School Assets in Virginia ...

In Virginia, schools are considered component units of the local government and are therefore reported in a separate column apart from the primary government. They are separate legal entities, but have no taxing authority.  Schools depend on their local government for substantial resources, including the issuance of bonds for construction when such resources are needed.

It is important to understand this relationship when reporting under GASB 34.  If a local government issues bonds to build school facilities, typically the capital assets will be reported with the component unit (schools) and the debt will be reported with the primary government under governmental activities. Because the primary government has no capital assets, the debt will be reported as a reduction in governmental activities’ unrestricted net assets.  

In 2002, the Virginia General Assembly passed Senate Bill 276 which provides that localities have tenancy in common with the schools for property for which the local government has outstanding debt.  The purpose of the bill is to give the local government the option of reporting the schools' capital assets for which there is outstanding debt as part of the primary government’s capital assets.  This approach allows the capital asset and debt to be reported together. When the debt is repaid, the capital assets revert back to the schools.  However, local governments have the option of not using this method. 

The two methods produce significantly different results for certain components of the government-wide financial statements. For example, if all school assets are reported with the component unit (schools), then total assets and unrestricted net assets of governmental activities will be substantially lower than what the other method would report.    

Because the two methods can produce significantly different results, all of the tables for Virginia local governments have the ability to report information based on how school assets are reported.  There is a pull down item on each table related to school assets.  The default setting is for all treatments. However, options are available to list only governments that reported schools capital assets for which there is outstanding debt as part of the primary government’s capital assets and to list only governments that reported all school assets with the component unit (schools).