Special Assessments

3 Accounting

3.2 Assets

3.2.7.10 Introduction 

Some capital improvements or services provided by local governments are intended primarily to benefit a particular property owner or group of property owners rather than the general citizenry. The costs of providing the capital improvements or services are charged either partially or totally to the property owners who receive the benefit. There are two types of assessments: operating/service assessments and capital assessments.

3.2.7.20 Operating/Service assessments

Operating/service assessments are for operating activities and do not result in the purchase or construction of capital assets (e.g., street cleaning or snow plowing). The revenues and expenses/expenditures should be recorded in the fund that best reflects the nature of the transactions. Both the revenues and expenses/expenditures should be recognized on the same basis of accounting for that fund type.

3.2.7.30 Capital Assessments

Capital assessments enhance the utility, accessibility, or aesthetic value of the affected properties and generally result in improvements or additions to the government’s general capital assets. The project should be recorded in the fund that best reflects the nature of the transactions. Assessment projects that are an integral part of the government’s enterprise activities should be recognized in the enterprise fund.

3.2.7.40 Assessment Receivable and Revenue

At the time of the levy, a special assessments receivable should be recognized. In a governmental fund, it should be offset by a deferred inflow of resources. The deferred inflow of resources should be reduced as the assessments become measurable and available.

In a proprietary fund and the government-wide financial statements, the full amount will be recognized as revenue at the time of the levy..

3.2.7.50 Special Assessment Debt

Special assessment debt for which the government is obligated in some manner, as defined in the GASB Codification Section S40 – Special Assessments, should be reported as a liability of the government.

The phrase obligated in some manner is defined very broadly and includes all situations other than those in which (a) the government is prohibited (by constitution, charter, statute, ordinance, or contract) from assuming the debt in the event of default by the property owner or (b) the government is not legally liable for assuming the debt and makes no statement, or gives no indication, that it will, or may, honor the debt in the event of default.  It would be very rare, if ever, that special assessment debt should not meet these criteria.

3.2.7.60 Debt Service

If the special assessment is related to governmental-type activities, the debt service transactions may be recorded in a debt service fund. Recognition of bond principal and interest expense should be similar to other long-term debt. Any portion that is related to an enterprise fund or expected to be repaid from an enterprise fund revenue should be reported in the enterprise fund. Short-term debt service expenditures should be recognized in the fund recording the associated debt.

3.2.7.70 Capital Assets

The capital assets constructed by a capital improvement special assessment should be reported together with other capital assets.

3.2.7.80 Budgeting 

Capital improvements funded by special assessments should be budgeted on a project basis. Although improvement district statutes vary, they normally require formal adoption of an assessment roll. The LID formation ordinance is an adequate budget for the life of the LID. The amount of the assessment roll is determined by the estimated costs of construction and debt service, which are approved by the same action. If construction costs exceed estimates, legislative approval is normally required. That approval should be recorded as a budget modification.

3.2.7.90 References