Understanding GASB 91 conduit debt obligations

The new conduit debt obligations accounting standard for the public sector, Governmental Accounting Standards Board Statement No. 91, Conduit Debt Obligations (GASB 91), is effective for organizations with fiscal years beginning after Dec. 15, 2021.

What is GASB 91?

GASB 91 changes the financial reporting requirements of organizations that have conduit debt obligations. A conduit debt obligation is a debt instrument issued in the name of a state or local government (the issuer) for the benefit of a third party that is primarily liable for the repayment of the debt instrument (the third-party obligor).

A conduit debt obligation has all of the following characteristics:

1. There are at least three parties involved: (1) an issuer, (2) a third-party obligor and (3) a debt holder or debt trustee. There may be more than one third-party obligor, debt holder or debt trustee.
2. The issuer and the third-party obligor are not within the same financial reporting entity.
3. The debt obligation is not a parity bond* of the issuer, nor is it cross collateralized with other debt of the issuer.
4. The third-party obligor or its agent, not the issuer, ultimately receives the proceeds from the debt issuance.
5. The third-party obligor, not the issuer, is primarily obligated for the payment of all amounts associated with the debt obligation (debt service payments).

*A parity bond is a bond with equal rights to the collateral as other bonds issued under a common bond indenture.

An issuer’s commitments (characterized as limited, additional and voluntary) associated with a conduit debt obligation can vary and impacts the recognition and measurement of the conduit debt obligation and what should be disclosed in the notes to the financial statements.

If your organization has conduit debt obligations that need to be accounted for under GASB 91, it is important to prepare now for implementation.

Next steps to facilitate a smooth transition to GASB 91 compliance

• Identify any conduit debt obligations
• Determine what the commitment is for each obligation