Printer Friendly

Proposed GASB guidance on landfills.

In June, the Governmental Accounting Standards Board (GASB) issued an exposure draft (ED) that would set new accounting and financial reporting standards for costs associated with the closure and postclosure care of municipal solid waste landfills (MSWLFs). Currently, there are some 6,000 MSWLFs in the United States, of which approximately 80 percent are operated by governments.

The proposed new guidance was issued in response to a recent United States Environmental Protection Agency (EPA) rule ("Solid Waste Disposal Facility Criteria," 40 Code of Federal Regulations, Parts 257 and 258) that will make owners and operators of MSWLFs responsible for ensuring that landfills are properly closed and monitored for a period of 30 years following closure. The closure requirements are effective for owners and operators of MSWLFs in operation after October 9, 1991. Postclosure care and financial assurance requirements will affect MSWLFs in operation after October 9, 1993.

Basic GASB Approach

The GASB believes that closure and postclosure care costs imposed by federal, state or local laws and regulations are an integral part of the cost of operating an MSWLF. Therefore, the GASB believes that the costs of closing a landfill and monitoring the site after closure should be recognized systematically as the landfill is used, regardless of when these costs are paid and regardless of how the costs are funded. In other words, all closure and postclosure care costs would be recognized prior to closure under the GASB proposal.

The GASB further believes that closure and postclosure care costs should be allocated to individual fiscal periods based on landfill usage rather than on the passage of time. Therefore, differing amounts of cost may be allocated to different fiscal periods depending upon the level of landfill use during each period.

Estimated Total Cost

Allocating closure and postclosure care costs to individual fiscal periods during the life of the landfill would require governments to estimate the total amount of those costs. This estimate would include all costs incurred as of the end of the fiscal year related to closure and postclosure care (i.e., equipment, facilities, services), as well as any additional related costs anticipated for the future. Equipment and facilities included in estimated total cost would be limited to items that will be used exclusively for a particular landfill (e.g., liners, leachate collection equipment, gas monitoring and collection systems, storm-water management systems, wells). The estimate would not include items that will not be used exclusively for a particular site (e.g., a leachate treatment facility shared with a local sewer authority). Also, under the GASB proposal, governments would be required to make this estimate on the basis of current costs (i.e., as though all anticipated future acquisitions of equipment and facilities for closure and postclosure care were made as of the end of the fiscal year).

The estimated total cost figure would need to be adjusted annually to reflect changed conditions. For example, inflation may raise the cost of equipment and facilities yet to be acquired from one fiscal period to the next. Similarly, changes in environmental technology may result in changes in estimated total closure and postclosure care costs. Finally, the estimate needs to reflect any relevant changes in laws and regulations.

It should be noted that estimated total cost, as defined by the GASB, would vary in some respects from the annual estimate mandated by the EPA. Therefore, governments would need to make certain adjustments to their EPA annual estimate before using that amount for accounting and financial reporting purposes.

Equipment and Facilities

Under the proposed GASB guidance, purchases of equipment and facilities for closure and postclosure care would not be treated as capital transactions. That is to say, such purchases would not be reported as fixed assets in proprietary funds, nor would they be reported as "capital outlay" expenditures in governmental funds. Instead, these purchases of equipment and facilities would directly offset the liability for closure and postclosure care.

For example, if a government's liability for closure and postclosure care at the end of the first year of operations of a landfill was $500,000, and the government had invested $300,000 in equipment and facilities related to closure and postclosure care, a net liability of $200,000 would be reported. If, on the other hand, the government had purchased $600,000 in equipment and facilities rather than $300,000, it would report a $100,000 prepaid asset on the balance sheet (i.e., $600,000 acquisitions - $500,000 expenditure/expense = $100,000).

Governmental Funds

Under current generally accepted accounting principles (GAAP), governmental funds typically do not report long-term liabilities. Therefore, governmental funds would handle closure and postclosure care costs in same way that they now handle claims and judgments and compensated absences. In other words, the governmental fund would only report a liability and expenditure to the extent that the liability was expected to be "liquidated with expendable available financial resources." Otherwise, no expenditure would be recognized and the liability would be reported in the general long-term debt account group rather than in the governmental fund. This treatment, of course, could change significantly as a result of the GASB's current project on implementing GASB Statement No. 11, Measurement Focus and Basis of Accounting--Governmental Fund Operating Statements.

Allocation Methodology

The proposed GASB guidance does not mandate a specific methodology for allocating closure and postclosure care costs to individual fiscal periods. The ED, however, does contain a nonauthoritative illustration of an appropriate allocation method. Under this "percentage of completion" methodology, total closure and postclosure care costs would be allocated to individual fiscal periods using the following formula:

Total estimated cost x Capacity used / Total capacity - Costs previously recognized = Period charge

If this method is used, the full effect of any change in estimated total cost would be recognized immediately in the period of the change. Assume, for example, that at the end of the fiscal year 75 percent of a landfill's capacity has been used. Assume also that the estimate of total closure and postclosure care costs increases by $1,000,000 as a result of changes in applicable laws and regulations. Under the percentage of completion method, the full amount of the change applicable to the current and previous periods (i.e., $1,000,000 x 75 percent = $750,000) would be recognized in the year that the change in estimate is made.

An advantage of the percentage of completion method is that it provides a better measure of annual costs for periods following the year of a change in estimate. A disadvantage of the method is that it distorts the results of operations for the period in which the change in estimate is made.

It is unclear whether the proposed GASB guidance would allow the use of an allocation method that attempted to recognize the effects of a change in estimate over the remaining life of the landfill rather than immediately in the period of the change.

Note Disclosures

The ED proposes a number of disclosure requirements for MSWLFs subject to federal, state and local closure and postclosure care requirements. Specifically, the notes to the financial statements would have to disclose:

* the nature and source of landfill closure and postclosure care requirements;

* that closure and postclosure care costs are recognized based on estimated total current costs while the landfill is operating, regardless of when cash disbursements are made;

* the unrecognized portion of estimated total closure and postclosure care cost;

* the estimated remaining useful landfill life, both in approximate years and in estimated capacity;

* how closure and postclosure care liabilities are being financed and whether that financing is in compliance with applicable local, state or federal laws or regulations;

* the nature of the estimates used and the potential for changes in those estimates due to inflation, changes in technology, or changes in applicable laws or regulations; and

* if net prepaid landfill closure and postclosure care cost is reported, the nature of this amount.

Effective Date

If approved, the guidance proposed in the ED would be effective for fiscal years beginning after June 15, 1993. Early implementation would be encouraged.

Governments would be required to implement the new guidance retroactively. In other words, a liability would have to be recognized immediately for all closure and postclosure care costs associated with landfill capacity used in years prior to implementation. Accordingly, if the guidance was being implemented for the first time for a landfill that already had used 80 percent of its capacity, a full 80 percent of the liability for closure and postclosure care costs would need to be recognized immediately as a direct adjustment to the balance sheet.

Publication Information and Hearing

One free copy of the GASB's ED, Accounting for Municipal Solid Waste Landfill Closure and Postclosure Care Costs, may be obtained by contacting: Order Department, Governmental Accounting Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, CT 06856-5116 (203/847-0700, ext. 10). A public hearing on the ED is scheduled for October 14, 1992, at the GASB's offices in Norwalk.

STEPHEN GAUTHIER is director of GFOA's Technical Services Center.
COPYRIGHT 1992 Government Finance Officers Association
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:Issues in Accounting; Governmental Accounting Standards Board; municipal solid waste landfills
Author:Gauthier, Stephen
Publication:Government Finance Review
Date:Oct 1, 1992
Words:1505
Previous Article:Taming the PC with the ASP.
Next Article:Work and family benefits come of age: an overview of public- and private-sector programs.
Topics:


Related Articles
Applying full-cost accounting to solid-waste management operations.
Ohio EPA finds toxic chemicals in C&D landfills.
Town OKs Casella lease extension; 20 more years operating landfill.
Issues with Casella continue to raise stink; Firm is seeking municipal waste.
Resident is unable to get a guaranty on landfill safety.
Hearing officer rules that Casella application stands.
Traffic is ruled relevant to landfill use increase.
Board of Health considers Casella solid waste request.
Solid waste disposal: a growing N.H. problem.

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters