private redevelopment
efforts all. The impact would be confined to sites either actually or
figuratively owned by governments. “Actual” ownership clearly
refers to sites legally owned by the local, state or federal government.
Under these circumstances the government would responsible for all remedial
costs and any 3rd party costs. When I speak of
“figurative” ownership, I am referring to those sites where the
governmental unit has, in the absence of a viable private sector PRP, the
responsibility to remediate the site in order to protect human health and the
environmental. The government might also have responsibility under health
and safety codes to provide medical assistance, housing costs and emergency
financial assistance to 3rd parties threatened or damaged by the
contamination.
In either case, under the
proposed GASB the government would be required to record liabilities for
current and future remedial costs. In addition, government may be
required to record obligations to 3rd parties injured by the
contamination. The particular government would also be required to
provide extensive disclosure of the nature and impact of these obligations in
the financial statements.
To the extent that these
recorded liabilities affect the credit position of the governmental unit, it
may result in a downgrading of the government’s bond ratings and future
interest costs. In extreme circumstances it may adversely affect the
liquidity and solvency of the governmental unit.
As governments become
aware of the potential impacts of their “ownership” of direct
remediation and 3rd party environmental liabilities, logic dictates
that they will be more, not less, amenable to working with the private sector
to encourage responsible redevelopment of brownfield sites. Zoning,
building and development agencies of the governmental unit will find it
imperative to work cooperatively with potential private sector redevelopers who
will promise to assume those remedial obligations in exchange for favorable
zoning and development decisions.
Thus, the likely impact
of the new GASB pronouncement (when finalized) will be a stepwise change in
paradigm. First, we will observe a downwards adjustment in the financial
position of governmental units with severe brownfields obligations. This
will serve to focus their attention on resolving remediation liabilities in the
most efficient and expeditious manner. Second, we are likely to see these
governments offer incentives and streamline the redevelopment process in order
to entice developers to assume these environmental liabilities. The
ultimate result will be to vastly accelerate the remediation and redevelopment
of these sites.
The writer is acutely
aware that there are two other corollaries of this analysis. First, in
the short run there will be an unfair and socially unproductive impact on
poorer communities that were once home to many derelict industrial sites with
severe contamination. It raises important environmental justice issues to
burden these poorer communities with the impact of this proposed accounting
pronouncement. These communities are most likely to see their balance
sheets deteriorate, their credit ratings plunge and their ability to service
their constituencies decline.
The second corollary is
that there will be severe social impacts in the affected communities,
exacerbating social tensions and a sharpening the divergent interests between
our core cities and our expanding suburban locales. It is clear that
until the many benefits of brownfields redevelopment can be realized, there
will be a need to support these communities with state and federal resources.
The writer has been a
Certified Public Accountant for over 20 years, has taught economics as a full
time tenured professor and has spent the greater portion of his career in real
estate development and brownfields activities. The writer’s company
currently managed the Guardian Trust, whose mission is to provide for assured
long term stewardship of sites remediated used risk-based technologies.
From:
brownfields-bounces@list.cpeo.org [mailto:brownfields-bounces@list.cpeo.org] On Behalf Of Jim McRitchie
Sent: Thursday, April 20, 2006
2:41 PM
To: lsiegel@cpeo.org; Brownfields
Internet Forum; Beth Grigsby
Subject: Re: [CPEO-BIF] GASB Accounting
for Pollution Remediation
How would it be
detrimental? Isn't it largely just requiring disclosure of existing and
projected liabilities?
>>> "Grigsby, Beth A" <bgrigsby@purdue.edu> 4/20/2006
10:57 AM >>>
I would like to solicit imput from stakeholders
in Brownfield Redevelopment about the impact of the proposed accounting
standards drafted by the Government Accounting Standards Board (GASB
Accounting for Pollution Remediation). These proposed accounting
standards appear to be detrimental to the Brownfield initiative and I would
welcome opinions from others on this issue.
http://www.gasb.org/plain-language_documents/pollution_plain-language.pdf
http://www.gasb.org/exp/ed_pollution_remediation_obligations.pdf
NEWS RELEASE 01/31/06
GASB Issues Exposure Draft That Would Put the Cost of Cleaning Up Pollution
on Governments' Financial Statements
New Proposal Identifies Five Key Circumstances Under Which Accounting for
Pollution Remediation is Required
Norwalk, CT, January 31, 2006-The Governmental Accounting Standards Board
(GASB) today issued an Exposure Draft intended to provide guidance and
consistency with respect to the accounting and reporting of obligations and
costs related to pollution remediation. The proposal reflects the Board's
intention to ensure that certain costs and long-term obligations not
specifically addressed by current governmental accounting standards will be
included in financial reports.
The proposed standards build on a Preliminary Views draft that was released
for public comment in March 2005.
Specifically, the proposal sets forth the key circumstances under which a
government would be required to report a liability related to pollution
remediation. According to the proposal, a government would have to estimate
its expected outlays for pollution remediation if any of the following
occur:
1. Pollution poses an imminent danger to the public or environment
and a
government has little or no discretion to avoid fixing the problem
2. A government has violated a pollution prevention-related permit
or
license
3. A regulator has identified (or evidence indicates a regulator
will do
so) a government as responsible (or potentially responsible) for cleaning up
pollution, or for paying all or some of the cost of the clean up
4. A government is named in a lawsuit (or evidence indicates that
it will
be) to compel it to address the pollution
5. A government begins to clean up pollution or conducts related
remediation activities (or the government legally obligates itself to do
so).
In addition to the liabilities, expenses, and expenditures which would be
estimated using an "expected cash flows" measurement technique and be
reported in the financial statements, the proposed standard would require
governments to disclose information about their pollution clean up efforts
in the notes to the financial statements.
"Today's proposal intends to improve financial reporting by fostering more
transparent and more consistent accounting that encourages comparability,"
said Robert Attmore, Chairman of the GASB. "The proposed standard also
enhances the ability of users to assess a government's obligations by
requiring both earlier reporting of obligations and recognition of
obligations that may not have previously been reported."
The requirements of this proposed Statement would be effective for financial
statements for periods beginning after June 15, 2007.
A copy of the proposal may be downloaded from the GASB's website at
www.gasb.org.
The GASB encourages interested individual and organizations to comment on
this Exposure Drafts. The comment deadline is May 1, 2006. Comment letters
should be submitted electronically to director@gasb.org or via regular mail
Beth A. Grigsby, LPG
Brownfields Outreach Program Manager
Purdue Center for Regional Development
Burton D. Morgan Center for Entrepreneurship, Room 220
1201 West State Street
West Lafayette, IN 47907-2057
765.494.9928
cell: 317.430.6514
From: brownfields-bounces@list.cpeo.org on behalf of Lenny Siegel
Sent: Thu 4/20/2006 12:02 PM
To: Brownfields Internet Forum
Subject: [CPEO-BIF] Rolling Hills
Estates (CA) golf course project abandoned
Golf course doesn't
make the cut in Rolling Hills Estates
With $2.5 million already spent, the developer decides to abandon the
project on the former Palos Verdes Landfill site.
By Nick Green
Daily Breeze (CA)
April 20, 2006
Los Angeles County officials will formally announce today they have
abandoned plans to build a golf course on the former Palos Verdes
Landfill site in Rolling Hills Estates, the Daily Breeze has learned.
The contentious proposal had incited widespread opposition from local
government officials and community groups.
The announcement comes less than a month after the Daily Breeze reported
a long overdue environmental analysis of the site was in limbo. County
Supervisor Don Knabe made the disclosure Wednesday afternoon to a group
of local mayors attending a meeting of the consortium of county
Sanitation Districts, which operates the landfill site.
...
For the entire article, see
http://www.dailybreeze.com/news/articles/2664211.html
--
Lenny Siegel
Director, Center for Public Environmental Oversight
c/o PSC, 278-A Hope St., Mountain View, CA 94041
Voice: 650/961-8918 or 650/969-1545
Fax: 650/961-8918
<lsiegel@cpeo.org>
http://www.cpeo.org
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