Effects of the GASB No. 34 infrastructure reporting standards on state highway infrastructure quality

Abstract

Purpose The purpose of this paper is to evaluate whether the additional infrastructure information in US state financial statements improves infrastructure quality. Design/methodology/approach Based on institutional theory, the authors developed six models and estimated them on a state panel data set. Findings The authors found that the implementation of the Government Accounting Standard Board (GASB) Statement No. 34 improved state highway infrastructure quality, and the states using the modified approach had a larger effect compared to the states using depreciation accounting. The authors further used a two-step path analysis and found that the implementation of GASB 34 indirectly improved highway quality through increasing state highway maintenance expenditures. From the empirical results, the authors conclude that the exercise of collecting and developing systems to track the additional data has provided the opportunity for officials to use the information to prioritize limited funding and improve their asset management practices. Practical implications Future research may extend this research by exploring the detailed micro-mechanisms of how decision makers use infrastructure information in their asset management practices, as well as by increasing the number of years in the panel data set to fully capture changes in behavior. Social implications In addition, governments currently using depreciation should be encouraged to move to the modified approach. Originality/value This is the first attempt to empirically examine the effects of GASB 34 on infrastructure condition.

Asset Maintenance Practices and Challenges in U.S. Counties

“…Good asset maintenance depends on good information. Without knowing the condition of the assets, maintenance history, and so forth, it is difficult to adequately plan and budget for maintenance and replacement, or to be able to estimate the amount of deferred maintenance (Kim & Ebdon, 2017; Kim et al, 2018; Ostrom et al, 1993; Poterba, 1995). The GPP found that the lack of information systems for asset maintenance was a major issue for counties in 2001.…”

“…Another study found that GASB 34 increased state highway capital spending, but did not have a significant effect on maintenance spending, which is somewhat surprising (Kim & Ebdon, 2017). GASB 34 was also found to have a positive effect on state highway quality (both directly and indirectly through spending), with a stronger effect in states using the modified reporting approach (Kim et al, 2018). The use of the modified approach was also found to reduce bid spreads for municipal bonds (Bloch et al, 2016) and to affect bond ratings (Benson & Marks, 2017).…”

An empirical analysis of capital assets condition ratio in local governments: the case of Florida counties

“…Besides these studies that focus on the motivation or the determinants for adopting different types of governments' infrastructure reporting, there is scant literature exploring the effects of implementing governments' infrastructure reporting. For instance, Kim et al (2018) find that the implementation of GASB 34 is positively and significantly associated with the share of good roads in state-administered highway systems, and this effect is larger for states using the modified approach than those using depreciation accounting methods. Kim and Ebdon (2017) contend that the implementation of GASB 34 significantly increased total highway expenditures.…”

Don’t Pass Deferred Maintenance Costs to the Next Generation! The Effects of Politics on State Highway Maintenance Spending

“…Scholars normatively and empirically suggest that the infrastructure reporting requirements are useful to reduce the information problem and thereby improve state highway investment and quality (see Bloch et al, 2016;Dornan, 2002Dornan, , 2008Kim & Ebdon, 2017;Kim et al, 2018;Koechling, 2004;Kraus, 2004;Wilson & Kattelus, 2001). For instance, Dornan (2002) argues that GASB No.…”