Project Pages

Public-Private Partnerships, including Reexamination of Statement 60

Project Description: This projectaddresses accounting and financial reporting for public-private partnerships (PPPs). 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, and (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.

Status:
Initial Deliberations: May 2018

Public-Private Partnerships, including Reexamination of Statement 60—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:

Public-private partnerships (PPPs) are transactions in which a government contracts with another entity to design, build, or operate infrastructure assets or other capital assets. These entities generally are companies, but also may be not-for-profit organizations or other governments (a public-public partnership).

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:

  • Design-build
  • Design-build-finance
  • Build-own-operate
  • Build-own-operate-transfer
  • Design-build-operate-maintain
  • Design-build-finance-operate
  • Design-build-finance-operate-maintain.  

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. 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.

Accounting and Financial Reporting Issues: The project is considering the following issues:
  1. 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?
  2. Should additional guidance on Statement 60 be provided via amendments, implementation guidance, or education outreach?
  3. Should Statement 60 be amended to address differences with Statement 87, including:
    • The term of the agreement
    • Measurement of receivables
    • Measurement of obligations
    • Classification of the asset as capital?
  4. What is the definition of a public-private partnership?
    • 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?
  5. Should recognition and measurement guidance for other PPPs be based on Statement 60, Statement 87, or some other model?
    • Do different types of PPPs require different reporting models?
  6. What disclosures should be required for PPPs, if any?
Project History:
  • Pre-agenda research approved: April 2017
  • Added to current technical agenda: April 2018
  • Task force appointed? Yes
  • Deliberations began May 2018
Current Developments: At its August, October, and November 2018 meetings, the Board continued the development of a working definition of PPPs. At its October meeting, the Board also discussed the reporting of a capital asset by a governmental operator under Statement 60 and considered proposing an amendment to the scope of Statement 87 to clarify that SCAs are not a type of lease.
 
At its November 2018 meeting, the Board 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 also discussed how to address availability payment arrangements. At its December 2018 meeting, the Board is scheduled to discuss clarifications of the guidance in Statement 60.

Work Plan:
 
Board Meetings Research Activities
January 2019: Discuss PPP disclosures and further clarify the PPP definition.
March 2019: Review first draft of a standards section of an Exposure Draft; cost-benefit considerations; effective date and transition.
April 2019: Review preballot draft of an Exposure Draft.
June 2019: Review ballot draft of an Exposure Draft and consider for approval.
July–September 2019: Comment period.
October 2019–January 2020: Redeliberate issues based on due process feedback.
February 2020: Review preballot draft of a final Statement.
March 2020: Review ballot draft of a final Statement and consider for approval.

Public-Private Partnerships—RECENT MINUTES


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:
Improvements as defined in paragraph 25 of Statement 34, increase the capacity or efficiency of the facility rather than preserve its useful life. For facilities that are not reported using the modified approach, as discussed in paragraphs 23–26 of Statement 34, improvements include extending the useful life of the facility.
  • Paragraph 13 of Statement 60 (footnote omitted):
A governmental operator should report an intangible asset for the right to access the facility and collect third-party fees from its operation at cost (for example, the amount of an up-front payment or the cost of construction of or improvements to the facility). If an SCA requires a governmental operator to make installment payments, the cost of the governmental operator’s intangible asset for the right to access the facility should include the present value of installment payments paid or to be paid. The cost of improvements to the facility made by the governmental operator during the term of the SCA should increase the governmental operator’s intangible asset if the improvements increase the capacity or efficiency of the facility. For facilities that are not reported using the modified approach, as discussed in paragraphs 23–26 of Statement 34, the cost of extending the useful life of the facility also should increase the governmental operator’s intangible asset.

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:
 
Availability payment arrangements (APAs) are service contracts with payments tied to the availability of the underlying asset.  In an APA, a government contracts with another party to operate or maintain the government’s infrastructure or other nonfinancial asset, and the other party receives payments from the government based on the asset’s availability for use, which may be based on the condition of the asset or other performance measures.  By basing payments on availability, condition, or achievement of performance measures, the government retains demand risk associated with the use of the asset. APAs also may include design, finance, or construction components.

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:
 
Public-private and public-public partnerships (PPPs) are arrangements in which a government contracts with another entity (public or private) to provide public services1 by conveying control of the right to operate or use infrastructure or other nonfinancial assets,2 in an exchange or exchange-like transaction for a period of time.
________________
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 Board commenced discussion of accounting issues associated with PPPs by tentatively agreeing that SCAs, although similar to leases, are not a subgroup of leases.  Accordingly, the Board tentatively decided to propose amending the scope of Statement No. 87, Leases, to clarify that SCAs are not a type of lease.  In amending the scope of Statement 87, the Board tentatively decided to propose referring to SCAs as arrangements often characterized as leases, mirroring the language proposed in the Exposure Draft, Conduit Debt Obligations. Lastly, the Board tentatively decided to consider at the November meeting certain transactions not addressed by Statement 60 or Statement 87.

Minutes of Meetings August 22–24, 2018

The Board continued deliberations regarding the scope of the project. The Board tentatively decided that the definition of public-private partnerships (PPPs) should include availability payment arrangements that involve the operation or use of capital assets. The Board also tentatively agreed that the working definition of PPPs should include the following elements:
  • Address both public-private and public-public partnerships
  • PPPs are arrangements in which a government contracts with another party (public or private) to convey control of the right to operate or use infrastructure or other capital assets, including those capital assets reported under Statement 60 for which the transferor government does not hold title, for a period of time
  • Be based on an exchange or exchange-like transaction.
Minutes of Meetings, July 10–12, 2018

The Board continued deliberations regarding the scope of the project. The Board tentatively decided to use a characteristics-based approach, rather than solely a risk-based approach, to identify the types of public-private and public-public partnerships to be included within the scope of the project.  Specifically, the Board tentatively decided that the primary characteristic for identifying the types of arrangements to be addressed in the project would be that the arrangement involves the operation or use of capital assets, including any related construction activities.

Minutes of Meetings, May 29–31, 2018
 
The Board initiated deliberations by discussing areas to be included in the scope of the project or excluded therefrom.  The Board tentatively decided that the following aspects of the guidance in Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, should be included in the scope of the project:
  • Reconsideration of the definition of service concession arrangements (SCAs)
  • Consideration of potential guidance for assessing the term of SCAs
  • Consideration of potential guidance for initial measurement of SCAs, including variable payments, the discount rate, and amortization of the discount for SCAs (which would not consider discounting comprehensively)
  • Consideration of potential guidance for the remeasurement of SCAs
  • Consideration of potential guidance for asset classification and application of impairment guidance to SCAs
  • Consideration of potential guidance for payments for construction and for additional revenue recognition guidance for SCAs
  • Reconsideration of disclosure guidance for SCAs.
The Board also tentatively decided that the project would not consider governmental fund reporting for SCAs.

The Board tentatively decided that the project also would consider guidance for partnerships between governmental entities (public-public partnerships).

The Board next tentatively decided that all of the following types of arrangements should be considered in deliberations leading to a tentative definition of public-private partnership, although such a definition could ultimately exclude one or more of the following types of arrangements:
  • Design-build
  • Design-build-finance
  • Build-own-operate
  • Build-own-operate-transfer
  • Design-build-operate-maintain
  • Design-build-finance-operate
  • Design-build-finance-operate-maintain.
The Board noted that including all of these types of arrangements, and other arrangements such as bridge maintenance contracts and economic development contracts, in the scope of the project could have ramifications on other projects.  The Board requested that the project staff consider the full spectrum of public-private and public-public arrangements and potential ramifications on other projects, including the Revenue and Expense Recognition project.
 

Public-Private Partnerships—TENTATIVE BOARD DECISIONS TO DATE


The Board tentatively decided to propose the following:
  • The following aspects of the guidance in Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, should be included in the scope of the project:
    • The definition of service concession arrangements (SCAs)
    • Potential guidance for assessing the term of SCAs
    • Potential guidance for initial measurement of SCAs, including variable payments, the discount rate, and amortization of the discount for SCAs (which would not consider discounting comprehensively)
    • Potential guidance for the remeasurement of SCAs
    • Potential guidance for asset classification and application of impairment guidance to SCAs
    • Potential guidance for payments for construction and for additional revenue recognition guidance for SCAs
    • Disclosure guidance for SCAs
    • Public-public partnerships.
       
  • All of the following types of arrangements also should be considered in deliberations leading to a tentative definition of public-private partnership:
    • Design-build
    • Design-build-finance
    • Build-own-operate
    • Build-own-operate-transfer
    • Design-build-operate-maintain
    • Design-build-finance-operate
    • Design-build-finance-operate-maintain.
  • The project scope should not consider governmental fund reporting for SCAs.
  • The types of public-private partnerships to be included within the scope of the project should be identified using a characteristics-based approach.
  • The primary characteristic should be that the arrangement involves the operation or use of tangible infrastructure or other nonfinancial assets, including any related construction activities.
  • The tentative definition of public-private and public-public partnerships (PPPs) should include availability payment arrangements (APAs) that involve the operation or use of capital assets.
  • The definition of PPPs should include the following elements:
    • Address both public-private and public-public partnerships
    • Note that PPPs involve the provision of public services, but not include a footnote that limits PPPs to transactions involving public services that are the primary functions of the infrastructure or nonfinancial asset.
    • Note that PPPs are arrangements in which a government contracts with another party (public or private) to convey control of the right to operate or use infrastructure or other nonfinancial assets, including those capital assets reported under Statement 60 for which the transferor government does not hold title
    • Be based on an exchange or exchange-like transaction
    • Be for a period of time (not permanent)
    • Exclude arrangements in which the underlying nonfinancial asset is intangible (except for intangible right-to-use assets in subleases).
  • Statement 60 should be amended to require that a governmental operator’s intangible asset for the right to access a facility and collect fees be classified as a capital asset.
  • Statement No. 87, Leases, should be amended to clarify that SCAs are not a type of lease.
  • For arrangements in which (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 SCA criteria except for the criterion that the transferor have the ability to modify or approve the prices or rates:
    • The transferor government should 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 at the end of the arrangement; and
    • The operator should 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 transfer at the end of the arrangement.
    • If the arrangement also involves the operator making payments, those payments should be reported consistent with the guidance in Statement 60.
  • Provide a tentative definition of APAs, explaining that APAs are service contracts with payments tied to the availability of the underlying asset.  The discussion of APAs should state that design, finance, construction, operation, and maintenance components of APAs should be reported consistent with existing guidance for those services.
  • The tentative 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.
  • The following improvements to Statement 60 (additions underlined):
    • Footnote 5 to Statement 60, paragraph 9, as amended:
      • Improvements as defined in paragraph 25 of Statement 34, increase the capacity or efficiency of the facility rather than preserve its useful life. For facilities that are not reported using the modified approach, as discussed in paragraphs 23–26 of Statement 34, improvements include extending the useful life of the facility.
    • Paragraph 13 of Statement 60 (footnote omitted):
      • A governmental operator should report an intangible asset for the right to access the facility and collect third-party fees from its operation at cost (for example, the amount of an up-front payment or the cost of construction of or improvements to the facility). If an SCA requires a governmental operator to make installment payments, the cost of the governmental operator’s intangible asset for the right to access the facility should include the present value of the installment payments paid or to be paid. The cost of improvements to the facility made by the governmental operator during the term of the SCA should increase the governmental operator’s intangible asset if the improvements increase the capacity or efficiency of the facility. For facilities that are not reported using the modified approach, as discussed in paragraphs 23–26 of Statement 34, the cost of extending the useful life of the facility also should increase the governmental operator’s intangible asset.
  • Guidance for the assessment of the lease term and for initial and subsequent measurement of lessor receivables should be aligned through amendments to Statement 60.