GASB Implementation Guide 2026-1 was released – what to know

Summary

• The Governmental Accounting Standards Board (GASB) issued Implementation Guide 2026-1, Financial Reporting Model Improvements – Subsidies, which took effect for fiscal years beginning after June 15, 2026, and all following reporting periods.
• This update addresses specific scenarios regarding the concept of subsidies introduced by GASB Statement 103, Financial Reporting Model Improvements (Statement 103), as well as amends a previous item discussed in the Implementation Guide that was impacted by the adoption of Statement 103.
• Accounting teams should consider whether Implementation Guide 2026-1 impacts their presentation of subsidies in the proprietary fund financial statements and the financial statements of all state and local governments who utilize the business-type activities reporting model outlined in previous GASB statements.

Background

Implementation Guide 2026-1, issued in September 2026, was part of its periodic updates to clarify practice issues sent to the GASB Technical Inquiry Service, as well as address concerns sent to the Board from various stakeholders. GASB Implementation Guidance questions are considered Level B GAAP under the current GAAP (Generally Accepted Accounting Principles) structure, per GASB Statement 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. This means that while authoritative when compared to interpretive guidance from groups like the GFOA, requirements and guidance in GASB Level A GAAP statements are given higher priority.

Key implementation topics

4.1 and 4.2 Scholarship donations

Scholarship donations received by a higher education institution reporting as a business-type activity or enterprise fund are subsidies when donors receive no goods or services in return and the resources help keep tuition or other charges below what they otherwise would be. They remain subsidies even if published tuition rates do not change, because the donations offset education costs that otherwise would be financed through tuition or other charges.

4.3 Research grants

Research grants are subsidies when, in substance, they offset operating costs that would otherwise be financed through tuition or other charges, thereby keeping current or future charges lower. Grants that do not offset costs the institution otherwise would incur generally do not meet the subsidy criterion.

4.4 Taxes imposed by a business-type activity (BTA)

Taxes imposed by a BTA are subsidies because taxpayers do not directly receive goods or services from the BTA in exchange for the tax. The proceeds finance costs that otherwise would be recovered through user fees, keeping current or future fees and charges lower.

4.5 Passenger facility charges (PFCs)

Airport PFCs are subsidies because passengers pay them without directly receiving goods or services from the airport because of the charge. By funding FAA-approved capital and related costs, PFC proceeds keep current or future rates, fees, and charges to airlines and concessionaires lower than they otherwise would be.

4.6 Presentation of subsidies other than noncapital subsidies

Subsidies that are not noncapital subsidies should be presented as other nonoperating revenues and expenses. This presentation distinguishes them from noncapital subsidies under the financial reporting model.

4.7 Classification based on provider-imposed limitations

Subsidies are classified according to provider-imposed limitations on their use, rather than management’s intended use. A requirement to use resources for principal or interest on debt issued to acquire, construct, or improve capital assets is capital in nature and supports classification as a capital subsidy.

5.1 Classification based on external capital requirements

Subsidy classification depends on whether the provider, legislation, regulation, or another external requirement limits the resources to capital purposes. Using unrestricted resources for capital outlays does not make them a capital subsidy. Absent an external capital restriction, they generally are classified as a noncapital subsidy.

When does this take effect?

The provisions of the Implementation Guide 2026-1 are effective for fiscal years beginning after June 15, 2026. Early adoption is encouraged if the entity has already implemented Statement 103. 

What do governments and accounting teams need to consider?

While GASB Implementation Guidance updates may not demand the same level of effort as full GASB Statements, they still warrant careful consideration. Management staff should assess the relevance of each update to their proprietary/business-type activities financial reporting, including how the guidance aligns with their financial statement presentation and supporting documentation. Staying current ensures compliance and helps maintain the integrity and accuracy of financial reporting in an evolving regulatory environment.

Need help with accounting and financial reporting for your governmental entity? With our deep experience in audit, assurance and accounting for state and local governments, we’re available to discuss your needs. Contact Sikich today with any questions. 

More of our reporting on GASB statement updates can be found here.