The Governmental Accounting Standards Board announced an improvement to its existing standards to provide a single method for government issuers to report conduit debt obligations and related commitments.

This enhanced guidance, Statement No. 91, “Conduit Debt Obligations,” was first proposed last August as an attempt to eliminate differences in practice. It updates Interpretation No. 2, “Disclosure of Conduit Debt Obligations,” which allowed for variations with the option for government issuers to either recognize conduit debt obligations as their own debt or to disclose them.

Conduit debt obligations are debt instruments issued by a state or local government to provide financing for a third party, which is primarily liable for repaying the debt instrument. Third parties sometimes use this type of financing for projects such as nonprofit hospitals and universities, in addition to qualifying private businesses.

“Conduit Debt Obligations” addresses variation in practice by:

• Clarifying exactly what a conduit debt obligation is
• Eliminating the option for government issuers to recognize conduit debt obligations, thereby providing a single method of reporting
• Broadening the definition of conduit debt obligations to include those for which government issuers: make related additional commitments, such as guarantees or moral obligation pledges; or voluntarily agree to make debt service payments or request an appropriation for such payments, if necessary
• Clarifying how government issuers should account for and report: commitments they extend or voluntarily provide; and arrangements associated with conduit debt obligations, which often are characterized in practice as leases, but are not leases for financial reporting purposes
• Enhancing note disclosures

While government issuers will no longer report conduit debt obligations as liabilities, Statement No. 91 requires a government issuer to recognize a liability if qualitative factors indicate that it is “more likely than not” that it will support one or more debt service payments for a conduit debt obligation. More information is available on the GASB website.

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