State, Local Governments Get Robust Debt Disclosure Rules

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By Denise Lugo

State and local governments will have to provide more detailed information about the debt they carry and the risks associated with the debt under new Governmental Accounting Standards Board rules.

GASB’s April 2 rules address concerns raised by credit ratings agencies, bond market regulators, and industry groups that state and local governments aren’t providing enough information about their direct borrowing arrangements. The groups said governmental entities increasingly use direct loans from banks rather than issue municipal bonds, but the footnote disclosures they typically provide on the loans are inadequate.

Governmental entities have also inappropriately classified direct loans as other types of debt in their financial statements, they said.

Debt Versus Loans

The new rules clarify which liabilities are considered debt for financial reporting purposes.

Governments will have to separate debt from loans with a bank or a lender. They will also have to distinguish debt securities issued to an investor from other types of debt.

Depending on the types of debt, risk can differ, GASB said.

The guidance is effective for periods after June 15, 2018. Earlier application is encouraged.

Disclose Unused Lines of Credit

Other disclosures the entities have to provide include:

  •  the amount of unused lines of credit;
  •  assets pledged as collateral for debt;
  •  significant events of default or termination events specified in the debt agreement and their significant finance-related effect; and
  •  subjective acceleration clauses.
The new provisions were issued as GASB Statement No. 88, Certain Disclosures Related to Debt, Including Direct Borrowings and Direct Placements.

To contact the reporter on this story: Denise Lugo in New York at

To contact the editor responsible for this story: S. Ali Sartipzadeh at

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