GASB 87 Explained: Lease Accounting for Governments
If you work in finance for a city, county, school district or public university in the US, you've probably had to explain GASB 87 to a board member, an auditor, or your own boss at least once. It's the rule that made governments start putting their leases — office space, vehicle fleets, equipment, land — onto their financial statements instead of burying them in a footnote.
This guide walks through what GASB 87 actually requires, who it applies to, how the single lease model works for a typical lessee, when a lease can skip the extra accounting entirely, and how it lines up against the private-sector standard, ASC 842.
Who is GASB, and who has to follow GASB 87?
GASB stands for the Governmental Accounting Standards Board. It's an independent, private-sector body — not a government agency — that sets accounting and financial reporting standards for US state and local governments. That covers a wide range of entities: cities, counties, school districts, public universities, transit authorities, water districts, and other special-purpose governments.
It's worth being precise about that scope, because it's a common source of confusion. GASB does not write rules for the federal government. Federal agencies follow standards set by a different body, the Federal Accounting Standards Advisory Board (FASAB), which has its own separate lease standard. And GASB doesn't apply to private companies or most nonprofits either — those generally follow ASC 842, the standard set by the Financial Accounting Standards Board (FASB). Three different boards, three sets of lease rules, all covering different corners of the economy.
GASB issued Statement No. 87, Leases, in June 2017. Its original effective date was fiscal years beginning after 15 December 2019, but GASB pushed that back a year — to fiscal years beginning after 15 June 2021 — through GASB Statement No. 95, largely because of the disruption caused by the pandemic. In practice, that meant most governments with a 30 June fiscal year-end first reported under GASB 87 in their FY2022 financial statements, alongside a restatement of prior-year figures for comparability.
Why did GASB bring leases onto the statement of net position?
Before GASB 87, government lease accounting worked a lot like the old private-sector rules: a lease was either a capital lease, which showed up on the balance sheet, or an operating lease, which mostly stayed off it and only appeared as a note buried deep in the financial statements. That created a real transparency problem. A government could lease a large vehicle fleet or a whole office building on a long-term operating lease and its statement of net position would barely reflect the commitment, even though the government was on the hook for years of payments.
GASB's rationale mirrors the reasoning FASB used when it introduced ASC 842 for companies: readers of financial statements — bond rating agencies, taxpayers, oversight bodies, legislators — deserve to see the full picture of what a government has committed to pay, not just the leases that happened to be structured a certain way. Bringing (almost) all leases onto the statement of net position, with a matching liability and asset, closes that gap and lets a city council or state legislature compare governments on a more apples-to-apples basis.
It also simplified the accounting itself. Instead of asking preparers to run through a multi-part classification test to decide whether a lease was capital or operating, GASB 87 replaced that with a single question: is this lease longer than the short-term exemption, yes or no? That single-model approach is one of the more genuinely helpful simplifications in recent public-sector standard-setting.
How does the GASB 87 lessee model actually work?
Under GASB 87, a lease is defined broadly: a contract that conveys control of the right to use another entity's nonfinancial asset — a building, a vehicle, a piece of equipment, land — for a period of time, in exchange for payment. If a government is the lessee under a qualifying lease, it records two things at the start of the lease:
- A lease liability, measured at the present value of payments expected over the lease term
- An intangible right-to-use lease asset, generally equal to the lease liability plus any payments made at or before commencement and certain direct costs, minus any lease incentives received
From there, the lease liability gets reduced over time as payments are made, split between interest and principal — much like paying down a mortgage. The right-to-use asset is amortised, typically on a straight-line basis, over the shorter of the lease term or the useful life of the underlying asset. If any of this sounds familiar, it should: it's structurally very close to how right-of-use assets and lease liabilities work under ASC 842 in the private sector, even though the terminology and some measurement details differ.
On the flip side, if the government is the lessor — say, a city leasing out office space it owns to a private tenant — it records a lease receivable and a deferred inflow of resources, which is government accounting's version of deferred revenue. That deferred inflow gets recognised into revenue over the lease term, generally on a straight-line basis.
One detail that trips people up: GASB 87's discount rate hierarchy. A government is supposed to use the interest rate the lessor charges, if it's readily determinable. If it isn't — which is common — the government uses its own incremental borrowing rate, the rate it would pay to borrow a similar amount over a similar term. That's conceptually the same idea private-sector preparers wrestle with when picking a discount rate or incremental borrowing rate under ASC 842.
What is the GASB 87 short-term lease exemption?
Not every lease needs the full right-to-use treatment. GASB 87 carves out an exemption for short-term leases, defined as a lease that, at commencement, has a maximum possible term of 12 months or less. That includes any options to extend — and this is the part that catches people out — regardless of whether the government actually intends to exercise them.
So a 9-month lease with a renewal option that could stretch it to 18 months does not qualify as short-term, even if nobody expects the renewal to happen. The test looks at the maximum contractual term available, not management's best guess about what will happen. If a lease does qualify as short-term, it's kept simple: the government just expenses the payments on a straight-line (or other systematic) basis over the lease term, similar to how a general operating expense is recorded, with no lease asset or liability on the books. Our broader guide on the short-term lease exemption covers the same concept as it applies more generally.
A worked example: a mid-size county's vehicle fleet
Picture a mid-size county government that leases 40 patrol and utility vehicles from a fleet leasing company on a five-year agreement, with monthly payments and no purchase option. Before GASB 87, if that lease was structured as an operating lease, the county's balance sheet would show essentially nothing for it beyond a note disclosure — the annual budget appropriation for vehicle payments would be the main visible trace.
Under GASB 87, the finance team instead has to calculate the present value of five years of lease payments, using either the rate implicit in the lease (if the leasing company discloses it) or the county's own incremental borrowing rate. That present value becomes the initial lease liability. The county then records a matching right-to-use asset for the fleet, adds any upfront fees or direct costs, and starts amortising the asset over the five-year term while splitting each monthly payment between interest expense and a reduction of the liability.
The practical effect: the county's statement of net position now shows a lease liability of, say, several hundred thousand dollars for that fleet — a number that used to be invisible outside a footnote. Multiply that by every building lease, copier lease and equipment lease across a county government, and it's easy to see why implementation was a heavy lift for many finance teams in 2021 and 2022, and why getting the present value of lease payments right, lease by lease, matters for audit purposes.
How does GASB 87 compare with ASC 842?
GASB 87 and ASC 842 were developed independently, by different boards, but they were both responding to the same basic complaint from financial statement users: too many leases were staying off the books. The results are similar in spirit but different in the details.
The biggest structural difference is that ASC 842 kept a two-track classification system — operating leases and finance leases are still accounted for differently, with operating leases getting a single straight-line expense and finance leases splitting into separate interest and amortisation charges. GASB 87 skipped that split entirely and uses one model for essentially every lease over 12 months. That makes government lease accounting arguably simpler in this one respect, even if the underlying calculations — present value, discount rates, amortisation schedules — are conceptually the same exercise. For a closer look at how ASC 842 itself compares with the international equivalent, IFRS 16 vs ASC 842 covers that ground in more depth, and much of that comparison — single model vs dual classification — applies just as well when you swap ASC 842 for GASB 87.
Terminology is the other big difference. Governments talk about a "deferred inflow of resources" rather than deferred revenue, and a "right-to-use lease asset" rather than a "right-of-use asset" — small wording differences, but they matter when you're trying to map one standard's guidance onto the other, or when a consultant who normally works with corporate clients gets asked to help a government finance team.
Where do things stand with GASB 87 now?
By 2026, GASB 87 implementation is well behind most governments — the standard has been in effect since FY2022 for the majority of state and local entities, and it's now business as usual rather than a live transition project. GASB itself has since moved on to related work: it issued Statement No. 96 in 2020, covering Subscription-Based Information Technology Arrangements (SBITAs), which applies the same right-to-use logic from GASB 87 specifically to government software and IT subscription contracts, and took effect for fiscal years beginning after 15 June 2022.
GASB is also running a formal post-implementation review of Statement 87, examining how the standard has worked in practice now that governments have a few years of experience applying it. That kind of review doesn't necessarily mean changes are coming, but it's a normal part of GASB's process for checking whether a standard is achieving what it set out to do, and it's worth keeping an eye on if you're a government finance professional planning ahead.
For most preparers, the day-to-day reality of GASB 87 now is less about the big transition and more about ongoing maintenance: tracking new leases as they're signed, reassessing lease terms when contracts are modified or extended, and keeping the underlying schedules audit-ready year after year.
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| Question | Answer |
|---|---|
| Who issued it | Governmental Accounting Standards Board (GASB) |
| Who does it apply to | US state and local governments — cities, counties, school districts, public universities, special districts |
| Issued | June 2017 |
| Effective date | Reporting periods beginning after 15 June 2021 (postponed a year by GASB 95), so most 30 June year-end governments first applied it for FY2022 |
| Lease classifications | One single model — no operating vs finance split |
| Lessee recognises | An intangible right-to-use lease asset and a lease liability |
| Lessor recognises | A lease receivable and a deferred inflow of resources |
| Short-term exemption | Maximum possible term of 12 months or less at commencement, including any extension options |
Frequently asked questions
Does GASB 87 apply to federal government leases?
No. GASB only writes standards for US state and local governments — things like cities, counties, school districts and public universities. Federal agencies follow a different rulebook, set by the Federal Accounting Standards Advisory Board (FASAB), which has its own separate lease standard. If you work for a federal agency, GASB 87 simply doesn't apply to you; if you work for a city, county, school district or state agency, it does.
What is the short-term lease exemption under GASB 87?
A lease is short-term, and exempt from the full right-to-use accounting, if its maximum possible term at commencement is 12 months or less. That includes any option to extend, even if the government has no intention of using it — the test is based on the maximum contractual term, not the expected one. Short-term leases are simply expensed on a straight-line or other systematic basis over the lease term, similar to how rent used to be treated under the old rules.
Is GASB 87 the same as ASC 842?
They're close cousins, not twins. Both bring leases onto the balance sheet (or, in government-speak, the statement of net position) as a right-of-use style asset and a liability. But GASB 87 uses one single accounting model for almost every lease, while ASC 842 — the private-sector and nonprofit equivalent — still splits leases into operating and finance categories with different expense patterns. Terminology differs too: governments use terms like "deferred inflow of resources" that have no real ASC 842 equivalent. See our guide on operating vs finance leases under ASC 842 for the private-sector side of that comparison.
What happened to the old capital vs operating lease distinction for governments?
It's gone. Before GASB 87, governments classified leases as either capital (on the balance sheet) or operating (off it, disclosed only in footnotes) — much like the pre-2019 FASB rules for companies. GASB 87 scrapped that split entirely. Now almost every lease longer than 12 months gets a lease asset and a lease liability, full stop, regardless of how the lease is structured.
Do subscription-based IT contracts fall under GASB 87?
No — those are covered by a related but separate standard, GASB 96 (Subscription-Based Information Technology Arrangements, or SBITAs), issued in 2020 and effective for fiscal years beginning after 15 June 2022. It borrows the same right-to-use logic as GASB 87 but applies it specifically to government software and IT subscription contracts, like cloud hosting or SaaS agreements.
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