ctcLink Accounting Manual | 40.60.50 Public-Private and Public-Public Partnerships, and Availability Payment Arrangements

Public-Private and Public-Public Partnerships (PPPs) are arrangements in which a government (the transferor) contracts with an operator (a governmental or non-governmental entity) to provide public services by conveying control of the right to operate or use a nonfinancial asset for a period of time in an exchange or exchange-like transaction.

Some PPPs are Service Concession Arrangements (SCAs). An SCA is a PPP arrangement between a transferor and an operator in which ALL the following criteria are met:

1. The government (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 upfront payment, instalment 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 the 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.

40.60.50.2.a PPP Term

The PPP term is the period during which an operator has a noncancelable right to use an underlying PPP asset, including any periods covered by:

• The option to extend the PPP if it is reasonably certain that option will be exercised
• The option to terminate the PPP if it is reasonably certain that option will not be exercised.

Periods for which both the operator and the transferor have an option to terminate the PPP without permission from the other party (or if both parties have to agree to extend) are cancelable periods and are excluded from the PPP term. Provisions that allow for termination of a PPP due to either payment of all sums due or default on payments are not considered termination options.

40.60.50.2.b PPPs that are Leases

If a PPP meets the definition of a right-to-use lease (refer to CLAM 40.60.10) and IF ALL the following criteria are met, account for the PPP as a right-to-use lease:

1. Existing assets of the transferor are the only underlying PPP assets.
2. Improvements to those existing assets are not required to be made by the operator as part of the PPP arrangement.
3. The PPP does not meet the definition of a service concession arrangement (SCA).

40.60.50.2.c PPPs Not Leases or SCAs

The transferor accounts for a PPP that does not meet the definition of a right to use lease and is not a service concession arrangement (SCA) as follows:

1. If an underlying PPP asset is an existing asset of the transferor, at the commencement of the PPP term,
   1. Continue to recognize the underlying PPP asset at its carrying value.
   2. Record a receivable for installment payments, if any, to be received in relation to the PPP and a deferred inflow of resources.
   3. In addition, if improvements to the asset that meet the state’s capitalization policy are required to be made by the operator, when the improvements are placed into service, record an asset for the improvements at acquisition value and a deferred inflow of resources.
   4. Apply all other accounting and financial reporting requirements relevant to the underlying PPP asset, including depreciation and impairment. However, if the PPP arrangement requires the operator to return the underlying PPP asset in its original condition, the transferor should not depreciate the asset during the PPP term.
2. If the underlying PPP asset is a new asset purchased or constructed by the operator, when the asset is placed into service, record:
   1. A receivable for the underlying PPP asset based on the operator’s estimated carrying value of the underlying PPP asset as of the expected date of the transfer in ownership from the operator and a deferred inflow of resources.
   2. A receivable for installment payments, if any, to be received in relation to the PPP and a deferred inflow of resources.

40.60.50.2.d Service Concession Agreement PPPs

If a PPP meets the definition of an SCA and the underlying PPP asset is a new asset purchased or constructed by the operator, when the asset is placed into service, the transferor records an asset at acquisition value for the purchased or constructed underlying PPP asset and a deferred inflow of resources.

In addition, at the commencement of the PPP term, the transferor records a receivable for installment payments, if any, to be received in relation to the PPP and a deferred inflow of resources.

Availability payment arrangements (APAs) are arrangements in which a government compensates an operator for activities that may include designing, constructing, financing, maintaining, or operating an underlying nonfinancial asset for a period of time in an exchange or exchange-like transaction. The payments by the government are based entirely on the asset’s availability for use rather than on tolls, fees, or similar revenues or other measures of demand.

In an APA, a government procures a capital asset or service rather than receiving compensation to allow another entity to provide public services. In contrast to a PPP, the other party to an APA is receiving compensation from the government based entirely on availability to perform and not the actual performance of a public service.

40.60.50.3.a Types of APAs

An APA or components of an APA that are related to the design, construction, or financing of a nonfinancial asset in which ownership of the asset transfers to the state by the end of the contract, should be recorded as a financed purchase of a capital asset.

An APA or components of an APA that are related to providing services for the operation or maintenance of a non-financial asset should be expensed in the period to which the payments relate.

An APA that contains both (a) a component related to the design, construction, or financing of a nonfinancial asset and (b) a component related to providing services for the operation or maintenance of a nonfinancial asset should generally be accounted for as separate contracts.

Colleges should contact SBCTC for more details and assistance if the need arises to record either PPPs or APAs.