Public Private Partnerships and Availability Payment Arrangements, including Reexamination of Statement 60
Project Description: This project addresses accounting and financial reporting for public-private partnerships (PPPs) and availability payment arrangements (APAs). The project will consider (1) potential amendments to Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, and potential amended or new implementation guidance to better address accounting and financial reporting for service concession arrangements (SCAs) within its scope, (2) potential additional accounting and financial reporting guidance for other types of public-private partnerships not within the scope of Statement 60 or subject to the provisions of Statement No. 87, Leases, and (3) APAs.
Exposure Draft Approved: June 2019
- Accounting and Financial Reporting Issues
- Project History
- Current Developments
- Work Plan
- Recent Minutes
- Tentative Board Decisions to Date
- Project staff:
Public Private Partnerships and Availability Payment Arrangements—Project Plan
Background: Broadly, the term public-private partnership can be used to describe several different types of arrangements that exist between governments and private parties, including but not limited to leases, capital and noncapital grants, contracting for services via vendor agreements or service management agreements, and disposals of operations to private entities. The pre-agenda research employed the following working definition:
That definition generally is consistent with the definition adopted by the National Institute of Governmental Purchasing and by the International City/County Management Association. PPPs include, among other things, the following salient types of arrangements:
Types of assets subject to PPPs primarily include roads, bridges, airport terminals, public transit, hospitals, student services at colleges and universities, sports facilities, jails, waste water treatment, and museums. However, virtually any public capital asset or service could be the subject of a PPP.
The pre-agenda research indicated an increased interest in PPP projects, primarily due to financial constraints on governments, and a particular increase in interest about the use of availability payments as alternative payment mechanisms for PPPs. The latter primarily is due to (1) the lower risk premiums demanded by private parties because availability payments are more predictable than tolls and user fees, and (2) decreased public opposition to PPPs with availability payments because they are less likely than PPPs with tolls or user fees to be perceived as selling or privatizing public assets.
As defined in Statement 60, SCAs are a subset of a PPP transactions but also include public-public partnerships. The pre-agenda research indicated that Statement 60 generally is effective in providing useful information about the economic substance of SCAs. However, certain issues have arisen regarding its application, including questions about applying the definition of an SCA to, for example, arrangements where an operator indirectly receives revenue for services.
A governmental transferor under Statement 60 may be similar to a lessor under Statement 87, and a governmental operator under Statement 60 may be similar to a lessee under Statement 87. However, there are significant differences in some of the accounting guidance. For example, Statement 87 provides guidance for determining the length of an agreement but Statement 60 does not.
Existing authoritative standards, including Statements 60 and 87, do not adequately address certain types of PPPs and APAs. Even if there are types of PPPs that are adequately addressed by existing standards, it may not be clear how those standards should be applied because of the complexity of the arrangements.
- Should additional guidance be provided to address Statement 60 application issues that have arisen? Should additional guidance address, among other things:
- Application of the collect-and-compensated-by-fees criterion
- Application of the control-over-rates criterion?
- Should additional guidance on Statement 60 be provided via amendments, implementation guidance, or education outreach?
- Should Statement 60 be amended or superseded to address differences with Statement 87, including:
- The term of the agreement
- Measurement of receivables
- Measurement of obligations
- Classification of the asset as capital?
- What is the definition of a PPP?
- Should the definition be limited to infrastructure or also include other assets or services?
- Should the definition be limited to only PPPs that are not within the scope of Statement 60 or should it consider PPPs that meet the SCA definition?
• Some PPPs are arranged so that they meet some, but not all, of the criteria of an SCA. Should some or all such arrangements be addressed by including them in a PPP definition, by amending the SCA definition in Statement 60, or some other way?
- What specific criteria or characteristics should be used to define PPPs?
- What is the definition of an APA?
- Should recognition and measurement guidance for PPPs and APAs be based on Statement 60, Statement 87, or some other model?
- Do different types of PPPs require different reporting models?
- What disclosures should be required for PPPs and APAs, if any?
- Pre-agenda research approved: April 2017
- Added to current technical agenda: April 2018
- Task force established? Yes
- Deliberations began: May 2018
- Exposure Draft approved: June 2019
- Comment period: June–September 2019
|Board Meetings||Research Activities|
|September 2019:||Comment period.|
|October 2019:||Redeliberate issues related to scope of the project.|
|November 2019:||Redeliberate issues related to recognition and measurement of PPPs by transferors and governmental operators.|
|January 2020:||Redeliberate issues related to APAs, disclosures for PPPs, and effective date.|
|February 2020:||Review preballot draft of a final Statement.|
|March 2020:||Review ballot draft of a final Statement and consider for approval.|
Minutes of Meetings, June 5–6, 2019
The Board reviewed a ballot draft of an Exposure Draft of a proposed Statement, Public-Private and Public-Public Partnerships and Availability Payment Arrangements. In addition to discussing clarifying edits, the Board tentatively decided to propose that a receivable recognized by a transferor for an underlying PPP asset to be purchased or constructed by the operator if the PPP does not meet the definition of an SCA be measured based on the operator’s estimated carrying value of the underlying PPP asset as of the future date of the transfer in ownership. The Board also tentatively decided to propose that a governmental operator’s liability for an underlying PPP asset to be purchased or constructed if the PPP does not meet the definition of an SCA be measured based on the governmental operator’s estimated carrying value of the underlying PPP asset as of the future date of the transfer in ownership. The Board then voted unanimously to approve the issuance of the Exposure Draft.
Minutes of Meetings, April 22–24, 2019
The Board reviewed a preballot draft of an Exposure Draft of a proposed Statement, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, and discussed clarifying edits. The Board agreed to move forward with a ballot draft of an Exposure Draft of a proposed Statement that will be discussed at the June 2019 Board Meeting.
Minutes of Meeting, March 13, 2019
The Board discussed the transition provisions to be proposed in the Exposure Draft and tentatively decided to (1) require retroactive application; (2) allow that if retroactive application is not practicable for all periods presented, the net position/fund balance (if applicable) be restated for the cumulative effect of the change in accounting principle at the beginning of the earliest reporting period presented; (3) require disclosure of the restatement presented and, if applicable, the reason for not restating periods; and (4) require that recognition and measurement result from the facts and circumstances that existed at the earliest period of implementation. The Board also tentatively decided to propose an effective date of fiscal years beginning after June 15, 2021, and that earlier implementation should be encouraged.
Next, the Board reviewed a draft Standards section of the proposed Exposure Draft. In addition to suggesting clarifying edits, the Board tentatively decided to add a disclosure in the notes to financial statements regarding the discount rate used to calculate assets or liabilities related to public-private partnerships (PPPs) that do not meet the definition of a lease.
The Board also discussed whether the intended benefits resulting from the proposed PPP guidance justify the anticipated costs to preparers and other stakeholders. The Board tentatively decided that the intended benefits associated with the proposed PPP guidance justify the perceived costs of implementation and ongoing compliance.
The Board also discussed the characteristics of the financial information that would be included in an Exposure Draft. The Board tentatively agreed that the proposed accounting and financial reporting requirements in the Exposure Draft would meet all of the characteristics in Group 1 and, therefore, are within the scope of the GASB’s authority.
Finally, the Board agreed that the project staff should prepare a preballot draft of an Exposure Draft for discussion at the April 2019 Board Meeting.
Minutes of Meetings, January 29–31, 2019
The Board continued discussions regarding differences between Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, and Statement No. 87, Leases. The Board tentatively decided that in the proposed standards for service concession arrangements (SCAs), the disposition of the three groups of topics covered in Statement 87 should be as follows:
- Topics that are relevant to SCAs and prevalent in practice should be incorporated into the proposed standards for SCAs with conforming edits. Those topics include measurement of a transferor’s asset, measurement of a government operator’s right-to-use asset and liability, contract term, contracts with multiple components, and modifications and terminations.
- Topics that are relevant to SCAs but are not prevalent in practice and topics that are not relevant to SCAs should not be covered in the proposed standards. Those topics include the short-term lease exception, contracts that transfer ownership, lease incentives, contract combinations, subleases, sale leasebacks, lease leasebacks, intra-entity leases, and leases between related parties.
Additionally, the Board tentatively agreed that in the proposed standards for public-private partnerships (PPPs) that do not meet the definition of an SCA or of a lease, the disposition of the three groups of topics covered in Statement 87 should be the same as for SCAs.
Next, the Board tentatively agreed that the proposed standards should present the following hierarchy for applying requirements:
- If the PPP meets the definition of an SCA, apply the requirements for an SCA.
- If the PPP does not meet the definition of an SCA but meets the definition of a lease, apply the requirements of Statement 87.
- For all other PPPs, apply the requirements for a PPP that does not meet the definition of an SCA or of a lease.
- Proposed New Disclosure for Transferors
- Variable payments recognized in the current period not included in the measurement of an SCA receivable
- Proposed New Disclosure for Governmental Operators
- Variable payments, residual value guarantee payments, and termination payments recognized in the current period not included in the measurement of an SCA liability
- Principal and interest requirements to maturity, presented separately, for each of the five subsequent fiscal years and in five-year increments thereafter
- Components of any loss anticipated with an impairment.
Minutes of Meetings, December 17–19, 2018
The Board continued discussions regarding the tentative definition of a public-private and public-public partnership (PPP). The Board tentatively decided to retain the notion of a provision of public services but to remove footnote 1 from the tentative definition, which would have limited the proposal to PPP transactions involving public services that are the primary function of the infrastructure or other nonfinancial asset.
Additionally, the Board tentatively agreed that footnote 2 of Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, should be retained and that any additional guidance to clarify the primary and ancillary functions of public services should not be provided as part of this project. Instead, additional guidance to clarify the primary and ancillary functions of public services should be considered for inclusion in a future implementation guide. Similarly, the Board tentatively agreed that scenarios in which fees are collected by third parties also should be considered for inclusion in a future implementation guide.
The Board next discussed proposed improvements to Statement 60. The Board tentatively agreed to propose amending the following (additions underlined):
- Footnote 5 to Statement 60, paragraph 9, as amended:
- Paragraph 13 of Statement 60 (footnote omitted):
Lastly, the Board discussed methods of better aligning Statements 60 and 87. The Board tentatively decided that guidance for the assessment of the lease term and for initial and subsequent measurement of lessor receivables should be aligned through proposed amendments to Statement 60.
Minutes of Meetings November 14–16, 2018
The Board continued discussions of public-private and public-public partnerships (PPPs) by considering accounting for arrangements not within the scope of Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, or Statement No. 87, Leases.
The Board first discussed situations in which both (1) the operator holds title to a facility during the life of the arrangement with transfer of the facility to the transferor at the end of the arrangement and (2) the arrangement meets all of the service concession arrangement (SCA) criteria except for the criterion that the transferor have the ability to modify or approve the prices or rates. The Board tentatively decided to propose that the transferor government report an asset related to the right to receive the facility at the end of the arrangement, measured at the expected acquisition value of the facility at the date of the change of ownership. The Board also tentatively agreed to propose that the operator report a liability for the future transfer of the facility measured at the transferor’s expected acquisition value of the facility at the date of the change of ownership. In addition, the Board tentatively decided to propose that if the arrangement also involves the operator making payments, those payments be reported consistent with the guidance in Statement 60, including reporting of deferred inflows of resources.
The Board next discussed how to address availability payment arrangements (APAs) within the scope of the project. The Board tentatively decided to propose addressing APAs by (1) describing the nature and characteristics of APAs, including their components, and (2) stating that design, finance, construction, operation, and maintenance components of APAs should be reported consistent with existing guidance for the services included in those contracts, which may include financing, designing, constructing, operating, or maintaining infrastructure on other nonfinancial assets. The Board tentatively agreed on the following working definition of an APA:
Lastly, the Board considered the degree to which intangible assets should be addressed in the scope of the project. The Board decided that the tentative proposed definition of a PPP should not exclude intangible capital assets that are related to SCAs under Statement 60 or intangible right-to-use assets in subleases under Statement 87. However, the Board tentatively agreed that the proposed definition of a PPP should exclude arrangements in which the underlying asset is intangible (except for subleases).
Minutes of Meetings October 2–4, 2018
The Board tentatively decided to propose amending Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, to require that a governmental operator’s intangible right-to-access asset for a service concession arrangement (SCA) be classified as a capital asset, consistent with amendments previously made to Statement No. 51, Accounting and Financial Reporting for Intangible Assets. The Board then tentatively decided to propose that the definition of a public-private and public-public partnership (PPP) refer to infrastructure and other nonfinancial assets rather than the more limiting term capital assets. The Board also tentatively agreed that such assets should include those determined to be significant consideration in the form of newly constructed or improved upon facilities per paragraphs 4d and 9 of Statement 60, which require transferor governments to report assets whether or not the transferor holds title. The Board further tentatively decided that the definition should include the notion that a PPP involves the provision of a public service, with elaboration of that notion similar to the discussion in footnote 2 of Statement 60. Based on the above, the Board tentatively agreed to modify the working definition of a PPP as follows:
1These services relate to the primary function of the infrastructure or other nonfinancial assets (for example, operating a city zoo) rather than ancillary services operated in conjunction with the infrastructure or other nonfinancial assets (for example, operating the souvenir stand at a city zoo).
2Nonfinancial assets include assets that are newly constructed or improved upon by the operator and reported by the governmental transferor as a capital asset as discussed in paragraphs 8 and 9 of Statement 60.
The Exposure Draft, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, was approved in June 2019.