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

1. Implementing GASB Statement No. 49: A Cooperative Effort in New York September 24, 2008

2. Implementing GASB Statement No. 49: A Cooperative Effort in New York • GASBS 49 Overview • OSC • Assessment • Outreach • Methodology • DEC • Background • Challenges, Methodology, and Results

3. 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.

4. 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 environment. 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 activities.

5. 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.

6. 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 regulations. • Estimated recoveries that could reduce the liability.

7. Assessment • 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 OSC. • 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.

8. Outreach • OSC and KPMG have met with individual agencies to discuss applicability of the Standard as well as possible recognition methodologies and timeframe for implementation. • 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.

9. Methodology • 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 developed.

10. Methodology • 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 project. • 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).

11. Methodology • 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 obligations.

12. Background NYS Department of Environmental Conservation • Two enforcement programs affected by GASBS 49 • State Superfund Program • Spill Response Program

13. Background 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 Remediation

14. Background 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

15. Background 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

16. Background 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 reported • May involve long term site management • Administered by the DEC, Division of Environmental Remediation

17. Background 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

18. Background 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 cleanup • 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

19. Challenges NYS Department of Environmental Conservation • Large number of sites in two separate programs. • Neither program set up to track long term liability • Existing site tracking databases not linked to the State’s accounting data systems • Limited resources available to conduct the required annual analysis

20. Methodology 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

21. Methodology NYS Department of Environmental Conservation • State Superfund Program • Remedial Investigation – Use average cost for recently completed RIs ($331,000) prior to remedy selection • 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

22. Methodology 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

23. Results NYS Department of Environmental Conservation • State Superfund Program analysis still under review • Need IT system modifications and “canned” reports • Need to gather ROD data and enter into tracking system • Less onerous using data maintained for program purposes rather than creating a completely new data set

24. Results NYS Department of Environmental Conservation • Petroleum Spill Program Statistical Approach • Manageable workload • Easily defended with backup audit documents

25. Contact Information Office of the State Comptroller Bureau of Financial Reporting Suzette Baker, Assistant Director 518-486-1234 sbaker@osc.state.ny.us Timothy Reilly, Manager 518-473-8983 treilly@osc.state.ny.us Maria Moran, Senior Accountant 518-474-3691 mmoran@osc.state.ny.us Department of Environmental Conservation David Finlayson, Section Chief of Fiscal Management 518-402-9718 djfinlay@gw.dec.state.ny.us