Statement of Net Position: Categories, Deferrals, and Disclosure

The Statement of Net Position is the balance-sheet-style financial statement that state and local governments use to report, at a single point in time, everything they own, everything they owe, and the residual difference between the two. Under rules set by the Governmental Accounting Standards Board (GASB), the statement uses accrual accounting and follows a specific equation: Assets + Deferred Outflows of Resources − Liabilities − Deferred Inflows of Resources = Net Position.

Where the Statement Appears in a Government’s Financial Reports

GASB Statement No. 34 organizes government financial reporting into two layers, and the Statement of Net Position appears at specific points in that structure.

At the government-wide level, a single Statement of Net Position covers all governmental and business-type activities on the accrual basis. It reports assets, liabilities, revenues, and expenses in separate columns for governmental activities, business-type activities, and discretely presented component units.¹ Fiduciary activities are excluded here because those resources are held for others and are not available to fund the government’s own programs.

Below the government-wide level, proprietary funds — enterprise funds and internal service funds — also prepare their own Statement of Net Position, distinguishing current from noncurrent items. Fiduciary funds report through a separate Statement of Fiduciary Net Position that covers pension trust funds, investment trust funds, private-purpose trust funds, and custodial funds.² Governmental funds use a balance sheet under a different measurement focus rather than a Statement of Net Position, so if you are looking at the general fund at the fund level, you will not find one there.

The Equation and the Shift from “Net Assets” to “Net Position”

The residual figure was not always called net position. Before GASB Statement No. 63, governments reported “net assets,” which was simply assets minus liabilities. Statement No. 63 added deferred outflows and deferred inflows to the calculation and renamed the residual.³ Each of the five elements in the current equation has a formal definition under GASB Concepts Statement No. 4, and what qualifies for each element matters far more than the arithmetic.

Assets and Liabilities

Assets are resources the government currently controls that provide service capacity or economic benefit. Current assets include cash, short-term investments, and receivables expected to convert to cash within a year. Noncurrent assets include capital items such as land, buildings, equipment, and infrastructure like roads and bridges.

Whether an item becomes a capital asset on the statement depends on whether it meets the government’s capitalization threshold. Each government sets its own, though $5,000 to $10,000 for equipment is a common benchmark. Under the federal Uniform Guidance at 2 CFR 200.439, the threshold for equipment purchased with federal awards is $10,000.⁴ Anything below the threshold is expensed as incurred rather than carried on the statement.

Liabilities are obligations that will require the government to give up resources. Short-term liabilities include accounts payable and accrued wages. Long-term liabilities include bond debt, compensated absences, and the pension and OPEB obligations discussed below. For larger municipalities, outstanding bond debt alone can run into the hundreds of millions of dollars.

Deferred Outflows and Deferred Inflows of Resources

These two categories exist because some transactions consume or produce resources in one period but belong economically to a future period. Under GASB Concepts Statement No. 4, a deferred outflow is a consumption of net assets applicable to a future reporting period, and a deferred inflow is an acquisition of net assets applicable to a future reporting period.⁵ They sit between assets and liabilities on the statement because they are neither.

The most common examples are tied to pensions and OPEB. When actuarial assumptions change or actual investment returns differ from projections, those differences phase into pension expense over several years rather than hitting all at once. Employer contributions made after the pension measurement date but before fiscal year-end also appear as deferred outflows.⁶ Debt refunding gains and losses are another common case: when a government refinances a bond at a lower rate, the accounting gain is deferred and recognized over the remaining life of the old debt.

Pension and OPEB Liabilities

For many governments, the single largest liability on the Statement of Net Position is the net pension liability. GASB Statement No. 68 measures it as the total pension liability (the present value of projected benefits attributed to employees’ past service) minus the pension plan’s fiduciary net position, essentially the plan’s invested assets.⁶ A well-funded plan produces a modest net pension liability; an underfunded plan can produce a liability that dwarfs every other obligation combined.

GASB Statement No. 75 applies the same logic to Other Post-Employment Benefits, which primarily means retiree healthcare. Employers report a net OPEB liability calculated the same way: total OPEB liability minus the OPEB plan’s fiduciary net position.⁷ Both standards also generate their own deferred outflows and deferred inflows.

Both figures depend heavily on actuarial assumptions about demographics, discount rates, and healthcare cost trends. Small changes to those assumptions can shift the liability by millions. This is where casual readers get tripped up: a government can report a negative unrestricted net position and still be operationally solvent, simply because the pension or OPEB liability is so large relative to unrestricted assets.

Leases and IT Subscriptions

Two newer GASB standards added line items that did not exist on the statement a decade ago.

GASB Statement No. 87 requires governments that lease assets — office space, vehicles, equipment — to recognize a right-to-use lease asset and a corresponding lease liability at the start of the lease term. The liability is measured at the present value of expected lease payments; the asset equals the initial liability plus any upfront payments and direct costs, amortized over the shorter of the lease term or the useful life of the underlying item.⁸ Governments acting as lessors record the flip side: a lease receivable and a deferred inflow of resources.

GASB Statement No. 96 gives the same treatment to cloud computing and software subscriptions. A Subscription-Based IT Arrangement, or SBITA, produces a right-to-use subscription asset (classified as intangible) and a subscription liability equal to the present value of expected payments, with the asset also including prepayments and capitalizable implementation costs.⁹ Both standards carve out short-term arrangements of twelve months or less, which are expensed as incurred.

The Three Categories of Net Position

Once the equation produces a total net position figure, that total is broken into three classifications that tell readers how much of the government’s net worth is actually available for spending.¹

Net investment in capital assets: Land, buildings, equipment, and infrastructure after subtracting accumulated depreciation and any outstanding debt used to acquire or improve those assets. Usually the largest positive component, but it represents wealth locked in physical assets, not spendable cash.
Restricted: Resources that can only be spent for specific purposes imposed by outside parties such as federal grantors, bondholders, or enabling legislation. A highway maintenance grant that cannot be redirected to general administration is a typical example. These restrictions are legally enforceable and cannot be lifted by the government’s own action.
Unrestricted: Everything left over, with no external constraints. A negative unrestricted balance does not automatically mean insolvency; it often just reflects the size of pension and OPEB liabilities.

Restricted Is Not the Same as Committed

Restricted net position is often confused with committed fund balance, but the two are distinct. Restricted funds are constrained by external sources — constitutions, grantors, or enabling legislation. Committed fund balances are constrained by the government’s own highest-level decision-making authority through a formal action such as a resolution or ordinance.¹⁰ A government can reverse a commitment through the same process that created it; it cannot unilaterally lift an external restriction.

Component Units on the Statement

Legally separate entities that the primary government is financially accountable for appear on the Statement of Net Position as component units. Most are discretely presented in a separate column, keeping their finances visible but distinct. In limited circumstances, a component unit is blended into the primary government’s columns as though it were a department. GASB Statement No. 34 requires the statement to distinguish the primary government from its discretely presented component units so readers can tell which net position belongs to which entity.

What Preparation Requires

Building the statement means pulling data from several accounting subsystems, and the result is only as reliable as those records.

The starting point is a current trial balance with all accounts reconciled through the reporting date. Capital asset schedules must list every item above the capitalization threshold with acquisition date, original cost, and useful life. Depreciation logs need to be current. For capital assets acquired with federal funds, the $10,000 threshold under 2 CFR 200.439 applies regardless of the government’s own internal threshold.⁴

Debt schedules tracking principal, amortization, and interest supply the figures for long-term liabilities and for the net investment in capital assets category. Lease and SBITA inventories under GASB 87 and 96 must be maintained so right-to-use assets and their liabilities are measured correctly. Actuarial reports supply the pension and OPEB figures, and because GASB 68 requires the net pension liability to be measured as of a date no earlier than the end of the prior fiscal year, the actuarial valuation has to be coordinated with the reporting timeline.

Reporting and Disclosure

The Statement of Net Position does not stand alone. It is published inside the Annual Comprehensive Financial Report, a name established by GASB Statement No. 98 to replace the former “Comprehensive Annual Financial Report.”¹¹ The content and structure did not change with the rename.

Management’s Discussion and Analysis

Basic financial statements must be preceded by a management’s discussion and analysis, presented as required supplementary information. GASB Statement No. 103, effective for fiscal years beginning after June 15, 2025, tightens MD&A to five specific sections: an overview of the financial statements, a financial summary, detailed analyses, significant capital asset and long-term financing activity, and currently known facts, decisions, or conditions.¹² The detailed analyses section must explain why balances changed rather than just reciting dollar amounts or percentages. For a June 30 fiscal year-end, the new requirements first apply for the year ending June 30, 2026.

EMMA and Continuing Disclosure

Governments that have issued bonds in a public offering face an additional layer of disclosure. Under SEC Rule 15c2-12, the issuer or obligated person enters into a continuing disclosure agreement specifying the date by which annual financial information will be provided to the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access (EMMA) system.¹³ There is no single universal deadline; each issuer sets its own in the undertaking. Missing that self-imposed date triggers a notice of failure that becomes part of the public record on EMMA.

External Audit

Once the ACFR is assembled, external auditors review the statement for compliance with GASB standards. Financial audits performed under Generally Accepted Government Auditing Standards include reports on internal controls over financial reporting and on compliance with applicable laws and grant agreements. The resulting audit opinion is what gives the statement credibility with bond investors, rating agencies, and oversight bodies. A qualified or adverse opinion on the Statement of Net Position can raise borrowing costs and draw increased state-level scrutiny.

1
Governmental Accounting Standards Board. GASB Statement No. 34 – Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments
2
Governmental Accounting Standards Board. GASB Statement No. 84 – Fiduciary Activities
3
Governmental Accounting Standards Board. GASB Statement No. 63 – Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position
4
eCFR. 2 CFR 200.439 – Equipment and Other Capital Expenditures
5
Governmental Accounting Standards Board. GASB Concepts Statement No. 4 – Elements of Financial Statements
6
Governmental Accounting Standards Board. GASB Statement No. 68 – Accounting and Financial Reporting for Pensions
7
Governmental Accounting Standards Board. GASB Statement No. 75 – Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions
8
Governmental Accounting Standards Board. GASB Statement No. 87 – Leases
9
Governmental Accounting Standards Board. GASB Statement No. 96 – Subscription-Based Information Technology Arrangements
10
Governmental Accounting Standards Board. GASB Statement No. 54 – Fund Balance Reporting and Governmental Fund Type Definitions
11
Governmental Accounting Standards Board. GASB Changes Name of Report to Annual Comprehensive Financial Report
12
Governmental Accounting Standards Board. GASB Statement No. 103 – Financial Reporting Model Improvements
13
eCFR. 17 CFR 240.15c2-12 – Municipal Securities Disclosure