72 measures, and that comparing states to each other to determine fiscal stress is more
defensible than an external and absolute standard. Although financial ratios can be added together to form a composite measure of
fiscal stress, they are the only fiscal stress measure discussed here that allow for different dimensions of fiscal stress to be separately measured. This characteristic also means that
financial ratios are better able to measure the ability of a state to meet public demand and to account for different time frames of underlying measures than other fiscal stress
measures. On the question of what level qualifies as fiscal stress, all of the measures allow for flexibility on this consideration. Typically a lower year-end balance, smaller
deficit, better tax performance or fewer tax increases relative to expenditures are taken to mean less fiscal stress. These are relative measures of fiscal stress and depend on how
other states perform. Year-end unreserved fund balances typically are considered sufficient if they are at least five percent of total expenditures Joyce 2001; however, this
interpretation is used loosely Rubin and Willoughby 2009.
3.4 Data Availability and GASB 34
The ability to collect data on government-wide indicators only recently became possible. The Governmental Accounting Standards Board GASB Statement No. 34:
Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments issued in 1999 required governments to use a new financial reporting
model that included consolidated government-wide financial statements that use the full accrual accounting basis Plummer 2007 et al. These new requirements, particularly the
production of the Statement of Activities and Statement of Net Assets make the use of financial ratios for cross-state comparison possible and practical. The Statement of
Activities reports all revenues and costs of providing government activities; while the Statement of Net Assets reports on current financial assets and liabilities, capital assets
and long-term liabilities Mead 2006. GASB 34 is widely seen as the biggest change in
73 state and local financial reporting in decades Mead 2006; Plummer et al 2007; Robbins
and Houston 2002; Kravchuk and Voorhees 2001. The requirement which for states took effect in 2002 and is reflected in fiscal year 2002 state CAFRs with the exception of
New York state is different from the prior CAFR presentation which focused on reporting by fund and allowed states to use different accounting systems Chaney et al
2002b. Besides the government-wide financial statements with full accrual bases of accounting, GASB 34 also requires:
• A discussion of a government’s financial activities and financial position
• Capital assets and long term debt must be reported in the Statement of Net Assets
• The required supplemental information RSI must include the MDA, budgetary
comparison schedules for government funds and information about infrastructure assets that do not have depreciation recorded on financial statements
• General infrastructure assets must be reported prospectively on the government-
wide balance sheet net of accumulated depreciation Kravchuk and Voorhees 2001.
Two changes required by GASB 34 that concern the reporting of infrastructure assets are particularly relevant for this analysis. All states are required to retroactively
report infrastructure assets; however, states have up to three years to begin reporting this information. States are also provided the choice between a traditional or modified
approach to reporting depreciation on infrastructure assets Wang et al 2007. States that defer retroactive reporting of infrastructure assets – in other words they report on the debt
of purchasing infrastructure assets at a different time than they record the infrastructure as an asset – results in lower net assets, total assets, capital assets net of related debt or
unrestricted net assets Wang et al 2007. The different timing of states reporting on infrastructure assets will result in spurious differences in the financial indicators listed
above. Differences may also result from the different reporting practices of depreciation on infrastructure assets. States using the modified approach do not have to depreciate
74 infrastructure assets. Instead they must have an asset management system for
infrastructure assets that must meet the following requirements: •
The government keeps up to date inventory records of its assets, •
Regular assessments are performed every 3 years using a measurement scale of the condition its infrastructure assets and must be reported in RSI,
• An annual estimate is made of the costs required to maintain and preserve
infrastructure assets at the condition level established by the government.
States adopting the modified approach may have lower expenses Wang et al 2007. These two requirements, particularly the modified depreciation approach, reduce
the uniformity of these government-wide statements Kravchuk and Voorhees 2001.
3.5 Conclusion
