Port Financial Reporting and GASB Standards

Port Financial Reporting and GASB Accounting Standards

U.S. port authorities operate as enterprise funds—essentially public businesses—and therefore report their finances using a sophisticated accounting model that differs fundamentally from general government accounting. Understanding the Annual Comprehensive Financial Report (ACFR), the role of Generally Accepted Accounting Principles for state and local governments (GASB), and how to extract credit-relevant metrics from financial statements is essential for bond investors, rating agencies, and creditors. This article covers the structure of port ACFRs, the key GASB standards that affect port balance sheets and income statements, and how to read port financial statements to assess debt service coverage, liquidity, and credit strength.

Disclaimer: This article is AI-generated and intended for informational purposes only. It does not constitute investment, financial, or legal advice. Consult with qualified professionals for specific analysis or decisions.

Changelog
2026-02-23 — Initial publication.

Introduction: Why Port Accounting Matters

Port authorities finance themselves through revenue bonds—debt secured by operating revenues (wharfage, dockage, terminal leases, passenger fees) rather than general tax revenues. To understand port creditworthiness, investors must be able to read the ACFR, identify operating revenues and operating expenses, calculate debt service coverage ratios (DSCR), and assess liquidity. However, GASB accounting rules introduce "below-the-line" items (pension liabilities, depreciation, capital contributions) that do not affect cash flow but can materially affect the balance sheet and net income figures reported in audited financial statements.

The challenge: audited GAAP net income often differs dramatically from the cash-basis "Net Revenue" figure used in bond indentures for DSCR calculations. A port might show a $10 million operating loss under GAAP because of GASB 68 pension liability adjustments, yet still generate $50 million in net revenue under its indenture calculation. Knowing how to reconcile these is critical for credit analysis.

ACFR Structure for Port Authorities

A port authority's Annual Comprehensive Financial Report (ACFR) is organized in three sections, following the GFOA Certification Program model:

Introductory Section

Includes the letter of transmittal (signed by the executive director or CEO), organization chart, list of major officers, and a narrative overview of operations, financial performance, and significant changes from prior year. For rating analysts and bond investors, the management discussion often telegraphs concerns—credit deterioration in cargo volumes, upcoming major debt issues, large unfunded pension liabilities, or environmental compliance costs.

Financial Section

Management's Discussion & Analysis (MD&A): A narrative explaining financial results, variances, and trends. GASB standards require discussion of major variations in fund balance (or net position), significant revenues and expenses, and capital asset changes. The MD&A is unaudited but is the port authority's own assessment of financial health.

Basic Financial Statements: The core audited statements for an enterprise fund port authority are:

• Balance Sheet / Statement of Net Position: Assets (current and non-current), liabilities (current and long-term), and net position (residual). For ports, the balance sheet reflects unrestricted cash, receivables, terminal infrastructure (at historical cost minus accumulated depreciation), debt, pension liabilities, and deferred inflows/outflows from pension and OPEB adjustments.
• Income Statement / Statement of Revenues, Expenses, and Changes in Net Position: Operating revenues minus operating expenses equals operating income (or loss). Non-operating revenues (investment income, capital contributions from federal grants) are then added/subtracted to arrive at net income, which increases or decreases net position. This is the GAAP-basis income statement—it includes depreciation expense and GASB pension adjustments that do not affect cash flow.
• Statement of Cash Flows: A four-part reconciliation of changes in cash: (1) operating activities, (2) noncapital financing activities, (3) capital and related financing activities, and (4) investing activities. This is essential for credit analysis because it shows actual cash in/out, regardless of GAAP adjustments. Many ports experience positive GAAP operating income but negative operating cash flow due to non-cash items.

Notes to the Financial Statements: Detailed disclosures covering accounting policies, debt terms and covenants, pension liabilities and assumptions, revenue pledges, related-party transactions, litigation, environmental liabilities, and contingencies. The notes are where bond indenture terms, rate covenants, and DSCR calculations are formally stated.

Required Supplementary Information (RSI): GASB standards require supplementary schedules on pension funding, OPEB funding (if applicable), infrastructure asset condition, and in some cases detailed multi-year revenue and expense trends.

Statistical Section

Ten-year (or longer) schedules showing revenues, expenses, debt levels, capital expenditures, and key operating metrics (TEU, passenger counts, terminal occupancy). This section helps analysts identify long-term trends and assess the sustainability of the port's financial model.

Enterprise Fund Accounting: Full Accrual, Not Modified Accrual

A critical distinction: ports are enterprise funds and use full accrual accounting, not the modified accrual basis used for general government funds (like parks, public safety, administration). This means:

• All revenue is recorded when earned, not when cash is received. A terminal operator billed $1 million in monthly wharfage is recorded as $1 million revenue in the month the cargo crosses the wharf, even if payment arrives 30 days later.
• All expenses are recorded when incurred, including depreciation of capital assets (berths, cranes, paving, utilities), accrued pension liabilities, and accrued OPEB obligations.
• Capital assets appear on the balance sheet at historical cost, net of accumulated depreciation. There is no "capital outlay" separate from the balance sheet—every capital purchase flows through the income statement as depreciation expense over the asset's useful life.
• Debt service (principal and interest) is split: interest expense is in the operating statement; principal repayment is a financing activity in the cash flow statement.

The result: a port's GAAP income statement often looks radically different from its indenture-basis "Net Revenue" calculation. GAAP net income includes depreciation, pension adjustments, and accruals that do not affect cash. Indenture-basis net revenue typically excludes these, focusing on actual operating cash.

Key GASB Standards Affecting Ports

Several GASB pronouncements materially affect how port financial statements are presented and interpreted:

GASB Statement No. 34: Basic Financial Reporting Model

Issued in 1999, GASB 34 establishes the foundation for government accounting: the use of enterprise funds for business-like activities (water utilities, ports, airports), full accrual accounting, depreciation of capital assets, and a balance sheet that includes long-lived infrastructure at historical cost. This is why ports show a large "Infrastructure" asset (berths, cranes, seawalls, paving) on the balance sheet, and why depreciation is a significant operating expense even though no cash leaves the bank for depreciation.

GASB Statement No. 68: Accounting and Financial Reporting for Pensions

Implemented in 2015, GASB 68 requires ports (and all government employers) to recognize on the balance sheet their proportional share of unfunded pension liabilities. The net pension liability is calculated by the pension plan's actuary and can be substantial—often $50 million to $300 million for a major port.

Impact on credit analysis: A port might report a GAAP operating loss of $15 million in a given year, with most of that loss driven by a $30 million increase in the net pension liability (a non-cash accrual). Meanwhile, actual operating cash flow is positive $45 million. Credit analysts must understand that the operating loss is not a sign of operational distress; it is an accounting adjustment. However, the underlying pension obligation is very real and affects the port's ability to pay debt service in times of revenue stress.

Key metric to watch: "Pension-adjusted net income" or "operating income before pension expense." Some ports disclose this to show what net income would be absent pension adjustments.

GASB Statement No. 75: Accounting and Financial Reporting for Other Post-Employment Benefits (OPEB)

Similar to GASB 68 but covering non-pension retiree benefits (health insurance, life insurance). Major ports with large retiree populations can accrue $20 million to $100 million in OPEB liabilities. GASB 75 requires disclosure of the actuarial liability and can trigger large "deferred outflow" and "deferred inflow" line items on the balance sheet.

GASB Statement No. 87: Leases

Implemented in 2022, GASB 87 requires lessees (and lessors) to recognize operating and finance leases on the balance sheet using a "right-of-use" (ROU) asset and corresponding lease liability. For ports, this primarily affects:

• Long-term terminal leases: If a port has granted a 20-year lease of a container terminal to an operator for a fixed ground rent, the port (as lessor) now must recognize the present value of future rent payments as a lease receivable and revenue over the lease term.
• Equipment leases: Ship-to-shore cranes, forklifts, and other equipment leased by the port will appear as ROU assets and liabilities.

Impact: Terminal leases are a major revenue source for ports like POLB (~90% of revenue from terminal ground leases). GASB 87 changes how these revenues are recognized and recorded, but does not change the cash flow impact. Analysts should focus on actual lease payments received, not the timing of revenue recognition under GASB 87.

GASB Statement Nos. 96, 99, and Other Recent Guidance

GASB 96 (2022) covers subscription-based information technology arrangements—less relevant for ports unless they have entered into major software licensing or cloud service contracts. GASB 99 (2022) contains technical corrections and clarifications to prior standards. Keeping current with GASB pronouncements is important for credit analysts because new rules can change how port financials are presented, even if the underlying economics do not change.

Revenue Recognition and Operating vs. Non-Operating

Under GASB, port revenues are classified as either operating or non-operating:

Operating Revenues

Revenues from the port's primary business activities:

• Wharfage: Per-unit or per-ton charge on cargo crossing port wharves. Example: $5 per ton for container cargo.
• Dockage: Per-vessel berth fee, often based on vessel length overall (LOA) or daily occupancy. Example: $500 per day for a 600-foot container ship.
• Terminal leases: Ground lease revenue from terminal operators. Example: $50 million annually for a long-term lease of a container yard.
• Craneage: Per-lift charge for ship-to-shore crane service. Example: $150 per lift.
• Passenger fees: Per-embarking or per-disembarking cruise passenger fee. Example: $10 per passenger (cruise ports like Port Miami).
• Storage, demurrage, intermodal rail, and ancillary services.

Non-Operating Revenues

Revenues outside the port's core business:

• Investment income: Interest on cash balances and restricted accounts.
• Gain (or loss) on asset sale: Proceeds from selling port property or equipment.
• Capital contributions: Federal grants (INFRA, PIDP, TIGER), state appropriations, or local subsidies for capital projects. These are typically recorded below the operating line, meaning they do not affect operating income but increase net position.
• Miscellaneous other: Rental income from non-port tenants, insurance recoveries, etc.

Why the Distinction Matters for DSCR

Bond indentures typically pledge "Net Operating Revenues"—the port's revenues from core cargo and passenger operations, minus operating expenses—to debt service. Non-operating items (capital contributions, investment income) are typically excluded from the DSCR covenant calculation. A port might receive a $50 million federal grant (non-operating capital contribution), which shows up on the income statement and increases net position, but does not count toward the legal DSCR calculation for debt service capacity.

Conversely, depreciation is deducted in calculating GAAP operating income but is added back (as a non-cash item) in the indenture calculation of net revenue. This is why reconciling GAAP net income to indenture net revenue is essential for credit analysis.

Capital Assets, Depreciation, and Construction in Progress

Port infrastructure—berths, terminal facilities, cranes, paving, utilities—are capitalized on the balance sheet at historical cost and depreciated over their useful lives. Understanding how ports manage capital assets is critical for credit analysis:

Capitalization Thresholds

A port authority establishes a capitalization threshold (e.g., "all assets with a cost of $10,000 or more are capitalized"). Items below the threshold are expensed immediately. This means large terminal rehabilitation projects are typically capitalized, but routine repairs and maintenance are expensed.

Depreciation and Useful Lives

Common useful lives for port assets:

• Buildings and structures: 20–40 years
• Concrete paving and utilities: 15–30 years
• Cranes and heavy equipment: 10–20 years
• Vehicles and rolling stock: 5–10 years

A large port might depreciate $100 million to $200 million annually. For credit analysis, this is a non-cash expense that reduces GAAP net income but does not affect operating cash flow. The depreciation amount tells you how capital-intensive the port is and what future capital replacement needs may be.

Construction in Progress (CIP)

Capital projects under development are held in a "Construction in Progress" asset account and are not depreciated until the asset is placed in service. When a major terminal renovation or berth deepening project is completed, the entire CIP balance is reclassified to the appropriate asset category (buildings, infrastructure, equipment) and depreciation begins. This reclassification does not affect cash but increases depreciation expense in future periods.

Component Approach for Infrastructure Rehabilitation

Major ports use a "component" approach for infrastructure: when a seawall is rehabilitated, the old seawall component is de-recognized and the new seawall is capitalized at its cost. This ensures the balance sheet reflects the true cost of infrastructure assets. For example, if a port spends $200 million rebuilding a seawall, the old seawall book value might be written off and a new $200 million seawall asset is recorded. Over time, this keeps the asset base current and avoids accumulated depreciation "overstating" the asset's age.

Bond Covenant Reporting and Flow of Funds

Port revenue bonds typically include covenants requiring the port to maintain a minimum debt service coverage ratio (e.g., 1.25x senior lien or 2.0x net revenues). These covenants are tested using "indenture basis" net revenues, which differ materially from GAAP net income.

Indenture-Basis Net Revenue Calculation

A typical indenture calculation for net revenue pledged to debt service:

1. Gross Operating Revenues: All cash revenues from core port operations (wharfage, dockage, terminal leases, passenger fees, etc.)
2. Less: Operating Expenses: Cash-basis operating costs (salaries, utilities, maintenance, insurance, professional fees)
3. Equals: Net Operating Revenues (or "Net Revenues")
4. Add back: Depreciation: Non-cash depreciation expense is added back because the indenture does not pledge cash for depreciation.
5. Add back: Capital contributions received: Some indentures include federal/state grants in the net revenue calculation; others exclude them. Check the specific indenture.
6. Deduct: Non-recurring items: One-time gains or losses may be excluded or adjusted.

Result: Indenture Net Revenue ≠ GAAP Net Income. A port showing a $10 million GAAP loss (due to $40 million depreciation and $50 million pension adjustments) might calculate $60 million indenture net revenue after adding back non-cash items.

Bond Trustee Reporting

Each fiscal year, the port issues an "Annual Certificate of Compliance" (or similar) to the bond trustee and to rating agencies, typically prepared by the port's chief financial officer. This certificate certifies:

• Calculation of net revenues for the year
• Debt service paid and remaining due
• Coverage ratio achieved (DSCR)
• Compliance with rate covenants
• Compliance with reserve fund requirements

The certificate also typically includes a detailed reconciliation from GAAP net income (per the audited ACFR) to indenture net revenue. For credit analysts, this reconciliation is the gold standard—it shows exactly what the port is claiming as net revenue for DSCR purposes.

Flow of Funds

Port indentures typically establish multiple funds and accounts in a specified order of priority:

1. Revenue Fund: Gross operating revenues flow here.
2. Operating Expense Fund: Operating costs are paid first (payroll, utilities, maintenance).
3. Debt Service Fund: Principal and interest on senior lien debt is paid next (sinking fund deposits).
4. Debt Service Reserve Account: If the reserve account is below its target level (often one year of maximum annual debt service, or "MADS"), net revenue is deposited until the reserve is replenished.
5. Renewal & Replacement Fund: Funds for capital renewal may be set aside (often 1–2% of gross revenues).
6. Subordinate Debt Service Fund: If subordinate lien debt exists, its debt service is paid next.
7. Surplus / General Purposes: Any remaining net revenue may be transferred to the port's general fund for operations, capital, or distribution to the controlling government (e.g., city or county).

The order of funds is crucial: if a port's revenue declines, operating expenses are paid first (non-negotiable), then senior debt service. Subordinate creditors and capital spending are cut if revenue falls short. This hierarchical flow is why senior lien rating agencies typically assign higher ratings than subordinate lien creditors.

Capital Assets and Infrastructure Funding

Ports fund capital projects from several sources:

• Federal grants: INFRA, PIDP, TIGER, BUILD grants (now administered through the Infrastructure Investment and Jobs Act). These are recorded as non-operating capital contributions and increase net position without affecting operating revenues.
• State appropriations or loans: Some states provide capital subsidies to ports.
• Port's own revenues: Via the Renewal & Replacement Fund or general revenue set-aside.
• Revenue bonds: Issuing new debt-financed capital projects (adds to long-term debt).
• TIFIA loans: Federal credit assistance from the Transportation Infrastructure Finance and Innovation Act (typically junior lien, 30-year terms).

For credit analysts, capital plans matter because they determine future depreciation levels and debt burden. A port investing $5 billion over 10 years will eventually depreciate that capital, increasing depreciation expense and reducing GAAP net income. Understanding the capital plan helps forecast future financial trends.

How to Read a Port ACFR for Bond Analysis

Here is a practical roadmap for extracting credit-relevant information from a port ACFR:

Step 1: Find Operating Revenues and the Coverage Ratio

Where to look: Management's Discussion & Analysis (MD&A) and the Statement of Revenues, Expenses, and Changes in Net Position (income statement).

What to extract: Total operating revenues and total operating expenses. Do not use the bottom-line net income figure—instead, navigate to the Annual Certificate of Compliance (usually in the notes or supplementary section) and find the indenture-basis net revenue calculation and DSCR. If the certificate is not included, look for a note describing "Revenue Pledge and Debt Service Coverage."

Red flags: If operating revenues are declining year-over-year (YoY), ask why. For container ports, declining TEU may explain it; for cruise ports, passenger counts may be weak. If a port is not disclosing a DSCR, ask the port directly.

Step 2: Assess Liquidity

Where to look: The Balance Sheet (Statement of Net Position), specifically "Current Assets" and "Current Liabilities." Also check the "Unrestricted Cash" footnote or MD&A discussion.

What to extract: Calculate unrestricted cash as a number of "days of operations" or "days of cash on hand" (DCOH). Formula: (Unrestricted Cash) / (Annual Operating Expenses / 365 days). Most ports target 300–600 days DCOH as a prudent policy. POLA targets 500 days; POLB targets 600 days.

Red flags: If unrestricted cash is below 90 days, the port may have difficulty handling revenue fluctuations or unexpected expenses. COVID-era data (FY2020–FY2022) showed many cruise-dependent ports (EVG-P, PortMiami) saw liquidity drop to 30–60 days; recovery began in FY2023 as cruise traffic rebounded.

Step 3: Identify Pension and OPEB Liabilities

Where to look: Balance Sheet (long-term liabilities) and the pension/OPEB notes.

What to extract: Net Pension Liability (GASB 68) and OPEB Liability (GASB 75). These can be very large—often 20–50% of annual operating revenues for a major port. Do not be alarmed by a large net pension liability; instead, assess whether the port's pension plan is being funded appropriately. Check the "Funding Progress" schedule in the RSI section to see if the plan's funded ratio is improving or deteriorating.

Pension-adjusted profitability: Calculate GAAP net income plus pension expense adjustments. This gives a sense of operating profitability absent the non-cash pension item. Example:

GAAP Net Income: ($15 million) | Pension liability increase (non-cash): ($40 million) | Pension-adjusted Net Income: $25 million

The pension-adjusted figure is not official (ports don't always disclose it), but it's useful for understanding true operating performance.

Step 4: Review Debt Terms and Ratios

Where to look: The long-term debt note and MD&A.

What to extract: Outstanding debt by lien (senior, subordinate, junior), maturity schedule, weighted average interest rate, and any debt covenants. Calculate debt-to-operating-revenues ratio (total outstanding debt / annual operating revenues). Typical ratios for AA-rated ports: 2.0–4.0x.

Key ratios:

• DSCR (Debt Service Coverage): Net Revenue / Annual Debt Service. Typical covenant range: 1.10x–2.0x legal minimum; 1.5x–3.0x actual achieved.
• Debt-to-Revenues: Total Debt / Annual Operating Revenues. Lower is better (less leveraged).
• Days of Cash on Hand (DCOH): (Unrestricted Cash) / (Operating Expenses / 365). Target: 300–600 days.

Step 5: Assess Capital Intensity and Future Depreciation

Where to look: Capital Assets note and the Statistical section (10-year capital expenditure schedule).

What to extract: Annual depreciation expense as a percent of operating revenues. Also note the Accumulated Depreciation / Gross Capital Assets ratio (higher = older infrastructure). Check the 5–10 year capital plan to estimate future depreciation. A port investing $100 million annually in capital will eventually face $100 million in annual depreciation (spread over asset lives).

Red flag: If accumulated depreciation exceeds 60% of gross capital assets, infrastructure may be aging and future capital needs may be urgent.

Step 6: Check for Covenant Violations or Waivers

Where to look: Notes to the financial statements (debt covenants section) and any disclosure of covenant waivers or amendments.

What to extract: Are there any disclosed violations, waivers, or amendments to rate covenants? If a port failed to meet its 1.25x DSCR covenant in FY2024 but obtained a waiver from bondholders, that's a credit negative and should be understood fully.

Reconciliation of GAAP Net Income to Indenture Net Revenue: A Worked Example

To illustrate the differences between GAAP and indenture-basis accounting, here is a hypothetical example:

Line Item	Amount
GAAP Operating Revenues	$400,000,000
GAAP Operating Expenses (including depreciation)	($320,000,000)
GAAP Operating Income	$80,000,000
Add back: Depreciation (non-cash)	$120,000,000
Less: Pension liability increase (non-cash)	($60,000,000)
Less: OPEB liability increase (non-cash)	($20,000,000)
GAAP Net Income Before Nonoperating Items	$180,000,000
Less: Federal grant (capital contribution, non-operating)	($50,000,000)
GAAP Net Income (Bottom Line)	$130,000,000

Now, converting to Indenture Basis (for DSCR calculation):

Line Item	Amount
Gross Operating Revenues (cash basis)	$400,000,000
Less: Operating Expenses (cash basis, excl. depreciation)	($200,000,000)
Indenture Net Revenue	$200,000,000
Debt Service (Principal + Interest)	$120,000,000
Debt Service Coverage Ratio (DSCR)	1.67x

Analysis: Despite GAAP net income of $130 million, indenture net revenue is $200 million, yielding a DSCR of 1.67x—well above the typical legal covenant of 1.25x. The port's credit strength (its ability to service debt from operations) is stronger than the GAAP net income would suggest. The key driver: depreciation ($120 million) is a non-cash expense that does not reduce cash available for debt service. Conversely, the pension and OPEB liability increases ($80 million) are non-cash accruals that reduce GAAP net income but have no bearing on the port's current ability to service debt.

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