Public – Private Partnerships

By Philip Marciano  |  January 10, 2020

Public – Private Partnerships

With the ever-changing landscape of how state and local governments conduct business, the Governmental Accounting Standards Board (GASB) has taken on a project to address the accounting and financial reporting for arrangements between governments and other public or private parties, also referred to as PPPs. The project also addresses accounting and reporting issues for availability payment arrangements, also referred to as APAs. An exposure draft was issued by the GASB to amend previously issued statements to make the accounting and financial reporting for these types of arrangements clearer to users of financial statements. This article will not explain the detailed accounting necessary for these types of arrangements but will provide examples and information about what these types of arrangements are to help you identify them.

The exposure draft defines a PPP as “an arrangement in which a government (the transferor) contracts with an operator (a governmental or nongovernmental entity) to provide public services by conveying control of the right to operate or use an infrastructure or other nonfinancial assets (the underlying PPP asset) for a period of time in an exchange or exchange-like transaction.

In addition to providing guidance on accounting and financial reporting for PPPs, the Proposed Statement also provides guidance for availability payment arrangements (APAs). The GASB defines an APA 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 assets for a period in an exchange or exchange-like transaction.”

APAs are similar to PPPs except that in an APA the operator is being compensated by the transferor for either providing an asset to the government or performing services on behalf of the government, instead of being compensated by third parties and having the transferor provide public services through the use of the underlying asset.

The definition of PPPs is similar to the guidance that was issued in GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements (“SCAs”), and although some PPPs could be SCAs, there are some PPPs that do not meet the definition of an SCA completely. An SCA is defined as “an arrangement between a transferor and an operator in which all of the following criteria are met:

  1. The transferor conveys to the 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 facility, or improvements to an existing facility.
  2. The operator collects and is compensated by fees from third parties.
  3. The transferor determines or has the ability to modify or approve which services the operator is required to provide, to whom the operator is required to provide services, and the prices or rates that can be charged for the services.
  4. The transferor is entitled to significant residual interest in the service utility of the underlying PPP asset at the end of the arrangement.

When analyzing these types of agreements, if the PPP meets the definition of lease as defined in GASB Statement No. 87, but not the definition of an SCA (as shown above), then the reporting guidance in Statement No. 87 applies.

To make these definitions a little clearer and more real, let’s look at some possible examples.


A government agrees to allow a public or private entity (operator) to operate their toll-collecting function on the government’s roadways. The operator provides an up-front payment of $3 billion to the government in return for the right to operate the toll collection and to receive and retain toll revenues for a period of 50 years.

Based on the facts in this example, this is a PPP that also meets the criteria for an SCA. Criteria “a” is met because this is a significant up-front payment. Criteria “b” is met since the toll operator is collecting fees from third parties. Criteria “c” is met since the agreement does not specify any terms of modifying services; the operator is providing the toll collection function in place of the government. Criteria “d” is met, as the toll assets will remain with the government at the end of the agreement.

It is possible that this type of arrangement could exist and not qualify as an SCA. For example, if the operator provides an up-front payment of $3 billion to the government in return for the right to operate the tolls, and to set, collect and retain toll revenues, criteria “c” would not be met, and the PPP would not meet the definition of an SCA.


A government enters into an arrangement with a private corporation to design, build and finance the construction of a bridge. As part of the arrangement, the corporation will collect all tolls for the bridge for 40 years and remit the collections to the government. In exchange, the government will remit to the corporation $20 million at the start of the project, $20 million on the date the bridge is placed into service, and $5 million annually for the length of the agreement (40 years), as compensation for designing, building and financing the bridge. In addition, the government will remit to the corporation $200,000 per month for the length of the agreement, for the collection of the tolls.

Note the differences in the APA example and the PPP example shown above. The government is compensating the corporation (the operator) for operating the toll function by paying $200,000 per month, whereas in the PPP examples, revenues collected are kept by the operator in exchange for the payment made to the government. Arrangements could also exist similar to the APA example above where a government can contract with a corporation (or public entity) to design, build and collect and operate toll services in exchange for ownership of the asset at the end of the agreement. This type of arrangement would qualify as a PPP arrangement since the government is not paying a fee to the operator, but instead the operator is keeping the revenues as compensation for collecting the tolls.

Other types of assets that may be subject to PPP arrangements or APA arrangements include (but are not limited to):

  • Airport terminals
  • Public transit
  • Hospitals
  • Student services for colleges and universities
  • Sports facilities
  • Recreational facilities
  • Jails
  • Wastewater treatment plants
  • Museums


The exposure draft statement is broken down into sections that provide accounting and reporting requirements for both the transferor and operator in PPPs. The exposure draft statement also provides key measurement guidance for determining the terms, how to measure the right-to-use assets, and for analyzing multiple components and modifications or terminations in the arrangements. The exposure draft uses many of the similar concepts identified in Statement No. 87, and as discussed by GASB in their project description, the issuance of Statement No. 87 caused the GASB to review Statement No. 60 for concepts that may not have been included (e.g., determining the length of an agreement). The conclusion of the statement provides guidance on arrangements that meet the definition of an APA.

The proposed requirements of the exposure draft would be effective for fiscal years beginning after June 15, 2021, in other words, calendar year 2022, and fiscal 2023 year-end. The changes resulting from this statement are required to be applied retroactively by restating financial statements for all prior fiscal years. PPPs should be recognized and measured using the facts and circumstances that existed at the beginning of the fiscal year of implementation. Early adoption is allowed and encouraged.

This article is based on the exposure draft, and as such the information contained here is subject to change after the GASB reviews comments submitted as part of the standard-setting process. The deadline for submitting written comments was September 13, 2019. The GASB is currently in the exposure draft redeliberating step, with the next step being the issuance of a final pronouncement.

About Philip Marciano

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Philip Marciano, CPA, CGMA, CGFM, Director in the Nonprofit, Government and Healthcare Group at Marks Paneth LLP, specializes in providing accounting and auditing services to clients within the nonprofit and government arenas. His experience includes engagements involving audit, attest and assurance services, Government Auditing Standards, Uniform Guidance, risk assessments, and internal control studies. Mr. Marciano regularly leads training sessions for professional staff within the firm and has given seminars on behalf of the New York... READ MORE +

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