Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Specialized Accounting

Public-Private and Public-Public Partnerships

Introduction

Arrangements between state agencies and private entities or other governments have become more prevalent. Those arrangements, often referred to as public-private or public-public partnerships (collectively, PPPs), generally result in the agency transferring the obligation to provide certain public services to an external entity.

GASB Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, was issued to:

• Establish the definitions for PPPs and APAs
• Provide uniform guidance for state agencies to report assets and liabilities related to PPPs on a consistent basis
• Disclose important information about PPP transactions
• Supersede GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrange­ments, thus expanding the reporting requirements for all types of government contracts with operators that provide public services.

The provisions apply to proprietary and government-wide financial statements using full accrual accounting that are prepared using the economic resources measurement focus.

PPP

A PPP is an arrangement in which the agency (the transferor) contracts with an operator (a governmental or non-governmental entity) to provide a public service by conveying control of the right to operate or use a nonfinancial asset of the agency (such as infrastructure or other capital asset [the underlying PPP asset]) for a period of time in an exchange or exchange-like transaction.

Public services are services offered or controlled by a government. These services are performed for the benefit of the public or its institutions. Providing public services is a higher threshold of involvement than the mere participation of a government in a transaction.

Assets commonly used in PPP arrangements include:

• Infrastructure (like roads and bridges)
• Hospitals
• Dormitories
• Book stores
• Recreational facilities
• Sports complexes
• Jails/Prisons
• Wastewater treatment plants
• Museums

Software is not subject to GASB 94.

An agency with a PPP that meets the definition of a lease must apply the accounting and financial reporting guidance in GASB Statement No. 87, Leases if:

• Existing assets of the transferor are the only underlying PPP assets.
• Improvements are not required to be made by the operator to those existing assets as part of the PPP arrangement.
  –AND–
• The PPP does not meet the definition of a service concession arrangement (SCA).

For more information, see Leases – Recognitions and Measurements.

SCA

One type of PPP is an SCA, which has explicit criteria and accounting requirements. All SCAs are PPPs, but not all PPPs are SCAs.

To be an SCA, ALL the following criteria must be met:

• The agency (the transferor) conveys to an 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 up-front payment, installment payments, a new asset or improvements to an existing asset)
• The operator collects and is compensated by fees it collects from third parties.
• The agency (the transferor) determines or can modify or approve:
  • Which services the operator must provide
  • To whom the operator must provide services
    –AND–
  • The prices or rates that the operator can charge for the services.
  –AND–
• The agency (the transferor) is entitled to significant residual interest in the service utility of the underlying PPP Asset at the end of the arrangement.

Underlying PPP Asset

If an underlying PPP asset is an existing asset of the agency, the agency (the transferor) must continue to measure the underlying PPP asset at its carrying value as of the commencement of the PPP term.

If an underlying PPP asset is a new asset purchased or constructed by the operator, the agency (the transferor) initially must measure the underlying PPP asset at acquisition value when the asset is placed into service.

The agency (the transferor) must apply all other accounting and financial reporting requirements relevant to an underlying PPP asset, including depreciation and impairment. However, if the PPP arrangement requires the operator to return the underlying PPP asset in its original condition, the agency (the transferor) must not depreciate the asset during the PPP term.

Improvements increase the capacity or efficiency of the underlying PPP asset rather than preserve its useful life. The agency (the transferor) must measure improvements made by the operator to an underlying PPP asset, at acquisition value when the improvements are placed into service. The agency (the transferor) must apply all other accounting and financial reporting requirements relevant to the improvements to the underlying PPP asset, including depreciation and impairment.