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									Implementing GASB Statement No. 49:
  A Cooperative Effort in New York

        September 24, 2008

      Implementing GASB Statement No. 49: A
          Cooperative Effort in New York

 GASBS 49 Overview
    – Assessment
    – Outreach
    – Methodology
   DEC
    – Background
    – Challenges, Methodology, and Results

              Overview of GASBS 49
   Establishes standards for accounting and financial reporting for
    pollution remediation obligations. Explains when pollution
    remediation obligations should be reported and how to determine
    the liability.

   Applies to all State and local governments.

   Addresses when and how to report known pollution. The Standard
    does not require governments to find pollution.

   Effective for years beginning after December 15, 2007.
    Governments with sufficient and verifiable information should
    apply the Statement retroactively to all prior periods presented.

   Defines five obligating events that determine when a pollution
    remediation obligation should be recognized as a liability.

     Overview of GASBS 49, continued
    The five obligating events are triggered when the government:
    1. is compelled to take remediation action because pollution creates an
     imminent endangerment to public health or welfare or the

     2. is in violation of a pollution prevention-related permit or license.

     3. is named, or evidence indicates that it will be named, by a regulator
     as a responsible party or potentially responsible party for remediation,
     or as a government responsible for sharing costs.

     4. is named, or evidence indicates that it will be named, in a lawsuit to
     compel the government to participate in remediation.

     5. commences, or legally obligates itself to commence, cleanup

    Overview of GASBS 49, continued
   Obligations that can be reasonably estimated should be expensed,
    except under certain conditions where obligations can be capitalized.

   The liability should include direct expenses ( for example payroll,
    materials, equipment, and legal and professional services) as well as
    indirect expenses (for example, general overhead).

   The amount to report is calculated based on an expected cash flow
    measurement technique.

   If the liability cannot be reasonably estimated, then a government will
    describe the nature of the pollution remediation in the notes to it’s
    financial statements.

   Under specific circumstances obligations are capitalized.

   Obligations may be reduced by recoveries.

                Footnote Disclosure
The following elements relative to pollution remediation should
  be disclosed:

   The nature and source of pollution remediation obligations (for
    example, federal, state or local laws or regulations).

   The amount of the estimated liability, the methods used for the
    estimate, the potential for changes in the amount due to such
    items as price changes, new technology, or applicable laws or

   Estimated recoveries that could reduce the liability.

   OSC surveyed all State agencies in April, 2007 in order to define the population
    of State agencies that are involved in pollution remediation situations as defined
    by the Standard. The survey listed the five obligating events and asked the
    Commissioners to respond whether any of those events have occurred. The
    initial outreach effort surveyed 75 agencies which resulted in 61 responses.

   OSC compared the results of the survey with the DEC State Environmental
    Audit Report, which is issued annually, to ensure that all agencies that report
    to DEC as having pollution remediation also reported the same information to

   Based on the information obtained from the survey and from other reports,
    OSC determined which agencies would be responsible for reporting under
    GASBS 49 as of March 31, 2008. This date was used so that the beginning fund
    balances at 4/1/08 could be restated to reflect the result of implementation of
    the Standard.

   OSC and KPMG have met with individual agencies to discuss applicability of
    the Standard as well as possible recognition methodologies and timeframe for

   OSC has hosted Interagency Workshops along with KPMG.

   OSC invited the State University of NY, the City University of NY, and the
    Public Benefit Corporations (44 entities) to this forum in order to ensure that
    adoption of the Standard by these entities occurs concurrently with the State’s
    implementation. This is necessary because these entities are reported in the
    State’s GAAP basis financial statements.

   When requested, OSC provided a worksheet template to agencies as to what
    costs make up the liability.

   OSC continues to communicate with agency personnel responsible for
    developing the estimated liability.

   Pollution remediation sites are inventoried by the agency
    responsible for monitoring them.

   The number of sites per agency will vary.

   Agencies with just a few sites may find it very easy to determine an
    estimated liability.

   Agencies with many sites may have difficulty gathering data from
    all sites in order to estimate the liability.

   Statistical sampling is an acceptable method of estimating the
    pollution remediation liability. Sampling will enable an agency to
    extrapolate known data from smaller groups of sites to all sites in
    the population so that an estimate for the entire population can be

   Pollution remediation obligation may be embedded in a larger
    project. It is necessary to identify whether a project includes
    pollution remediation, and estimate the liability that pertains to the
    pollution remediation piece of the project.

   For purposes of the following two examples, assume that that the
    criteria for capitalization are not met.

     – Replacing tile flooring that contains asbestos is an example. The portion
       of the project that relates to the removal of the asbestos is expensed
       under GASBS 49. Therefore, it is necessary to identify the cost
       associated with the asbestos removal and expense that portion of the

     – Another example of an embedded cost is the repainting of a bridge,
       whereby old paint needs to be removed first. The old paint contains a
       mixture of asbestos and lead. The removal of the old paint is expensed
       under GASBS 49 (not capitalized).
   Limitations of the current accounting systems may make estimation of the
    total outstanding obligation difficult.

   It may be necessary to combine information from multiple systems in order to
    arrive at the total outstanding liability.

   The method used to determine the liability as well as the dollar amount of the
    estimates are subject to audit.

   OSC has been in contact with the project team responsible for setting up the
    new accounting system so that the liability and associated costs can be tracked
    in the system.

   OSC is in the process of updating the Agency Financial Reporting Package
    (AFRP) Internet Application to include reporting of pollution remediation

    NYS Department of Environmental Conservation

   Two enforcement programs affected by
    GASBS 49

     – State Superfund Program

     – Spill Response Program

    NYS Department of Environmental Conservation

   State Superfund Program
     – Identify and characterize suspected inactive
       hazardous waste disposal sites
     – Investigate and remediate inactive hazardous waste
       disposal sites that pose a significant threat to
       public health and the environment
     – Administered by the Department of Environmental
       Conservation (DEC), Division of Environmental

    NYS Department of Environmental Conservation

   State Superfund Program characteristics
     – Universe of sites relatively stable
        As of March 31, 2008, DEC identified 2,266 sites under
         the Superfund Program that needed to be evaluated. Of
         those sites identified, 1,390 have been investigated and
         either cleaned up or were determined to not require any
         further action. The remaining 876 sites are either
         currently being addressed or will be in the near future.
     – Long (multi-year/decade) process from
       investigation to final clean-up

    NYS Department of Environmental Conservation

   State Superfund Program characteristics continued
     – Most require long term Site Management
     – Most Superfund sites are cleaned up by
       Responsible Parties (RP) however, State is
       required to cleanup if they do not
     – As of 4/1/2008 there were 227 Superfund projects
       being cleaned up by the State
     – These 227 represent a liability that must be
       estimated under GASBS 49

    NYS Department of Environmental Conservation

   NYS Spill Response Program
     – NYS Navigation Law requires all unpermitted
       releases of petroleum to be reported to DEC
     – Respond, investigate and remediate incidents
     – May involve long term site management
     – Administered by the DEC, Division of
       Environmental Remediation

    NYS Department of Environmental Conservation

   NYS Spill Response Program continued
     – Annually, 16,000 incidents reported to DEC
     – 97% of spills are cleaned up by the RP
     – 3% are cleaned up by State because the RP is
       unknown or is financially unable or unwilling to
       clean up the release
     – These 3% “State Lead Spills” create a liability that
       must be estimated under GASBS 49

    NYS Department of Environmental Conservation

   NYS Spill Response Program continued
     – Spills are generally cleaned up quickly (75%
       closed in less than 2 years) resulting in a large
       turn-over of sites
     – Over 86% of spills cost less than $50,000 each to
     – The 14% that cost more than $50,000 account for
       86% of expenditures
           – Based on data from State Fiscal Years 05/06, 06/07 and 07/08

    NYS Department of Environmental Conservation

 Large number of sites in two separate
 Neither program set up to track long term
 Existing site tracking databases not linked to
  the State’s accounting data systems
 Limited resources available to conduct the
  required annual analysis

    NYS Department of Environmental Conservation

   Two Approaches to Assessing Liability

     – Superfund Program - Estimate liability based on
       project phase and existing records

     – Spill Response Program – Estimate current
       liability for a statistical sample of active State lead
       sites with accommodation for significant outliers

    NYS Department of Environmental Conservation

   State Superfund Program
     – Remedial Investigation – Use average cost for
       recently completed RIs ($331,000) prior to remedy
     – For Remedial Design Use the Record of Decision
       (ROD) cost estimate
     – Remedial Action - Use the ROD cost estimate
     – For Site Management use ROD cost estimate
     – Liability is adjusted as phase is completed

    NYS Department of Environmental Conservation

   Petroleum Spill Program Statistical Approach
     – Random sample the 1463 State Lead Spills open as
       of 4/1/08
     – Sample size - 91 with a 95% confidence level
     – Project managers estimate liability for each of the
       91 sites
     – Any site known to managers where liability is
       expected to exceed $1 million not part of the
       sample are added in as outliers

    NYS Department of Environmental Conservation

   State Superfund Program analysis still under
     – Need IT system modifications and “canned”
     – Need to gather ROD data and enter into tracking
     – Less onerous using data maintained for program
       purposes rather than creating a completely new
       data set

    NYS Department of Environmental Conservation

   Petroleum Spill Program Statistical Approach

     – Manageable workload

     – Easily defended with backup audit documents

   Contact Information
          Office of the State Comptroller
          Bureau of Financial Reporting

         Suzette Baker, Assistant Director

             Timothy Reilly, Manager

         Maria Moran, Senior Accountant

    Department of Environmental Conservation
David Finlayson, Section Chief of Fiscal Management

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