GASB Proposes Requiring Governments to Provide Cash Flow Projections

The Governmental Accounting Standards Board has proposed that state and local governments should include five-year projections of their cash inflows and outflows, and financial obligations, to supplement their financial statements.

The aim is to help taxpayers, bond holders and other interested parties better determine a government entity’s financial health.

Under the proposals, state and local government bodies would provide projections of their cash inflows and cash outflows, along with explanations of the known causes of fluctuations. They would also be required to include projections of their financial obligations, including bonds, pensions, other post-employment benefits, and long-term contracts, in addition to explanations of the known causes of fluctuations. GASB also recommended that they include projections of their annual debt service payments, including the principal and interest, along with a narrative discussion of their dependencies on other governments to provide their services.

The financial projections would be based on current policy, informed by historical information, and adjusted for known events and conditions that would affect the government’s finances during the projection periods. Governments would be required to present projections for at least the next five fiscal years. The projections would be reported as required supplementary information following the notes to the financial statements.

The proposals are described in the document, “Preliminary Views, Economic Condition Reporting: Financial Projections,” and are based on its research and input that GASB has received from financial statement users, preparers, and auditors.

“The GASB is issuing this document for public comment because of significant concerns expressed by users of state and local government financial reports regarding the importance of understanding whether governments are on a financially sustainable path,” said GASB Chairman Robert Attmore in a statement. “The current economic downturn has emphasized what has been known for a long time:  information is not always publicly available regarding the financial challenges facing governments.”

GASB is seeking public comment on the proposals through March 16, 2012. The full text of the document is available at www.gasb.org. GASB is planning to hold public hearings on the proposal on March 29 in Los Angeles and April 17 in New York City.