The rising cost of pollution: implementing GASB Statement 49 at the Port of Oakland.

• Author: Harper, Kevin W.
• Position: Best Practices - Governmental Accounting Standards Board

As you thumb through the recent accounting standard, Governmental Accounting Standards Board Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations, a vague feeling of uneasiness comes over you. You suspect that the financial impact on your government might be significant, but you do not have enough information about the government's polluted sites to be sure. This article discusses how the Port of Oakland approached implementing GASB 49.

THE PORT OF OAKLAND

The port, which is situated along 19 miles of waterfront, operates an international container seaport; a passenger, cargo, and general aviation airport; and waterfront property for commercial and recreational purposes. It is an autonomous department of the City of Oakland, California, under the control of the Board of Port Commissioners, which is appointed by the City Council. The Port owns various polluted sites with contaminated soil and groundwater, buildings containing asbestos and lead-based paint, and sites with underground storage tanks. Prior to the implementation of GASB 49, the port had recorded liabilities totaling approximately $13.3 million related to 18 polluted sites. Liabilities have historically been recorded only after receiving a regulatory notice to perform a site assessment or a site cleanup.

The Environmental Programs and Planning Division manages the port's environmental remediation program. The Port of Oakland's Attorney's Office manages the legal aspects of the environmental remediation program, including negotiations with other responsible parties and insurance carriers. Both divisions provide estimates to the Financial Services Division to record as a liability in the general ledger. Historically, port labor (including in-house legal costs) has not been accrued, a comprehensive list of polluted sites has not been readily available, and no recurring reports about pollution remediation status were provided to senior management.

IMPLEMENTATION OF GASB 49 AT THE PORT

The Financial Services Division took the lead in forming a team comprising the individuals who were most knowledgeable about the port's polluted sites, the estimated costs to clean and monitor the sites, and the legal or insurance claims and settlements that could offset those costs. The team included representatives of the Financial Services Division, the Port Attorney's Office, and the Environmental Programs and Planning Division. An overview of GASB 49 was presented, and the team was asked to determine the liability to be recorded under GASB 49 and establish procedures to obtain and update the necessary information about polluted sites. The port's legal and environmental staff began by developing a comprehensive list of all polluted sites.

The team compiled data for each site such as location, pollution source and description, regulatory actions taken to date, cleanup status of site, obligating events to date, recognition benchmarks to date, responsible or potentially responsible parties, key dates (e.g. pollution dates, legal notices received, mandated action deadlines) and anticipated management actions. An example of a worksheet that can be used to document information about contaminated sites is shown in Exhibit 1. Polluted sites that have not yet triggered obligating events were placed on a "watch list" The work team agreed to meet periodically to review and update the status of the sites, including identification of additional obligating events that occur in the future. Periodic review is critical because a...