Scope & Methodology: This article is based on publicly available sources including GASB official pronouncements, state treasurer guidance, and CPA firm analyses. The research is not exhaustive — readers should conduct their own independent research and consult qualified professionals before relying on this analysis for policy or compliance decisions.

GASB 102: Certain Risk Disclosures and Financial Vulnerability Reporting

Executive Overview

In August 2023, the Governmental Accounting Standards Board (GASB) issued Statement No. 102, Certain Risk Disclosures, a standard designed to enhance transparency regarding the financial risks that may threaten a government's ability to provide services. The standard requires disclosure of concentrations and constraints that could impact a government's financial condition or operations. For governments managing the effects of pandemic-related revenue losses, federal funding uncertainties, or revenue concentration from individual industries or taxpayers, GASB 102 represents a shift toward greater disclosure. The standard becomes effective for fiscal years beginning after June 15, 2025, meaning most government entities will implement it for their FY 2026 and FY 2027 year-end financial statements.

Core Concepts: Concentrations and Constraints

GASB 102 introduces two key definitions:

Concentration

A concentration is a lack of diversity related to an aspect of a inflow or outflow of resources — that is, a situation where a government is overly dependent on a limited number of revenue sources or a limited pool of service recipients. Examples include:

A city deriving 40% of property tax revenue from three major commercial properties
A transit authority receiving 60% of operating revenue from a single state subsidy
A utility with 50% of its customer base concentrated in a single industrial sector
A tourism-dependent destination where 75% of hotel tax revenue comes from conferences at one resort

A critical factor is that the concentration creates vulnerability: if one major taxpayer relocates, one large customer defaults, or one revenue source dries up, the government faces financial stress.

Constraint

A constraint is a limitation that is imposed by an external party or by formal action of the government's highest-level decision-making authority. Examples include:

Constitutional or statutory limits on tax rates or total revenue
Federal or state conditions on grant funds (e.g., a requirement to maintain a specific service level)
Debt covenants restricting use of revenue or requiring maintenance of reserves
Charter limitations on spending in specific departments
Grant requirements obligating the government to continue funding a program for a specified period

Constraints matter because they limit the government's flexibility to respond to financial stress. A government facing revenue loss is vulnerable if constraints prevent it from reducing spending proportionally.

The Three-Part Disclosure Test

GASB 102 requires disclosure only when three conditions are all met:

Known to the government — The concentration or constraint must be known at the time the financial statements are issued (not speculative or hypothetical).
Creates vulnerability — The concentration or constraint must make the government vulnerable to a risk of a impact on its ability to provide services.
Trigger event is probable — An event or series of events associated with the concentration or constraint must have occurred, begun to occur, or be more likely than not to occur.

This three-part test is important: a government with revenue concentration does not automatically disclose that concentration. Disclosure is triggered only when an event is probable.

Scope of Application

GASB 102 applies to all state and local governments, including general-purpose governments, public authorities, utilities, and public employee retirement systems. It also applies to reporting units that account for revenue debt—a situation where a specific revenue stream is pledged to pay debt (common for enterprise funds and utilities).

The standard does not apply to nongovernmental entities such as nonprofits or for-profit businesses, even if they receive government funding.

Practical Application: Scenarios and Examples

Scenario 1: State Funding Cliff — Concentration + Trigger Event A mid-sized city receives 45% of its general fund revenue from state K-12 education grants (pass-through funding). The state legislature has been debating education funding reform for two years. As of the city's June 30, 2025 year-end, the state is considering changes to the education funding formula that could potentially reduce state education funding, though the specific amount and effective date are not yet determined. The city's budget office has analyzed the impact based on internal budget modeling: a 15% reduction in state grants would represent a $8 million loss, potentially impacting service levels, depending on reserves and adjustments.

GASB 102 Assessment:

Concentration? Yes — 45% of revenue from one source.
Known? Yes — the state proposal is public and being actively debated.
Vulnerability? Yes — a 15% loss of state grants would impact the city's ability to maintain current service levels.
Trigger event probable? Yes — the funding change is scheduled to take effect July 1, 2025.

Disclosure Required: The city may consider disclosing the concentration in state grants, the proposed funding change, the estimated impact ($8 million annual loss), and any corrective actions under consideration.

Scenario 2: Constraint Without Immediate Trigger A county has a property tax cap embedded in its charter that limits increases in annual tax revenue to 2% per year, regardless of property value growth. The county has experienced population growth and property value appreciation, but the 2% cap has constrained revenue growth to below inflation. While this is certainly a constraint that makes the county vulnerable to revenue shortfalls, no immediate trigger event is foreseeable.

GASB 102 Assessment:

Constraint? Yes — the charter cap is a formal limitation.
Known? Yes — it's part of the charter.
Vulnerability? Yes — the cap limits the county's ability to respond to inflation and growing service needs.
Trigger event probable? No — there is no imminent event (like a recession, natural disaster, or major employer loss) that would likely cause the constraint to negatively impact the county within 12 months.

Disclosure would not be required under GASB 102, because the trigger test is not met. However, the county might address the constraint and its effects in the Management's Discussion and Analysis (MD&A) narrative.

Scenario 3: Concentration with No Probable Trigger A utility has a large manufacturing customer that represents 30% of water sales. The manufacturer has no public indications of distress per latest SEC filings, has been a customer for 20+ years, and has no plans to relocate. While the concentration is real, no trigger event (plant closure, relocation, bankruptcy, major production cuts) is probable within 12 months.

Disclosure would not be required because the trigger test is not met.

Scenario 4: Trigger Event Changes the Analysis Same utility, same 30% concentration. However, in the spring of 2025, the manufacturer announces that it will relocate operations to another state effective January 2026, with a phased shutdown beginning in Q4 2025. The utility's water sales are expected to drop by 25% by the following year.

GASB 102 Assessment: Now the trigger test is met:

Concentration? Yes.
Known? Yes — the announcement is public.
Vulnerability? Yes — loss of 25% of revenue.
Trigger event probable? Yes — the plant closure is scheduled and announced.

Disclosure required describing the customer concentration, the announced relocation, the expected revenue impact, and the utility's mitigation plans (rate increase, cost reduction, reserves deployment).

Disclosure Requirements and Format

When the three-part test is met, governments must disclose:

Description of the concentration or constraint — What is the nature of the concentration (single revenue source, customer concentration, service population concentration)? What is the nature of the constraint (statutory limit, debt covenant, grant restriction)?
Description of the associated event(s) — What specific event or events are probable to occur within 12 months? What is the timeline?
Estimated impact — What is the quantified or estimated financial impact? If quantification is not possible, explain why.

The disclosure is generally placed in the notes to the financial statements, according to examples in major city ACFRs for FY2025 and CPA statements reviewed (e.g., City of Charlotte ACFR, 2025; Plante Moran alert, 2025), often in a dedicated "Financial Vulnerability and Risk Disclosures" note, or integrated into existing notes such as Revenue or Debt.

Benefits to Financial Statement Users

By requiring these disclosures, GASB 102 enhances transparency for users and helps users understand risks that management may be aware of but that might not be obvious from the financial statements themselves. Credit rating agencies, bondholders, state oversight boards, and internal stakeholders gain a clearer picture of the government's financial vulnerability.

Distinguishing GASB 102 from MD&A

The Management's Discussion and Analysis (MD&A) section of the financial statements provides narrative analysis of financial condition and trends. GASB 102 disclosures are more targeted and risk-specific. While some information may appear in both the MD&A and the GASB 102 note, the note focuses explicitly on concentrations and constraints that create vulnerability to probable trigger events.

Implementation Tips for Finance Teams

One approach is to establish a risk inventory — One approach is to establish a risk inventory, such as a checklist of potential concentrations and constraints specific to your government. For a city, this might include major taxpayers, revenue dependencies, service population concentration, debt covenants, and statutory limitations. For a utility, focus on customer concentration, revenue diversity, and supply constraints.

Governments may monitor trigger events — Governments may monitor trigger events by tracking developments that might trigger the disclosure requirements: industry announcements, legislative proposals, economic indicators, labor negotiations, and natural hazard threats.

Probability assessment requires professional judgment — The "probable within 12 months" standard requires professional judgment. A proposed change in state funding that has moved from preliminary discussions to a final legislative vote is probably "probable." A speculative concern about a potential future change is not.

Coordination with external auditors may ensure alignment — Early discussions with your auditor about concentrations and constraints will ensure alignment on what disclosures are expected.

Documentation of assessments provides a record — Keep written records of your evaluation of each potential concentration or constraint, including the basis for determining whether the trigger test is met.

Common Questions

Q: If we disclosed a concentration last year but the trigger event didn't occur, do we still disclose it this year? A: Only if the three-part test is still met. If the trigger event is now less likely or has passed without impact, you may remove the disclosure. However, if a trigger event remains probable (or a new trigger event becomes probable), disclosure continues.

Q: Can a constraint be disclosed even if no trigger event is probable? A: No. GASB 102 explicitly requires that a trigger event be probable within 12 months. A constraint alone, without a probable trigger event, does not trigger disclosure, though it may be addressed in the MD&A.

Q: How do we quantify "impact"? A: GASB 102 does not define "impact" numerically. Professional judgment is required. A 5% impact on revenue might be material for a small government; a 1% impact might be material for a large government with tight margins. A critical factor is whether the impact would materially affect the government's ability to provide current service levels.

Q: Do we disclose every concentration, or only material ones? A: Only concentrations that meet the three-part test. However, in recent CPA firm surveys and from review of published annual reports, most concentrations identified as relevant for potential disclosure involved amounts considered material to the financial statements (see BDO 2024 summary, Plante Moran 2025 examples).

Key Takeaways

GASB 102 increases the types of financial risk disclosures compared to previous GASB guidance. For finance officers, a key consideration is to develop a systematic process for identifying concentrations and constraints, monitoring for probable trigger events, and documenting the assessment. Governments that have already implemented the standard may wish to periodically reevaluate trigger event probability and update disclosures as needed. For those in the early stages of implementation, it may be beneficial to begin developing processes and institutional knowledge to support consistent, complete disclosure of financial vulnerabilities.

This content was prepared with AI-assisted research using exclusively publicly available sources. No confidential or proprietary data from any client engagement was used. It is provided for informational purposes only and does not constitute legal, financial, or investment advice. All data should be independently verified before use in any official capacity. © 2026 DWU Consulting. All rights reserved.