Final GASB guidance on service concession arrangements: GASB Statement No. 60, which is scheduled to take effect no later than for the fiscal year that ends December 31, 2012, provides guidance on the appropriate accounting and financial reporting for public-private partnerships.
BACKGROUND AND SCOPE
An SCA is an arrangement whereby a government (transferor) turns over the operation of one of its capital assets (most often infrastructure) to a third-party operator in exchange for some form of consideration. The operator is then compensated from related fees and charges. Examples of an SCA would include:
* An arrangement to build a facility that will belong to the government in return for the right to collect fees from third parties;
* An arrangement to provide significant consideration to the government in return for the right to collect fees from third parties in connection with an existing facility; and
* An arrangement to build a facility that will be conveyed to the government at the end of the contract in return for the right to collect fees from third parties.
The new guidance applies to government-wide and proprietary fund financial statements, but not to the financial statements of governmental funds.
GASB Statement No. 60 directs that the capital asset underlying an SCA be treated like any other capital asset. If the operator constructs a new facility for the transferor (or improves an existing facility), the new facility (or improvement) should be reported at fair value as of the date it is placed into operation. If consideration from the operator takes the form of an installment contract, the contract should be reported as an asset at its discounted present value.
The transferor should report a liability for the present value of any significant obligation to sacrifice financial resources that meets either of the following criteria:
* The obligation relates directly to the facility (e.g., obligation to furnish insurance or to provide maintenance); or
* The obligation relates to a commitment by the transferor to maintain a minimum specific level of service in connection with the operation of the facility.
The difference between the consideration received and these liabilities (if any) should be reported as an inflow and recognized as revenue over the term of the agreement.
Sometimes a government is the operator in an SCA, rather than the transferor. If so, the consideration it provides to the transferor (e.g., cash payment, capital asset, improvements) should be treated as an intangible asset and amortized over the life of the agreement.
Sometimes an SCA allows the operator to keep only a portion of the fees and charges that it collects. In that case, the operator should report the total amount collected as revenue, and then report a separate expense for the amount conveyed to the transferor. Conversely, the transferor would report only its own share of the revenue.
GASB Statement No. 60 sets the following disclosure requirements for governments that are party to an SCA:
* A general description of the arrangement (including management's objectives) and the status of the project during the construction period;
* Nature and amounts of related assets, liabilities, and deferred inflows; * Rights retained and rights granted; and
* Guarantees and commitments.
STEPHEN J. GAUTHIER is director of the GFOA's Technical Center in Chicago, Illinois.
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|Title Annotation:||THE ACCOUNTING ANGLE|
|Author:||Gauthier, Stephen J.|
|Publication:||Government Finance Review|
|Date:||Jun 1, 2011|
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