Filed under: Audit & Assurance, Government, Public Sector
October 2, 2026
Written by Lauren Hausner, CPA, CGFM
The Governmental Accounting Standards Board (GASB) has released Implementation Guide No. 2026-1, Financial Reporting Model Improvements—Subsidies, providing additional implementation guidance for the subsidy provisions introduced in GASB Statement No. 103. With a particular focus on the definition of subsidy and related presentation requirements for proprietary fund financial statements.
Although the guide focuses on subsidies, it also has broader implications for one of the most significant changes introduced by GASB 103—the classification of operating and nonoperating revenues and expenses. The new questions and answers reinforce the principle that proprietary funds should first evaluate whether a transaction falls within a specifically defined nonoperating category before considering whether it relates to the fund’s principal ongoing operations.
Which Resources Meet the GASB 103 Subsidy Definition?
The implementation guide adds seven new questions and answers and amends one previously issued question. The guidance primarily addresses whether certain resources meet the definition of a subsidy and how subsidies should be classified and presented.
| Question | Topic | Is This a Subsidy? | GASB Conclusion |
|---|---|---|---|
| Q4.1–Q4.2 | Donations used for student scholarships | Yes | The donations are subsidies when donors receive no goods or services, and the resources are used for scholarships that reduce the resources received from students. This conclusion does not change when published tuition rates remain unchanged. |
| Q4.3 | Research grants | Depends whether the transaction is exchange-like or not | The answer depends on the facts. A grant generally is not a subsidy when the grantor receives goods or services. If the grantor receives no goods or services, the grant may be a subsidy when it directly or indirectly keeps tuition or other charges lower. Professional judgment is required. |
| Q4.4 | Taxes reported by business-type activities (BTAs) | Yes | Derived tax revenues and imposed nonexchange revenues meet the subsidy definition because taxpayers do not directly receive goods or services as a result of the tax, and the resources keep fees and charges lower. |
| Q4.5 | Passenger facility charges | Yes | Passenger facility charges received by an airport are subsidies because passengers do not directly receive goods or services from the airport because of the charge, and the resources help keep fees and charges to airlines lower. |
| Question | Topic | GASB Conclusion |
|---|---|---|
| Q4.6 | Presentation of subsidies | Subsidies other than noncapital subsidies are capital subsidies, and they should be presented as other nonoperating revenues and expenses. |
| Q4.7 | Debt service for capital-related debt | A subsidy is classified as a capital subsidy when the provider limits its use to debt service for capital-related debt. |
| Q5.1 | Subsidies used to acquire capital assets | When the provider does not limit the resources to capital purposes and no other external capital restriction applies, the subsidy is noncapital. The recipient’s decision to use the resources for capital purposes does not make the subsidy capital. |
Operating vs. Nonoperating Revenues Under GASB 103
GASB 103 provides a new definition for operating and nonoperating activities, shifting the model from a judgement-based approach to one with specific nonoperating classifications, with operating as the default classification for all other activities.
When analyzing whether revenue is operating or nonoperating under GASB 103, start with the substance of the activity rather than the account title or the recipient’s intended use of the resources. Determine whether the revenue falls within one of GASB 103’s five nonoperating categories. If the transaction falls within one of these five categories, it is classified as nonoperating.
| The Five GASB 103 Nonoperating Categories | |
|---|---|
| 1 | Subsidies received and provided: A resource is a subsidy when the fund does not provide goods or services to the resource provider and the resources directly or indirectly allow the fund to maintain lower current or future fees than they would otherwise. If both conditions are met, the resource is a subsidy and therefore nonoperating. Common subsidies include most grants and taxes. |
| 2 | Contributions to permanent and term endowments. |
| 3 | Revenues and expenses related to financing. |
| 4 | Resources from the disposal of capital assets and inventory. |
| 5 | Investment income and expenses. |
If the activity does not fall into one of these five categories, it is in operating!
Practical Implications for Governments
Governments should reassess taxes, grants, donations, facility charges, and other nonexchange resources reported in proprietary funds and BTAs. The analysis should document both elements of the subsidy definition, and it should distinguish the substance of the transaction from the account title, budgetary purpose, or management’s intended use of the proceeds.
Effective Date and Transition
The guide is effective for fiscal years beginning after June 15, 2026, and all reporting periods thereafter. Earlier application is encouraged when Statement 103 has been implemented. The guide calls for retroactive application, with transition changes reported as a change in accounting principle under GASB Statement No. 100, as applicable.
Why GASB Implementation Guide No. 2026-1 Matters Beyond Subsidies
Implementation Guide No. 2026-1 provides targeted clarification on subsidies while reinforcing the key concepts underlying GASB 103’s operating and nonoperating classifications. Its examples emphasize that governments should focus on the exchange relationship, the effect on fees and charges, and externally imposed restrictions. Those principles should help governments classify and present grants, taxes, donations, charges, and other funding sources more consistently in proprietary fund and BTA financial statements. For many governments, the more challenging aspect of implementation may not be identifying subsidies themselves, but consistently applying GASB 103’s operating and nonoperating framework across all proprietary fund activities.
If you have questions about how GASB 103 or Implementation Guide No. 2026-1 may affect your government’s financial reporting, contact a member of Clark Nuber’s governmental accounting team.
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