CITY OF SUFFOLK, VIRGINIA NOTES TO FINANCIAL STATEMENTS June 30, 2015
Note 1.
Summary of Significant Accounting Policies (Continued) R. Component Unit-School Board Capital Asset and Debt Presentation By law, the School Board does not have taxing authority and, therefore, it cannot incur debt through general obligation bonds to fund the acquisition, construction, or improvement of its capital assets. That responsibility lies with the City to issue the debt on behalf of the School Board. However, the Code of Virginia requires the School Board to hold title to the capital assets (buildings and equipment) due to their responsibility for maintaining the assets. In the Statement of Net Position, this scenario presents a dilemma for the City. Debt issued on behalf of the School Board is reported as a liability of the Primary Government, thereby reducing the net position of the City. The corresponding capital assets are reported as assets of the component unit – School Board (title holder), thereby increasing its net position. The Virginia General Assembly amended the Code of Virginia to allow tenancy in common with the School Board whenever the locality incurs a financial obligation which is payable over more than one fiscal year for any school property. The tenancy in common terminates when the associated debt has been paid in full. For financial reporting purposes, the legislation permits the City to report the portion of the school property related to any outstanding financial obligation, thus eliminating a potential deficit from financing capital assets with debt. S. Change in Accounting Principle Effective July 1, 2014, the City adopted the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pension Plan, which requires governments providing defined benefit pensions to recognize the long-term obligation for pension benefits as a liability for the first time and to more comprehensively and comparably measure the annual costs of pension benefits. The most significant effect of the implementation of Statement No. 68 is the restatement of the net position related to the effect of recording the beginning net pension liability. See note 17 for further discussion. Effective July 1, 2014, the City adopted the provisions of GASB Statement No. 69, Government Combinations and Disposals of Government Operations, which establishes accounting and financial reporting standards related to government combinations and disposals of government operations. This statement also provides guidance for transfers of operations that do not constitute entire legally separate entities and in which no significant consideration is exchanged. In practice, the City has determined that there have been no combinations or disposals of government operations that occurred during the fiscal year, so there is no effect on the financial statements. Effective July 1, 2014, the City adopted the provisions of GASB Statement No. 71, Pension Transition for contributions Made Subsequent to the Measurement date, which addresses an issue regarding application of the transition provisions of Statement No. 68. Statement No. 71 requires that, at transition a government recognize a beginning deferred outflow of resources for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability. The effect of the implementation of Statement No. 71 was to reclassify the current year employer pension contributions out of pension expense and record them as a deferred outflow of resources.
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