GASB Implementation Guide Clarifies Subsidy Reporting

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Why the new guidance

Statement 103 established uniform definitions of operating and nonoperating revenues and expenses for proprietary funds and business-type activities. It also defined subsidies and added a subtotal for operating income or loss and noncapital subsidies to the proprietary fund statement of revenues, expenses, and changes in fund net position.

Under Statement 103, resources received by a proprietary fund are subsidies when the fund does not provide goods or services to the resource provider and the resources directly or indirectly keep current or future fees and charges lower than they would be otherwise. The definition also addresses subsidies provided and transfers.

Implementation Guide 2026-1 responds to questions raised as governments began applying that definition. Its questions and answers are authoritative Category B guidance and apply to proprietary fund financial statements of all state and local governments and to the financial statements of all state and local government business-type activities.

Crowe observation: Statement 103’s subsidy model addresses financial statement presentation. It does not replace the recognition requirements that apply to a transaction. During its deliberations, the GASB emphasized that the exchange and nonexchange classifications used for recognition were not incorporated into the subsidy definition. Governments therefore should evaluate recognition and presentation separately rather than assume that an existing revenue or expense label determines whether an item is operating, a noncapital subsidy, or another nonoperating item.

What the new questions and answers clarify

Donations used for student scholarships

Questions 4.1 and 4.2 address donations received by a higher education institution that it will use to award scholarships to its students. The donations are subsidies because the donors do not receive goods or services in return and the scholarships directly reduce the resources the institution receives from students for tuition.

The conclusion does not change when published tuition rates remain the same. The guide focuses on the amount of tuition or other charges the institution receives from students, not solely on the published rate.

Crowe observation: The fact pattern is deliberately limited to donations received by the institution for scholarships the institution awards. In the deliberations, GASB staff distinguished those institutional resources from resources that belong to a student and are remitted by a third party. For example, Pell Grant resources are portable with the student and continue to be viewed as student resources. Therefore, the new guidance should not be read to classify every form of student financial aid as a subsidy.

Research grants

Question 4.3 concludes that the classification of research grants depends on the transaction facts and circumstances. In many cases, a research grant will not be a subsidy because the grantor receives a good or service from the institution. If the grantor does not receive goods or services, the institution then considers whether the grant proceeds directly or indirectly keep current or future tuition or other charges lower than they would be otherwise. That assessment requires professional judgment.

Crowe observation: The initial exposure draft of the guide focused only on the second part of the subsidy definition and asked institutions to consider whether funded costs would have existed without the grant. Respondents noted that this counterfactual analysis could be burdensome. The final guide instead addresses both parts of the definition, removes that hypothetical cost analysis, and calls for a facts-and-circumstances assessment. GASB staff also indicated during deliberations that bifurcating a research grant for presentation was not required.

Taxes and passenger facility charges

Question 4.4 clarifies that taxes reported by a business-type activity that are derived tax revenues or imposed nonexchange revenues under Statement No. 33, “Accounting and Financial Reporting for Nonexchange Transactions,” meet the definition of subsidies. The taxpayers do not directly receive goods or services from the business-type activity as a result of the tax, and the revenue directly or indirectly keeps the activity’s fees and charges lower than they would be otherwise.

Question 4.5 clarifies that passenger facility charges regulated by the Federal Aviation Administration also meet the definition of subsidies. Those charges are collected from passengers through airline tickets. The passengers receive the flight service from the airline rather than goods or services from the airport as a result of the charge, and the revenue allows the airport to keep current or future charges to airlines lower than they otherwise would be.

Crowe observation: The tax question was narrowed after public comment. It is not a blanket conclusion for every amount called a tax. Governments first should determine whether the revenue is derived tax revenue or imposed nonexchange revenue under Statement 33. A special assessment, regulatory charge, or other amount that is labeled a tax but is paid in return for goods or services might require a different conclusion. Similarly, Question 4.5 establishes that passenger facility charges are subsidies; it does not by itself determine whether a particular charge is a capital or noncapital subsidy.

Capital and noncapital subsidies

Questions 4.6 and 4.7 clarify the presentation of capital subsidies and one application involving capital-related debt. Subsidies other than noncapital subsidies are capital subsidies and are presented as other nonoperating revenues and expenses. If the provider limits the use of resources to debt service on capital-related debt, the recipient should classify the resources as capital subsidies.

The guide also amends Question 4.5 in Implementation Guide 2025-1. When a recipient uses unrestricted subsidy resources to acquire capital assets, that use alone does not make the subsidy a capital subsidy. Unless the provider or another external source, such as legislation or regulation, limits the resources to capital purposes, the recipient should classify the subsidy as noncapital.

Crowe observation: These questions are most useful when read together. The recipient’s spending decision does not determine the classification. Instead, the analysis focuses on limitations imposed by the provider or another external authority.

How the final guide changed after public comment

The GASB received 94 comment letters on the exposure draft. In response, it clarified several questions and answers and eliminated one proposed question from the final guide.

The exposure draft proposed that certain Medicaid supplemental payments received by governmental hospitals were subsidies. Respondents raised concerns about the variety of supplemental payment programs; the relationships among patients, payers, and providers; and the interaction between presentation under Statement 103 and revenue recognition. GASB staff concluded that a broad question and answer could lead to inconsistent application and indicated that the issue might be more appropriately considered in connection with the board’s revenue and expense recognition project work. The final guide does not include the proposed Medicaid question.

Crowe observation: Removal of the Medicaid question eliminates the exposure draft’s categorical answer, but it does not establish the opposite conclusion. Governmental healthcare providers still need to evaluate the facts of their arrangements under Statement 103 for presentation purposes while continuing to apply other applicable guidance to recognition and measurement.

The final guide also revises the research grant question to address both criteria in the subsidy definition, narrows the tax question to specified Statement 33 revenues, and refines the passenger facility charge example. These changes make the final guidance more closely tied to identifiable transaction characteristics while preserving the professional judgment inherent in Statement 103.

What entities need to consider

Governments that report proprietary funds or business-type activities should consider the following steps:

• Revisit, as appropriate, prior conclusions reached under Statement 103 for significant inflows – including scholarship donations, research grants, certain tax revenues, passenger facility charges, and capital-related funding – and apply the implementation guide in determining whether they meet the definition of a subsidy and, if so, how they should be classified and presented.
• Document both elements of the subsidy analysis, including whether goods or services are provided to the resource provider and how the resources affect current or future fees and charges.
• Identify limitations imposed by providers, legislation, or regulation, and distinguish those limitations from the recipient’s intended or actual use of the resources.
• Evaluate whether the new guidance changes prior classifications, financial statement line items, or related controls, and assess the transition requirements under Statement No. 100, “Accounting Changes and Error Corrections.”

Effective date

Implementation Guide 2026-1 is effective for fiscal years beginning after June 15, 2026, and all reporting periods thereafter. Earlier application is encouraged if Statement 103 has been implemented.

The guide requires retroactive application. Any changes adopted at transition are reported as a change in accounting principle under Statement 100, including applicable display and disclosure requirements.

GASB materials reprinted with permission. Copyright 2026 by Financial Accounting Foundation, Norwalk, Connecticut. Copyright 1974-1980 by American Institute of Certified Public Accountants. Copyright 1976-1984 by Government Finance Officers Association.