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GASB 89: No more capitalizing interest on governmental construction projects


by Romulus C. Comly


In its ongoing effort to increase transparency, the Governmental Accounting Standards Board (GASB) earlier this year said that the interest cost incurred before the end of a construction period should be recognized as an expense in the reporting period it occurs.

GASB 89 specifically impacts the reporting for construction borrowing done for governmental propriety funds, which apply to business-type activities such as building a new water treatment plant.
In making construction interest costs no longer a part of the historical cost of a capital asset, GASB 89 treats the financial reporting for proprietary funds the same as capital projects and other governmental funds.

The change impacts reporting periods starting after Dec. 15, 2019, though early application is encouraged by GASB. The requirements should be applied prospectively.
“If considered separately from a capital asset, interest cost would not meet the definition of an asset because the cost itself is not a resource with present service capacity,’’ the Board said when it released GASB 89 in June. “The Board believes that the requirements will benefit users by providing enhanced relevance and comparability of information about capital assets and the cost of borrowing for a reporting period.’’

How to prepare

Early planning is key.

Start reviewing existing debt agreements to make sure they comply with GASB 89. For example, agreements allowing recovery of costs over time through rates charged to customers may need adjusting to comply with the new standard.

Remember, GASB 89 means that net assets will be lower and expenses higher during the construction phase of a project. This could impact a government’s ability to meet debt covenants.
It’s a good idea to touch base with your independent auditor to make sure current and future debt agreements comply with GASB 89 and to avoid any unwanted surprises down the road.


Romulus C. Comly is a Principal with Boyer & Ritter LLC provides accounting, auditing, tax and management consulting services for a variety of public sector and governmental entities and has extensive experience working with clients subject to the Single Audit Act. Contact Romulus at 814-234-6919 or

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