TOPIC: Build America Bond Subsidy
OFFICE: Office of the State Comptroller
QUESTION / ISSUE:
STATE: UT
DATE: 10/06/10
Utah has issued several bond series using the federal Build America Bonds (BAB) program. The BAB program
requires issuers to sell bonds at higher taxable interest rates and provides a subsidy back to the issuer in the
form of an IRS refund. Our question pertains to the reporting treatment of the BAB subsidy.
We are currently reporting the BAB subsidy in the same fund where the bond interest payment was made (debt
service fund). We report the full interest payment and show the BAB subsidy as federal revenue. Although the
BAB subsidy is a reimbursement and has no restrictions on its use, we believe reporting all the debt activity in
one place is the best reporting presentation.
So my question is: Where is the correct place to report the BAB subsidy? Is there any accounting guidance that
would assist in the reporting of this type of subsidy?
Alaska
For FY 10 reporting, Alaska did not participate in Build America Bonds. However, we do
have some in FY 11. Some were purchased in September, and there is a bond proposition
before the voters in November to vote on additional bonds, which will be BABs.
Colorado
Colorado does the accounting the same way - gross interest expense with federal revenue
for the subsidy. I believe the AICPA put out something on the issue.
I adopted the gross interest expense because the state is responsible for the payment even
if it fails to request the subsidy payment from the IRS (or is simply late in the request and the
IRS denies the request). We have some BABs issued in a proprietary fund in addition to our
governmental funds so we have the accounting represented in both. The statements do not
separately identify either the interest expense or federal interest subsidy revenue to my
knowledge.
Kansas
Although we take many steps to get there, Kansas reports the subsidy in the debt service
accounts, and believes that this is the best place to report the subsidy.
From Kansas' perspective, there is nothing to our knowledge in the accounting guidance.
Missouri
We weren't able to find any guidance when we needed to report Bab’s expense and income.
We checked with other entities that we learned had also issued BABs and I asked some
questions of a GASB representative when he was a speaker at the last AGA conference.
None of the other entities or the GASB representative knew of any official guidance (that was
in August).
Montana
Montana has not issued any of these bonds so we have not dealt with these issues.
New York
Please see the attached memo and article. You can look at New York as an example as
they have issued their CAFR for fiscal year ending March 31, 2010 and can be found at the
following website:
BAB100710.PDF
http://www.search.state.ny.us/search?sort=date%3AD%3AL%3Ad1&output=xml_no_dtd&ie=
UTF-8&oe=UTF8&client=nystate_frontend&proxystylesheet=nystate_frontend&site=default_collection&q=20
10+cafr
We will report the federal subsidy under grant income that flows through to the Governmentwide Statement of Activities reducing the interest on long term debt.
Ohio
Ohio believes the BABs subsidy is truly a subsidy so it’s just like any other federal subsidy
and will be recorded as federal revenue in the fund where the money is due. In Ohio, the
debt service payment amounts are transferred from the responsible funds to the debt service
fund and then the payment for debt service is recorded in the debt service fund. However,
the responsible fund is required to transfer the full debt service payment to the debt service
fund. The “reimbursement” (i.e., subsidy) is due to the responsible fund because that fund
was required to transfer more than the debt service payment reduced by the subsidy.
Virginia
We are reporting the total debt service payments in the CAFR Debt Service Fund. The
subsidy received is reported as federal revenue in the Special Revenue Funds.