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17 are that (1) the management information systems, as Usefulness of and interest in information--there was deployed at the time, were not mature enough to gener- general agreement among the interviewed DOTs that ate reliable estimates and (2) the cost definitions con- the information generated in the GASB 34 exercise tained in GASB 34 were not compatible with the DOTs' was potentially useful in budgeting and resource allo- budget practices and management systems. For several cation, particularly the information included in reasons, the DOTs are working to improve their perfor- Required Supplemental Information for the modified mance on the first issue; there is less interest in address- approach states. However, all reported that in FY02 that ing the second. Several DOTs made the point that they benefit remained a potential and was not realized--the view the comparison between planned and actual new information generated virtually no interest or expenditures as much less significant than the compari- inquiries outside the agencies. One DOT observed that son between targeted and actual conditions. this is just the first year of implementation. It expects that Categorization of costs--a related source of difficulty general interest will increase as the accuracy of the infor- is the categorization of costs among capital, preserva- mation improves and as a time series of validated data tion, and maintenance. The GASB 34 guidelines use a becomes available and trends can be observed. functional approach to these categories--maintenance costs achieve the original design life; preservation costs extend that design life, but do not increase capacity or MICHIGAN service; and capital costs increase capacity or service. Michigan DOT (MiDOT) decided on the modified approach However, the traditional DOT definitions relate more to type of construction--a full reconstruction project is on the basis of its long tradition (25 years) of asset manage- viewed as capital whether or not lanes are added; a resur- ment and its commitment to the asset management philosophy. facing project is viewed as preservation whether or not The following items from the interviews were deemed to be there are ancillary safety benefits. A potential solution particularly noteworthy: is to allocate costs within a project to the three cate- MiDOT received guidance from the state comptroller gories, but this is strongly resisted as impractical by the DOTs, which typically must account for hundreds, if not and state auditor, but the bulk of the work was completed thousands, of projects each year. The conflict between within the Department and was accomplished without traditional and GASB 34 categories is particularly pro- benefit of a formal committee structure. nounced for the division between capital and preserva- A conservative approach to selecting the condition targets tion. Accordingly, this discrepancy is less significant for was used, with the targets well below current conditions. depreciation approach states because those states capi- The Department had difficulty in computing the estimated talize both categories, but it is important for modified expenditure levels necessary to achieve these targets, in approach states where preservation costs are supposed part because the GASB structure and definitions for the to be expensed. Some DOTs have questioned the degree Required Supplementary Information were not compati- to which the difference between the structures is mate- ble with MiDOT budget and management procedures. rial in the overall financial statements. MiDOT categorized a full reconstruction as a capital Estimated historical costs--in order to reduce the bur- cost, even if the number of lanes remained the same, on den associated with estimating historical costs, GASB the theory that full reconstruction inevitably improves 34 deferred the effective date of this requirement for 4 service levels based on current design standards. The years and further provided that it was necessary to Department did not differentiate between preservation report costs incurred only since July 1, 1980. However, and maintenance expenditures. Such differentiation was each of the interviewed states elected to report histori- not deemed necessary because both categories are cal costs in the initial year of GASB 34 implementation, expensed in the financial statements. and four of the six went back to well before 1980. Esti- For historical costs, MiDOT indexed all expenditures mates were prepared using a combination of AASHO: back to the average year of construction. The First 50 Years, financial statements, project records, Unlike many states, Michigan did not have difficulty in and written down replacement costs. accounting for additions to and retirements from the infra- Additions and retirements--the reporting of additions structure network. The Department used 250 work type to and retirements of infrastructure assets in the financial codes to classify a project as either capital or preservation/ statements was troublesome for many DOTs. Although maintenance (see case study for listing). Costs are ini- DOTs typically track such changes in physical assets tially recorded as "construction in progress" and then through management programs and other inventory rec- transferred to the appropriate accounts on project com- ords, a link to costs recorded in the accounting system pletion. The Department did not attempt to allocate typically did not exist. Many states initially found it nec- costs within a single project to capital and preservation/ essary to achieve this link manually and with other ad hoc maintenance components, judging that to be adminis- methods. Most have now developed automated links. tratively prohibitive.