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47 formal involvement of the GASB staff in order to enhance traditionally used in the management systems (and in DOT the effectiveness of the investigation. budgeting). Because of these two factors, the DOTs' esti- Also, near the conclusion of this research project, the mates of required expenditures are based more on historical research team began hearing anecdotal reports of local gov- funding and budgetary patterns, rather than an analytically ernments receiving improved bond ratings after preparing based estimate as GASB had anticipated. As the deployed FY02 financial statements in accordance with GASB 34's capabilities of the management systems improve over time, modified approach. The bond rating agencies did not officially this issue probably will become less troublesome. In the near disclose the reasons for rating adjustments, but the govern- term, however, there is a discrepancy between GASB expec- ments involved appear convinced that the modified approach tations and DOT realities. was responsible. They used the Management Discussion & The objective of this research topic would be to identify Analysis to disclose that they were effectively preserving their practical near-term methods of arriving at an expenditure tar- infrastructure and thereby were not accumulating unfunded get and comparing that target with actual expenditures in a liabilities for future generations to address. These governments manner that meets GASB's objectives while still being as believe that the rating agencies were favorably impressed by consistent as possible with the capabilities of DOTs' manage- this analysis and adjusted ratings accordingly. ment systems as currently deployed. RESEARCH TOPICS Cost Categories--Capitalized Versus Expensed The specific topics proposed for additional research are As noted above, there is a discrepancy between GASB 34 listed below. For all of these topics, the intention is not to cost categories and what is traditionally used by DOTs. The identify the single "right" answer, but to develop a list of best GASB 34 guidelines use a functional approach to these cat- practices for the DOTs to select from based on specific cir- egories--maintenance costs achieve the original design life; cumstances. This approach is consistent with current GASB preservation costs extend that design life, but do not increase philosophy, which relies on principle-based standards, rather capacity or service; and capital costs increase capacity or ser- than a more prescriptive detail-oriented approach. vice. However, the traditional DOT definitions relate more to type of construction--a full reconstruction project is viewed Methods for Condition Assessments as capital, whether or not lanes are added; a resurfacing proj- ect is viewed as preservation, whether or not there are ancil- As noted above, GASB developed a "modified" rather than lary safety benefits. These definitions are significant because a "comprehensive" approach for condition assessment report- they determine whether costs are to be capitalized or expensed ing because consistent condition assessment methodology in the financial statements. In particular, preservation costs has not yet been developed. Further, there is a lack of com- are to be expensed in modified approach states, but research fort of some DOT and finance officials with the use of con- indicates that this is often not the case. dition assessments. GASB has suggested that a potential solution is to allocate The objective of this research topic would be to develop costs within a project to the three categories, but this is strongly more detailed, but still voluntary, methods for consistent resisted as impractical by the DOTs, which typically must condition assessments and disclosures that could (1) prove account for hundreds, if not thousands, of projects each year. sufficient for future comprehensive GASB recognition and Some DOTs have suggested that the difference between the (2) result in more comfort and acceptance by DOT officials. two approaches is not material for the purposes of financial statements. The objective of this research topic would be to first assess Linking Condition Targets the materiality of the difference between the two approaches to Required Expenditures by analyzing the annual construction program of a represen- tative (but small) state. If the difference is material, the next Virtually all modified approach states experienced diffi- step would be to develop a more sophisticated approach to culty in estimating the expenditure level necessary to achieve cost categorization that would be meaningful to DOTs while targeted conditions. In theory, such estimates should be avail- still satisfying GASB objectives. Application of FHWA def- able from asset management systems (e.g., the PONTIS bridge initions would be investigated. management system). However, the DOTs report that the cur- rent stage of deployment of such systems is not sufficiently mature to generate reliable estimates, with availability of data Additions and Retirements a particular problem. This finding is confirmed by earlier research that indicated that DOTs typically are not taking full Most DOTs had difficulty in accounting for additions to advantage of the capabilities inherent in these systems. and retirements of infrastructure assets in their financial state- A second problem is that the GASB 34 definitions of ments. They have, of course, traditionally tracked such changes expenditure categories are not consistent with the definitions in their physical inventory systems, but before GASB 34,