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Public Private Partnerships and Availability Payment Arrangements, including Reexamination of Statement 60


Minutes of Meetings, February 11–13, 2020

The Board continued redeliberations based on stakeholder feedback received on the Exposure Draft, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, related to effective date and transition. The Board tentatively decided that the effective date for fiscal years beginning after June 15, 2021 in the Exposure Draft should be carried forward to the final Statement.
 
Next, the Board discussed whether the expected benefits resulting from the application of the financial reporting requirements justify the perceived costs to preparers and other stakeholders. The Board tentatively decided that the expected benefits associated with the Statement justify the perceived costs of implementation and ongoing compliance of the resulting accounting standards.
 
The Board then discussed the characteristics of the financial information that would be included in the final Statement. The Board tentatively agreed that the financial reporting requirements in the Statement meet all of the characteristics in Group 1 and, therefore, are within the scope of the GASB’s authority.
 
Lastly, the Board reviewed a preballot draft of the final 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 the final Statement, which will be discussed at the March 2020 Board meeting.

Minutes of Meetings, January 7–9, 2020

The Board continued redeliberations based on stakeholder feedback received on the Exposure Draft, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, related to other public-private partnerships (PPPs) recognition and measurement issues, availability payment arrangements (APAs), and note disclosures.

The Board began the redeliberations by reviewing the display of separation of recognition and detailed measurement requirements for transferors and operators and provided clarifying edits for inclusion in the final Statement

The Board then discussed stakeholder feedback on other PPP recognition and measurement issues. The Board tentatively decided that the provisions related to PPPs with multiple components should be carried forward to the final Statement. The Board also tentatively decided that the provision related to accounting for PPP modifications by a transferor should be carried forward to the final Statement. The Board also tentatively decided that clarifying edits should be made to the provisions related to accounting for PPP modifications by an operator to provide specific requirements for each type of liability that may be recognized by the operator related to the PPP. The Board also tentatively agreed that additional guidance should be added to require PPP modifications in which the perceived economic advantages of a debt refunding by the operator that is passed through to the transferor be accounted for the in the same manner as the perceived economic advantages of a debt refunding by the transferor that is passed through to the operator. Additionally, the Board tentatively agreed that clarifying edits should be made to the provisions for accounting for PPP terminations by a transferor to provide specific requirements for each type of asset that may be recognized by the transferor related to the PPP. The Board also tentatively agreed that clarifying edits should be made to the provisions for accounting for PPP terminations by an operator to (a) provide specific requirements for each type of liability that may be recognized by the operator related to the PPP and (b) reduce the carrying value of the deferred outflow of resources if the carrying value of the liability for the underlying PPP asset is reduced. In addition, the Board tentatively decided that requirements related to accounting for PPPs in governmental funds should be included in the final Statement for a transferor’s receivable for installment payments and an operator’s liability for installment payments. The Board also tentatively decided that the requirements for a transferor should be the same as for a lessor in Statement No. 87, Leases, and the requirements for an operator should be the same as for a lessee in Statement 87. The Board also tentatively agreed that the final Statement should not include recognition in the governmental funds flows statement for the future transferor of the underlying PPP asset when the PPP does not meet the definition of a service concession arrangement. The Board tentatively agreed that specific requirements related to accounting for PPPs in which the transferor and operator are part of the same reporting entity should not be included in the final Statement.

The Board then discussed stakeholder feedback regarding APAs. The Board tentatively decided that the definition of an APA should be carried forward to the final Statement with the addition of a clarifying paragraph contrasting the differences between an APA and a PPP. Additionally, the Board tentatively decided that recognition and measurement requirements for APAs should be carried forward to the final Statement. The Board also tentatively agreed that additional, specific guidance for recognition and measurement of an APA should not be provided. In addition, the Board tentatively decided that the final Statement should clarify the reference in paragraph 65 of the Exposure Draft to the multiple components paragraphs to explain that the provisions related to a PPP should be applied as if that arrangement were an APA. The Board also tentatively agreed that specific guidance that an APA for the financed purchase of a capital asset meets the definition of debt for disclosure purposes in Statement No. 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements, should not be included in the final Statement.

The Board then discussed stakeholder feedback on note disclosures. The Board tentatively agreed that the disclosures proposed in the Exposure Draft related to the basis, terms, and conditions on which variable payments not included in the measurement of the receivable, the amount of outflows recognized related to variable payments not previously included in the liability, and the nature and extent of rights granted and retained should be carried forward to the final Statement. The Board also tentatively decided that the disclosures of guarantees or commitments related to a PPP should be carried forward to the final Statement. The Board discussed stakeholder feedback on additional disclosure requirements and tentatively decided that additional disclosure requirements for transferors should not be added. Additionally, the Board tentatively decided that the disclosures proposed in the Exposure Draft related to basis, terms, and conditions on which variable payments not included in the measurement of an operator’s liability, and the nature and extent of rights granted and retained, should be carried forward to the final Statement. The Board also discussed stakeholder feedback on additional disclosure requirements and tentatively decided that additional disclosure requirements for operators should not be added. In addition, the Board tentatively decided that clarification should be added to disclosures required for operators to specify whether the  liability relates to an installment payable or to an underlying PPP asset. The Board also tentatively decided that disclosure requirements for APAs should not be included in the final Statement. Finally, the Board tentatively agreed that disclosures for leases in Statement 87 should not be referenced in the final Statement in lieu of the disclosure requirements proposed in the Exposure Draft. The Board also tentatively agreed that disclosures for PPPs should not be required to be included with disclosures for leases. Furthermore, the Board tentatively agreed that the disclosures for transferors and operators should not require that the PPPs that meet the definition of leases be disclosed with other PPPs in the final Statement.

Minutes of Meetings, November 20–22, 2019

The Board continued redeliberations based on stakeholder feedback received on the Exposure Draft, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, related to the recognition and measurement of PPPs.
 
First, the Board discussed stakeholder feedback on whether guidance should be provided for PPPs that do not meet the definition of a lease and reconsidered the definition of a service concession arrangement (SCA). The Board tentatively decided that the final Statement should include accounting and financial reporting requirements for PPPs that do not meet the definition of a lease. The Board also tentatively decided that additional language should not be added to the criterion of the operator collecting fees in order to meet the definition of an SCA.
 
Next, the Board discussed stakeholder feedback regarding PPP terms. The Board tentatively decided that the reference to a rolling month-to-month PPP should be excluded from the example of determining a PPP term. In addition, the Board tentatively decided that additional language should not be added to further clarify that the determination of the PPP term is only for accounting and financial reporting purposes. Finally, the Board tentatively decided that the proposed provisions related to consideration of fiscal funding and cancellation clauses in the determination of the PPP term should not be modified.
 
The Board then discussed stakeholder feedback related to the timing of recognition of financial statement elements related to a PPP. The Board tentatively decided that the final Statement should only refer to when placed into service for initial recognition of PPP assets, deferred outflows of resources, liabilities, and deferred inflows of resources. The Board confirmed that assets, deferred outflows of resources, liabilities, and deferred inflows of resources in PPPs should be recognized as follows:
  • Installment receivables of the transferor and installment payables of the operator would be recognized at the commencement of the PPP terms.
  • Capital assets, including improvements, to be received or provided for PPPs that are SCAs would be recognized as capital assets by the transferor and right-to-use assets by the operator when placed into service.
  • Improvements made by the operator to existing underlying PPP assets for PPPs that are not SCAs would be recognized as capital assets by the transferor and right-to-use assets by the operator when placed into service.
  • Capital assets to be received or provided for PPPs that are not SCAs would be recognized as receivables by the transferor and liabilities of the operator when placed into service. Liquidation of receivables or payables for such assets prior to the end of the PPP term would result in recognition of the capital assets by the transferor and right-to-use assets by the operator when the capital assets are transferred to the transferor.
  • Deferred inflows of resources would be recognized by the transferor when assets are recognized in relation to the PPP terms as described above or at the commencement of the PPP terms if cash was received in advance or at the commencement of the PPP terms.
  • Deferred outflows of resources would be recognized by the operator for underlying PPP assets to be provided for PPPs that are not SCAs when placed into service.
The Board also discussed stakeholder feedback regarding the recognition and measurement of receivables and liabilities for underlying PPP assets. The Board tentatively decided that a transferor should recognize a receivable and an operator should recognize a liability, both measured at the estimated carrying value of the operator, for underlying PPP assets that are to be transferred by the operator to the transferor in a PPP that does not meet the definition of a lease or an SCA.
 
Next, the Board discussed stakeholder feedback regarding the measurement of installment receivables and installment payables. The Board tentatively decided that the provisions to discount installment receivables of transferors and installment payables of operators in relation to a PPP should be carried forward to the final Statement. Also, the Board tentatively decided that additional guidance to determine an incremental borrowing rate or define the term fixed in substance should not be provided in the final Statement. Finally, the Board tentatively decided that footnote 12, which provides clarification on revenue sharing agreements, should not be placed in the paragraph describing measurement of variable payments.
 
The Board also discussed miscellaneous items based on stakeholder feedback. The Board tentatively decided that additional headers should not be added at the beginning of the recognition and measurement sections for transferors and operators pending the Board’s review of the restructured recognition and measurement sections. The Board also tentatively decided that references to governmental operators should be changed to operators in the final Statement.

Minutes of Meetings, October 15–17, 2019

The Board began redeliberations based on stakeholder feedback received on the Exposure Draft, Public-Private and Public-Public Partnerships and Availability Payment Arrangements.
 
The Board confirmed that the provisions of the final Statement would apply to fiduciary activities. The Board also tentatively decided that the term pubic services should not be defined in the final Statement. In addition, the Board tentatively decided that the public services provided by the underlying PPP asset should not be limited to the primary function of the underlying PPP asset.
 
The Board tentatively decided that the description of the underlying PPP asset should be as modified to refer to infrastructure as an example of a nonfinancial asset. The Board also tentatively decided to modify the footnote defining underlying assets to refer to a transferor rather than a transferor government.
 
Additionally, the Board tentatively decided that intangible assets should not be excluded from being underlying PPP assets. However, the Basis for Conclusions of the final Statement should include language explaining why intangible assets are not excluded from being underlying PPP assets. The Board also tentatively decided that the use of the terms transferor and operator should be carried forward to the final Statement and that a separate definition of public-public partnership should not be developed.

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, 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.
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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.
 
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