The User's Perspective

December 2011

The GASB’s Preliminary Views on Financial Projections

          On November 29, the Governmental Accounting Standards Board (GASB) approved a Preliminary Views, Economic Condition Reporting: Financial Projections. The document presents the Board’s initial thinking on what it believes are the key issues related to reporting financial projections to assist users of governmental financial reports with assessing a government’s economic condition. The GASB spent a significant amount of time with users—who participated in surveys, shared their perspective in interviews, and served on a related task force—in developing the proposals described in the Preliminary Views.  Now we ask you to let us know by commenting on the document if we have included in the proposal the information that you need to assess a government’s fiscal sustainability, or whether additional information or modifications to the proposals described are required to assist you in making your assessments.

Why Did the GASB Issue This Document?

          The GASB believes that financial reporting should assist users to assess the level of services that can be provided by a government and its ability to meet its financial obligations as they become due. Financial reports can do so by providing information about the government’s financial position and its financial or economic condition. The GASB’s research found that although information that is valuable to users can be found in an annual financial report at present, there is still crucial information that users cannot easily obtain. In particular, little information is provided that specifically reports on the sustainability of government finances. The research concluded that users need more forward-looking information to assess fiscal sustainability.

          The Board defines fiscal sustainability as a government’s ability and willingness to generate inflows of resources necessary to honor current service commitments and to meet financial obligations as they come due, without transferring financial obligations to future periods that do not result in commensurate benefits.

What Are the Board’s Preliminary Views?

          The Preliminary Views contains the Board’s initial proposals for how governments would provide forward-looking information to users in the form of financial projections for each of the next five years. Based on the Board’s extensive research, its preliminary view is that five components of information are necessary to assist users in assessing a governmental entity’s fiscal sustainability:

  • Projections of total cash inflows and major individual cash inflows, in dollars and as a percentage of total cash inflows, with explanations of the known causes of fluctuations in cash inflows
  • Projections of the total cash outflows and major individual cash outflows, in dollars and as a percentage of total cash outflows, with explanations of the known causes of fluctuations in cash outflows
  • Projections of total financial obligations and major individual financial obligations, including bonds, pensions, other postemployment benefits, and long-term contracts, with explanations of the known causes of fluctuations in financial obligations
  • Projections of annual debt service payments (principal and interest)
  • A narrative discussion of major existing intergovernmental service interdependencies and their nature.

          It is the Board’s preliminary view that these components of fiscal sustainability are essential for placing a government’s basic financial statements and accompanying notes in an operational or economic context. Consequently, they would be required to be included as required supplementary information (RSI) of all governmental entities’ annual financial reports.

Why Is This Information Important?

          The Board believes that the need for this information is clear. Extensive research conducted by the GASB noted that users of state and local government financial statements require information on these five components in order to assess a government’s financial health in a comprehensive manner, and to make their assessment regarding an entity’s financial viability or fiscal sustainability.

          In addition, projections of inflows and outflows of resources are essential to assessing interperiod equity—a government’s ability to meet annual spending needs with current-period resources, rather than pushing costs off to the future or consuming accumulated resources. Projections of financial obligations, such as bonds and unfunded pension liabilities, reflect the future financial impact of a government’s past decisions and help users to evaluate a government’s capacity to meet those financial demands as they come due.

          An intergovernmental service interdependency exists when one government provides a service on behalf of another government, or together with one or more governments. The component regarding narrative discussion of major existing intergovernmental service interdependencies would provide users with information to assess the fiscal implications of a major service interdependency and how changes in this major service interdependency may impact a government’s fiscal sustainability.

How Would the Financial Projections Be Done?

          Inflows and outflows would be projected on a cash basis and financial obligations would be projected on an accrual basis. Projections would be made for a minimum of each of the next five fiscal years. The financial projections would be based on current policy, informed by historical information, and adjusted to take into account known events and conditions that affect the projection period.  Current policy includes policy changes that have been formally adopted by the end of the reporting period but do not become effective until during the projection period.

          The Board does not believe that specific assumptions should be prescribed. Rather, the assumptions underlying the projections would be selected by a government following a set of guiding principles. Under these principles, the assumptions would be (a) consistent with each other and with the information used as the basis for the assumptions and (b) comprehensive by considering significant trends, events, and conditions.

          Disclosures of the assumptions a government chooses would be required in order to help users understand how the financial projections were made and to assess their reasonableness. The Board believes that identifying guiding principles rather than specifying particular mechanics would result in governmental entities making more relevant and reliable financial projections.

          The components of fiscal sustainability information would be reported for the primary government, including both governmental activities and business-type activities. The cash inflow and outflow information would include net subtotals (inflows less outflows) for the general fund, other governmental activities, total governmental activities, total business-type activities, and a net total for the entire primary government. Notes to RSI would be necessary in instances when one or more activities are determined to significantly affect the fiscal sustainability of the primary government.

          An individual cash inflow, cash outflow, and financial obligation of a governmental or business-type activity would be projected separately if it is viewed as “major.” Major inflows, outflows, and obligations include the following:

  • Any governmental or business-type activity cash inflow, cash outflow, or financial obligation that equals at least 10 percent of total cash inflows, total cash outflows, or total financial obligations, respectively, for all activities of that type in any reported projection period
  • All cash outflows for capital
  • All capital-related cash inflows from bond proceeds, capital grants, or other sources restricted or committed to capital outlays
  • Any other cash inflow, cash outflow, or financial obligation that a government believes is particularly important to users when making an assessment of fiscal sustainability.
          It would be a matter of professional judgment to determine which intergovernmental service interdependencies are considered major.

          In addition, in an effort to enhance understanding of what is being proposed, the Preliminary Views includes an appendix with more than a dozen illustrations of what the information described in the document would look like once implemented. The illustrations include schedules of projections, required notes to the schedules, and narrative discussion of major intergovernmental service interdependencies. The GASB would appreciate any feedback you might be able to offer regarding the usefulness of these illustrations, including how the proposals that these illustrations are based on might be improved.

How Would Users Be Helped to Understand What Projections Are?

          Under the Board’s preliminary view, a cautionary notice would precede the financial projections and related narrative discussion to place the information into context. The cautionary notice would inform readers that projections do not represent a forecast or prediction of likely outcomes. Because projections are based on assumptions that are inherently subject to uncertainty and changes, the notice would caution readers that actual future financial results may be significantly different from those reported.

What Is Included in the Alternative View?

          Two Board members hold an alternative view to the Board’s preliminary views. While these Board members believe financial projections are within the scope of the GASB and are appropriate for the Board’s agenda, they do not believe reporting financial projections is essential and, consequently, is not appropriate for inclusion in RSI.

How Can Users Help the GASB with This Project?

          Users that participated in the GASB’s research efforts have told us that they believe that the information described in this Preliminary Views is essential to assess a government’s fiscal sustainability. Now that the document has been issued, the Board needs to hear from users to let us know if we got it right, or if additional information, or modifications to the information, are needed to allow you to make your assessments of a government’s fiscal sustainability. You can assist the GASB by reading the Preliminary Views, Economic Condition Reporting: Financial Projections, and submitting your comments. The document may be downloaded free-of-charge from the GASB website, The comment deadline is March 16, 2012.

          You can submit comments by email ( or traditional mail. Additional information about responding to the document and participating in public hearings scheduled for March and April 2012 can be found in the front of the Preliminary Views, and on the GASB website by clicking on the links below.

Read the Preliminary Views 
View the Project Page