GASB Revises Standards to Improve Reporting of Conduit Debt Obligations
Norwalk, CT, May 28, 2019—The Governmental Accounting
Standards Board (GASB) has improved its existing standards to provide a
single method for government issuers to report conduit debt obligations
and related commitments. The enhanced guidance is designed to eliminate
diversity in practice associated with these issues.
Conduit debt obligations are debt instruments issued by a state or local
government to provide financing for a specific third party, which is
primarily liable for repaying the debt instrument. Third parties
sometimes seek this kind of tax-exempt financing for projects such as
the construction of a not-for-profit hospital, a not-for-profit
university library, or a qualifying private business’s headquarters
The GASB’s existing standards—Interpretation No. 2, Disclosure of Conduit Debt Obligations—allowed
variation in practice among governments that issue conduit debt
obligations, which adversely affects the comparability of financial
statement information. The variation arose from the option for
government issuers either to recognize conduit debt obligations as their
own debt or to disclose them.
Statement No. 91, Conduit Debt Obligations, addresses the variation in practice by:
Although government issuers will no longer report conduit debt
obligations as liabilities, they may need to recognize a liability
related to commitments they make or voluntarily provide associated with
that conduit debt. Statement 91 requires a government issuer to
recognize a liability if qualitative factors indicate that it is more likely than not that it will support one or more debt service payments for a conduit debt obligation.
- Clarifying what is a conduit debt obligation
- Eliminating the option for government issuers to recognize conduit
debt obligations, thereby providing a single method of reporting
- Broadening the definition of conduit debt obligations to include
those for which government issuers (1) make related additional
commitments, such as guarantees or moral obligation pledges, or (2)
voluntarily agree to make debt service payments or request an
appropriation for such payments, if necessary
- Clarifying how government issuers should account for and report (1)
commitments they extend or voluntarily provide and (2) arrangements
associated with conduit debt obligations, which often are characterized
in practice as leases, but are not leases for financial reporting
- Enhancing note disclosures.
The full text of Statement 91 is available on the GASB website, www.gasb.org.