GASB 94: Key Questions Answered on P3s, SCAs, and APAs
May 22, 2023
Over the last year, governmental financial statement preparers’ attention has shifted from Leases to subscription-based IT arrangements (SBITAs), leaving some to wonder about Public-Private Partnerships (P3s). The Governmental Accounting Standards Board (GASB) Statements 87, 94 and 96 are all based on the underlying concept that leases, P3s and SBITAs are all financings of the rights to control someone else’s assets. While most of the attention is being paid to Leases and SBITAs, we answer some key questions about GASB Statement 94 below.
What Is a Public-Public or Public-Private Partnership (P3 or PPP)?
A P3 is a very broad concept without a single widely accepted definition. In its broadest sense, a vendor/customer relationship with a government can be considered a P3. A lease might also be considered a P3. GASB 60 provides guidance for service concession arrangements, very narrowly defined P3s.
GASB 94 provides a “for purposes of applying this statement” definition. This technical definition is consistent with the definition of a lease in GASB 87 and a SBITA in GASB 96 (without the use of the word “control” for service concession arrangements to be included),but isn’t consistent with how the non-accounting world defines P3s. In plain English, a GASB 94 P3 is an arrangement in which an operator (usually a private company, sometimes another government) pays a government for the right to provide a public service. That payment can be made in cash, with a new or improved asset, or both. The operator then collects the fees for providing their service. This is beneficial for the government because the service is being provided without an additional lift. The operating risk is taken by or shared with someone else.
Where Do Service Concession Arrangements Fit In?
The GASB issued Statement 60 because governments were receiving millions of dollars up front for arrangements, but had no guidance on how to recognize and report them. Looking back, GASB 60 may have been too narrowly focused on P3s where the government maintains control of the services provided and the rates charged. GASB 94 now expands the scope of GASB 60 with some tweaks to maintain consistency with GASB 87 guidance wherever possible. For simplicity, GASB 94 completely supersedes GASB 60 instead of amending it, but much of the guidance for service concession arrangements remains largely intact.
What Common Examples of P3s Fall Within the Scope of GASB 94?
GASB 94 is one of the few pronouncements that provides illustrations, which highlight common examples of P3s:
- A state DOT (government transferor) enters into an arrangement with a tollway authority (government operator) to operate and maintain a toll road.
- A state DOT enters into an arrangement with a tunnel authority to design, build and operate a tunnel.
- A state DOT enters an arrangement with a bridge authority to design, build and operate a toll bridge.
With GASB’s provided examples, it’s clear that a P3 often involves the construction and operation of a major infrastructure asset with the capacity of generating revenue.
Which Types of Entities Are Most Likely To Enter P3 Arrangements?
In addition to the state DOT examples referenced above, you might see P3s with airports building terminals, university systems providing student housing, university hospitals needing imaging equipment, or the building and operating of a stadium or concert hall. A private developer will build dormitories, collect room and board from students for a period, and then give the building back to the university after the arrangement ends. The capital asset is the compensation paid to the university for the developer’s right to provide the housing. When university hospitals enter P3s to obtain imaging equipment, the private partner brings in the equipment and collects fees from patients for a period. In both cases, the arrangement may meet the definition of a service concession arrangement depending on how the arrangement is contracted.
What Are Availability Payment Arrangements (APAs)?
An APA is an arrangement in which a government pays an operator for providing services. The services provided may include designing, constructing, financing, maintaining or operating a nonfinancial asset. The primary difference between an APA and a P3 is that for an APA, the government retains demand risk (the potential for loss due to demand not meeting expectations) and responsibility for fee collection. The accounting treatment of APAs is uncomplicated, but the GASB identifies them separately from P3s to emphasize that they are two different types of arrangements. An APA might be an arrangement in which a management company operates a parking facility or a firm designs and builds a sports arena.
How Cherry Bekaert Can Help
Cherry Bekaert’s Government and Public Sector Accounting Advisory team provides a comprehensive GASB-as-a-Service offering that helps governments overcome staffing and technical challenges. We have a dedicated team of professionals who only provide governmental accounting advisory services for governments with the confidence that their needs will not be placed second to competing audit regulatory deadlines.