September 2002

The GASB 34 Chronicles: Land, right-of-way, and easement valuation

Dennis Ross
Former Head of Technical Services Department
APWA Kansas City Office

Two of the most often asked questions regarding compliance with GASB 34 are, "How do we value land, right-of-way, and easements?" followed closely by "How do we establish a useful life for these assets?"

The second question is really easy—you don't. Land, right-of-way, and easements are not depreciable and are capitalized and carried on the books at historical cost (except where the easement was for a specified period of time, in which case it should be depreciated over that period). These assets do not lose value with time, nor are increases in market value recognized on financial statements.

Prospectively, any new land, right-of-way, or easement purchases can be valued easily, either at the actual cost—or through an appraisal. Remember that donations and gifts should be capitalized and booked at market value, whether you pay for them or not.

The Texas State Comptroller has offered a list of related expenditures that should be included:

• Purchase price or fair market value at time of gift
• Commissions
• Professional fees (title searches, architect, legal, engineering, appraisal, surveying, environmental assessments, etc.)
• Land excavation, fill, grading, drainage
• Demolition of existing buildings and improvements (less salvage)
• Interest on mortgages accrued at date of purchase
• Removal, relocation, or reconstruction of property of others (railroad, telephone and power lines)
• Accrued and unpaid taxes at date of purchase
• Other costs incurred in acquiring the land

While the list above was specifically developed to assist local government agencies in Texas, it appears to be fairly complete. Remember to include the capture of this information in your routine closeout or acceptance procedures so that it does not become a giant year-end headache. Even reconstructing this information may be difficult if the project was started before the beginning of the current budget year, so get the information as early as possible.

Retroactively, valuing these assets creates some interesting problems. What was the value of one mile of road right-of-way in 1920? This can vary greatly depending on whether it was purchased in fee or is simply a roadway easement where the underlying property still owns the land. There are many variables to consider.

The ideal solution is to enlist the help (i.e., hire) of an appraiser familiar with valuation of right-of-way to create a matrix of generalized land, right-of-way, and easement values per square foot for each year that you added to the inventory. You could also create the matrix yourself by finding historical information on land values from newspapers, annual reports, or county land records.

Don't go overboard because unless you are talking about downtown Manhattan (NY) the value is probably insignificant—consider two or three categories (residential, commercial, industrial) and an average cost for each decade. Make sure that you consult with your finance department and the auditor that will be reviewing the information for compliance with GASB 34 before spending too much time developing a sophisticated process. Remember, it's not rocket science—a simple report documenting the assumptions and methodology should be reasonably easy to develop and defend.