2018 Fall issue of Horizons

For example, some city governments choose to maintain recreational facilities such as pools, golf courses and tennis courts. Instead of constructing these facilities, a government might choose to purchase an existing pool or golf course and make it publicly available. It is also important to remember that governmental accounting is used not only by cities and counties, but also by entities such as Native American tribal casinos that meet the definition of a government but engage primarily in the business of entertainment. As one might imagine, tribal casinos and resorts frequently purchase restaurants, golf courses and convenience stores in transactions that qualify as acquisitions. Under GASB Statement No. 69, acquisitions are accounted for by recognizing the assets, deferred outflows of resources, liabilities and deferred inflows of resources at their acquisition value, which represents the market-based price that would have been paid to acquire similar assets or to discharge similar liabilities, as of the acquisition date. If the amount of consideration paid by the government exceeds the net value of the assets and liabilities acquired, the difference is reported as a deferred outflow of resources and is amortized over future periods. In other words, governments do not report goodwill related to acquisitions, as for-profit businesses do. If the amount of consideration paid by the government is less than the net value of the assets and liabilities acquired, the acquisition value of non-current assets other than financial assets is reduced. If all non-current assets have been reduced to no value, any remaining difference is reported on the financial statements as a special item. Transfers of Operations A transfer of operations is defined by GASB Statement No. 69 as a government combination involving the operations of a government (or, in other words, a subset of a government’s activities) rather than the combination of legally separate entities. No significant consideration is exchanged in a transfer of operations.

Government combinations are significant undertakings, involving many tasks beyond the normal daily operations of the government.

The possibility of a city-county merger has at least been discussed by the cities of Albuquerque, Baltimore, Buffalo, Charlotte, Des Moines, El Paso, Las Vegas, Little Rock, Memphis, Oakland, Orlando, Pittsburgh, Portland and St. Louis, among others. Under GASB Statement No. 69, mergers are accounted for by combining the assets, deferred outflows of resources, liabilities and deferred inflows of resources of the merging entities, and measuring these at the carrying value for these items as previously reported on the separate financial statements of the merging entities. If the merger results in a newly formed government, the government’s first fiscal year begins on the merger date and all assets, deferred outflows of resources, liabilities and deferred inflows of resources of the merging entities are recognized on that date. If the operations of a dissolving government are absorbed into a continuing governmental entity, the continuing entity should recognize the merger as of the beginning of the fiscal year, regardless of the actual merger date. Acquisitions An acquisition is defined by Statement No. 69 as a combination in which a government acquires another entity or the operations of another entity, in exchange for significant consideration. The acquired entity could be another governmental entity or a non-government entity. Acquisitions are typically executed by governments when they wish to offer services that they do not currently have the capacity to offer.

Consolidation: It’s Happening in Governments Too

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