Due to perpetual funding shortages and the increasing need for large infrastructure projects, public-private partnerships (PPP) are becoming more prevalent as a way to construct, maintain and operate costly public services. The most common PPPs include roads, bridges, airport terminals, public transit, hospitals, student services at colleges and universities, sports facilities, jails, wastewater treatment and museums.
Because of the variety of transaction formats, existing GASB guidance in Statement 60, Accounting and Financial Reporting for Service Concession Arrangements, and Statement 87, Leases, can be inadequate. Statement 60 was issued in 2010 and is much less comprehensive in its recognition, measurement and remeasurement provisions than Statement 87, released in 2017. As a result, GASB decided to supersede Statement 60 with proposed amendments.
In this proposal, a PPP is an arrangement in which a government (the transferor) contracts with an operator (a governmental or nongovernmental entity) to provide public services by conveying control of the right to operate or use an infrastructure or other nonfinancial asset (the underlying PPP asset) for a period of time in an exchange or exchange-like transaction. Some PPPs will meet the definition of a service concession arrangement (SCA), which has been retained from current guidance:
- The transferor conveys to the operator the right and related obligation to provide public services through the use and operation of an underlying PPP asset in exchange for significant consideration, such as an upfront payment, installment payments, a new facility or improvements to an existing facility;
- The operator collects and is compensated by fees from third parties;
- The transferor determines or has the ability to modify or approve which services the operator is required to provide, to whom the operator is required to provide the services and the prices or rates that can be charged for the services; and
- The transferor is entitled to significant residual interest in the service utility of the underlying PPP asset at the end of the arrangement.
This proposal also addresses availability payment arrangements (APA), which are arrangements where a government compensates an operator for services that may include designing, constructing, financing, maintaining or operating an underlying infrastructure or other nonfinancial asset for a period of time in an exchange or exchange-like transaction.
Feedback is requested by September 13, 2019.
For PPPs that meet the lease definition, but not the SCA definition, a government would apply Statement 87. This proposal provides guidance for all other PPPs—those that meet the SCA definition or those that do not meet the SCA definition or lease definition.
The proposal generally requires a transferor to recognize an underlying PPP asset as an asset. When the underlying PPP asset is not owned by the transferor or is not an SCA’s underlying asset, a transferor would recognize a receivable measured based on the operator’s estimated carrying value of the underlying PPP asset as of the future date of ownership transfer. A transferor would recognize a receivable for installment payments, if any, to be received from the operator, which would be measured at the present value of the expected payments during the PPP term. A transferor also would recognize a deferred inflow of resources for the consideration received or to be received by the transferor. Revenue would be recognized by a transferor in a systematic and rational manner over the PPP term.
A governmental operator would report an intangible right-to-use (RTU) asset related to an underlying PPP asset that either the transferor owns or is an SCA’s underlying asset. The RTU asset would be measured as the consideration to be provided to the transferor, plus any payments made to the transferor at or before the PPP commencement term and certain direct costs. For an underlying PPP asset that the transferor does not own and is not an SCA’s underlying asset, a governmental operator would recognize a liability measured based on the estimated carrying value of the underlying PPP asset as of the future date of the ownership transfer. A governmental operator also would recognize a liability for installment payments, if any, to the transferor. The liability for installment payments would be measured as the present value of the payments expected during the PPP term. A governmental operator also would recognize a deferred outflow of resources for the consideration provided or to be provided to the transferor. Expense would be recognized by a governmental operator in a systematic and rational manner over the PPP term.
PPP and non-PPP components will need to be treated as separate contracts.
The proposal provides multiple component, contract term, modification, partial and full termination guidance, which mirrors Statement 87 language.
An APA is similar to a PPP except that the government retains demand risk and responsibility for fee collection for the underlying asset’s use. An APA related to designing, constructing and financing an infrastructure or other nonfinancial asset in which ownership of the asset transfers at contract’s end would be accounted for as a financed purchase of the underlying infrastructure or other nonfinancial asset. An APA that is related to operating or maintaining an infrastructure or other nonfinancial asset would be reported as an outflow of resources in the period to which payments relate.
Effective Date & Transition
If approved, these changes would be effective for fiscal years beginning after June 15, 2021. Earlier application would be encouraged. The changes would be applied retrospectively, if practicable, for all prior fiscal years presented. PPPs would be recognized and measured using the facts and circumstances that exist at the beginning of the period of implementation or if applicable to earlier periods, the beginning of the earliest period restated. In the year of adoption, the financial statement notes should disclose the nature of the restatement and its effect or the reason for not restating prior years presented.
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