In March 2018, the Governmental Accounting Standards Board (“GASB”) released Statement No. 88, “Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements.” GASB 88 was adopted primarily to require additional disclosure for bank loans and/or direct placements of a government’s debt in the notes to financial statements, which is consistent with GFOA best practices. However, GASB 88 also requires additional disclosures for all debt beyond what has historically been required. Consequently, not only will issuers be required to develop separate disclosures for any bank loans and private placements, they may also need to develop additional note disclosure for all of their outstanding debt. This GFOA Member Alert serves to recognize useful practices in implementing GASB 88.

Step 1: The first step in complying with GASB 88 is for issuers to review their existing financial statement note disclosures related to debt and identify direct borrowings and direct placements. Issuers are now required to disclose information related to direct borrowings and direct placements separately from other debt.

Step 2: Issuers should develop additional note disclosure information required by GASB 88 for all outstanding debt. Certain summarized information for all outstanding debt, including direct borrowings and direct placements, is also now required and includes information related to (1) unused lines of credit; (2) assets pledged as collateral for debt; and (3) terms specified in debt agreements related to significant events with finance-related consequences (such as accelerated repayment) resulting from events of default, termination events, and subjective acceleration clauses.

Governments currently implementing GASB 88 should review their bond documents to determine if new note disclosures are required for their outstanding debt obligations. Based on guidance provided by GASB, the new requirements do not limit disclosures of lines of credit to those used to repay debt, but include all lines of credit that could provide a potential source of liquidity. Additionally, GASB 88 does not require additional disclosure of pledged revenues (which is already covered under GASB 48), debt service reserve funds, or assets constructed with related debt proceeds. However, the GASB 88 example suggests the encumbrance, mortgage, or requirement to surrender property upon default (collateral to secure the debt other than pledged revenues) and acceleration of the debt should be included in the notes to the financial statements. It is also helpful to note that leases, pensions and OPEB are not included in the scope of GASB 88.

These new disclosure requirements are effective for reporting periods beginning after June 15, 2018.