Statement No. 60…to address your Service Concession Arrangements (SCAs)
Is your government in a Service Concession Arrangement (SCA) or thinking about entering one in the near future? If you answer yes, then pay attention to the new requirements of Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, issued on December 16, 2010 by the Governmental Accounting Standards Board (GASB).
Statement 60 addresses how to account for and report service concession arrangements (SCAs). The Statement describes an SCA as a long-term arrangement in which a government (the “transferor”) engages a company or another governmental entity (the “operate”) to provide public services through the use of infrastructure in return for the right to collect fees from users of that infrastructure such as a toll road, hospital or student housing.
To apply Statement 60, let’s assume that your government (“transferor”) has just entered into an arrangement with a private company (“operator) to build and operate a city parking garage and collect fees from those who park in it for 50 years. The operator paid $40 million as an upfront payment to your government for the right to operate the parking garage. To note, your government still maintains control over the services provided such as the right to modify or approve the rates that can be charged or the type of services that can be provided.
Per Statement 60, your government, the transferor should report the city parking garage as a capital asset at fair value when the parking garage is placed in operation. In addition, any related contractual obligation under the arrangement should be reported as a liability. The difference between those two amounts should be reported as a deferred inflow of resources. GASB defines deferred inflow of resources as “an acquisition of net assets by the government that is applicable to a future reporting period.”
Accordingly, the $40 million upfront payment your government received would not be recorded as revenue in the first year of the agreement, but instead, your government would recognize the difference between the upfront payment and any contractual obligations under the agreement as a deferred inflow of resources. Your government would then recognize revenue by amortizing the deferred inflow over the term of the agreement, which in our example is 50 years.
On the operator's end, the $40 million upfront payment for the right to operate the parking garage would be recorded at cost as an intangible asset. Any improvements to the facility during the term of the arrangement should increase the operator's intangible asset provided the improvements increase the capacity or efficiency of the facility. Similar to the accounting for the transferor's deferred inflow of resources above, the intangible asset should be amortized over the term of the arrangement, that is 50 years in our example.
For disclosure purposes, Statement 60 requires a general description of the arrangement including your government’s reasons for entering into it, information about the nature and amounts of associated assets and liabilities, the rights granted and retained by the transferor, and related guarantees and commitments. Multiple SCAs would either be reported individually by arrangement, or aggregated if they have similar facilities and risks.
The requirements of Statement 60 are effective for financial statements for periods beginning after December 15, 2011. Retroactive application is required for all periods presented. More information can be found at www.gasb.org. Please contact me if you have any questions/concerns or simply need help with evaluating and applying this standard.
