GASB publishes final P3 rules

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The Governmental Accounting Standards Board released on Monday the text of its final standards for public-private partnerships that take into account more recent variations in these agreements.

GASB said the uniform guidance in Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, will provide more relevant and reliable information for financial statement users and create greater consistency in practice.

The new standards allow for forms of P3 agreement that wouldn't have fit GASB definitions under the old standards, which were drafted at a time when P3s remained a relatively novel concept in the U.S.

The exposure draft released last year generated 32 comments from professional organizations and governmental groups, with many offering critiques of the proposed definitions and classifications.

Among the commentors: the National Federation of Municipal Analysts, the Financial Management Standards Board of the Association of Government Accountants, the Arizona Office of the Auditor General, S&P Global Ratings, and the Government Finance Officers Association along with its state affiliates in Florida, Illinois, Michigan and Oregon.

The National Association of College and University Business Officers representing about 2,000 colleges and universities was among the groups that suggested a delay in the implementation deadline until fiscal 2022.

“Governments and public institutions of all sizes will have to implement software solutions to track these agreements and leases,” wrote Susan Menditto, senior director for accounting policy at NACUB.

GASB announced last week that the deadline for implementing these standards has been delayed for one year until reporting periods beginning after June 15, 2022.

The board encouraged governmental entities to adopt the new standards sooner but enacted the delay as part of blanket action to relieve the burden on finance officers during the COVID-19 pandemic.

GASB’s previous guidance on P3s was in Statement 60 published 2010 at a time that only a few state and local governments had undertaken P3s. Those early P3s involved a private partner that would operate and maintain the infrastructure, collect revenues such as tolls and handle the debt payments such as a bond offering.

More recent P3s can involve the government entity collecting the revenue or require that the private operator turn over the revenue to the government before a payment is made back to the private partner. Those variations wouldn’t meet GASB’s previous definition of a service concession arrangement.

“This statement will enhance the decision usefulness of a government’s financial statements by requiring governments to report assets and liabilities related to PPPs consistently and disclose important information about PPP transactions,” GASB said. “The required disclosures will allow users to understand the scale and important aspects of a government’s PPPs and evaluate a government’s future obligations and assets resulting from PPPs.”

Statement 94 defines a P3 as an arrangement in which a government transferor contracts with a governmental or nongovernmental operator to provide public services by conveying control of the right to operate or use a nonfinancial asset, such as infrastructure or other capital asset—the underlying P3 asset—for a period of time in an exchange or exchange-like transaction.

Some P3s meet the definition of a service concession arrangement (SCA). The Statement carries forward the financial reporting requirements for SCAs that were included in Statement 60, with modifications to apply the more extensive requirements related to recognition and measurement of leases to SCAs.

P3s that meet the definition of a lease should apply the guidance in Statement 87, if existing assets of the transferor that are not required to be improved by the operator as part of the P3 arrangement are the only underlying P3 assets and the P3s do not meet the definition of an SCA.

The new statement provides specific guidance for all other P3s from the perspective of both a government that transfers rights to another party and governmental operators that receive those rights.

Statement 94 defines an availability payment arrangement (APA), which also has been used to procure governmental services, as an arrangement in which 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.

Governments are required under the new statement “to account for APAs related to those activities and in which ownership of the asset transfers by the end of the contract as a financed purchase of the underlying infrastructure or other nonfinancial asset.”

“It also requires a government to report an APA that is related to operating or maintaining a nonfinancial asset as an outflow of resources (for example, expense) in the period to which payments relate,” GASB said.

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