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Business and Policy Areas
Business and Policy Areas

GASB Issues Proposal Addressing Public-Private and Public-Public Partnerships

July 23, 2009

GASB Issues Proposal Addressing Public-Private and Public-Public Partnerships

The Governmental Accounting Standards Board (GASB) has issued an exposure draft of a proposed statement, "Accounting and Financial Reporting for Service Concession Arrangements." The proposed statement would establish accounting and financial reporting requirements for arrangements between governments and private entities, and among multiple governmental entities. The most typical arrangements in higher education are agreements between public institutions and private companies to run auxiliary activities such as dormitories and book stores. The deadline for submitting written comments is September 30, 2009.

A service concession arrangement (SCA) is an arrangement between a government (the transferor) and an operator in which:

  • The transferor conveys to an operator the right and related obligation to provide services through the use of infrastructure or another public asset (such as a facility).
  • The operator collects fees from third parties.

The proposal provides guidance on:

  • Determining whether the transferor should report the facility subject to the SCA as its capital asset.
  • Upfront or installment payments related to the SCA.
  • Financial reporting for governments acting as operators in an SCA.
  • How the provisions of this statement should be applied in financial statements of state and local governments that are prepared using the economic resources measurement focus.

This exposure draft amends NCGA (National Council on Governmental Accounting) Statement 5, "Accounting and Financial Reporting Principles for Lease Agreements of State and Local Governments," paragraph 11, to exclude arrangements meeting the definition of an SCA from the scope of that statement.

The primary concern regarding an SCA is whether the government (transferor) should report the facility subject to the SCA as a capital asset. The proposed statement offers specific criteria to determine whether a transferor has control over the facility. If the transferor meets all control criteria, it would report the facility as its capital asset, subject to existing guidance for capital assets.

Transferors with existing facilities that meet proposed SCA criteria would report the existing facility at its current carrying amount. If the transferor does not meet the service-related control criteria, it would derecognize any existing facility and report only a residual interest in the facility. The amount of the residual interest in an existing facility would be determined based on its carrying amount. The amount of the residual interest in a new or improved facility would be determined based on its fair value.

This proposed Statement also provides guidance for governments that are operators in an SCA. The governmental operator would report an intangible asset at cost for its right to access the facility and collect third-party fees. For revenue sharing arrangements, the exposure draft would require that governmental operators report all revenues and expenses, unless they are functioning as an agent for the transferor. The proposal would require disclosures about an SCA.

All provisions of the proposed standard would be applied retroactively for presented reporting periods. The proposed effective date is for financial statements for periods beginning after June 15, 2011 - or fiscal 2012 for the vast majority of public institutions.


Sue Menditto
Director, Accounting Policy