Title: Public-Private Partnerships

Description: This podcast features FASAB staff members Robin Gilliam and
Domenic Savini, as they discuss important aspects of accounting for
public-private partnerships, also known as P3s, and the work FASAB has
completed on the P3s project to date. FASAB completed the first phase of
the P3s project in 2016 with the issuance of SFFAS 49, "Public-Private
Partnerships: Disclosure Requirements". Robin interviews Domenic on the
results of the first year's implementation of SFFAS 49 and what the
second phase, concerning measurement and recognition, may bring us in
the near future.

Released: September 1, 2020

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[Leigha Kiger:] Welcome to FASAB Bits and Bytes, your source for quick
takes and news from the Federal Accounting Standards Advisory Board. I'm
Leigha Kiger. Today, I'm with Robin Gilliam and Domenic Savini. Robin
Gilliam, a FASAB assistant director, is the project manager for the risk
reporting and MD&A projects and co-lead on the note disclosures project.
Domenic Savini, a FASAB assistant director, is the project manager for
the public-private partnership and land projects. He is also the
training and outreach coordinator. Today, Robin and Domenic will discuss
important aspects of accounting for public-private partnerships, also
known as P3s, and the work FASAB has completed on the P3s project to
date. P3s are arrangements or transactions that are off budget and off
balance sheet. FASAB completed the first phase of the P3 project in 2016
with the issuance of Statement of Federal Financial Accounting Standards
49, titled "Public-Private Partnerships: Disclosure Requirements". Now
we'll hear Robin interview Dom on the results of the first year's
implementation of SFFAS 49 and what the second phase, concerning
measurement and recognition, may bring us in the near future.

[Robin Gilliam:] Thank you, Leigha, and welcome, Dom. In phase one, the
Board took the approach to have agencies report on their P3s prior to
addressing measurement and recognition issues, to help identify the
specific types of arrangements, transactions, in need of such accounting
guidance. As such, have the fiscal year 19 disclosures aided the Board's
intention of identifying the types of P3s that could require
measurements and recognition guidance?

[Domenic Savini:] Thank you, Robin. Yes, I think they have. To begin
with, the Board didn't really want to issue any measurement and
recognition guidance without really knowing what types of P3s existed in
the federal community. So, to that extent, the disclosures have helped
us. We knew that we'd be getting, for example, P3s from the Department
of Defense on military-based housing projects, and on a pan-governmental
basis, energy savings performance contracts, but we really didn't expect
some other things that came up. For example, we saw P3s containing
licenses to private partners or simply, outleases of surplus or excess
land or property to private partners. Each of these will need to be
studied individually to see if additional guidance is, in fact,
warranted.

[Robin Gilliam:] Thank you, Dom. How would you rate the quality of the
disclosures so far?

[Domenic Savini:] Given that this is our first year that Standard 49 was
effective and that it was a principles-based document, we didn't
prescribe or suggest any specific reporting formats. I would say that
overall, the reporting is good, but needs to be tightened up a bit,
specifically in the following areas of what we have so far received. For
example, expected life determinations should be explained, even if it's
just a brief statement, but we really need to know more about how long
an agency believes the expected life of the P3 will last. Secondly, on
the energy savings contracts, we need to know the amounts of federal and
non-federal funding provided during the reporting period, as well as the
entire P3's expected life. Basically, in essence, need both. Another
thing, amounts which are expected to be received and paid over the P3's
expected life should be broken out from the reporting period in
question, compared to what they expect to be paid out and received, over
the entire P3's expected life. Some entities just provided the aggregate
amounts. Next, when identifying risks, entities need to do two things.
First, they have to note if the risks are deemed remote, and secondly,
they need to report on the private partner's potential risk and not just
what the agency sees its risk. For example, the risk it's retaining or
that it acknowledges. And lastly, related to risks of loss, we need a
description of the contractual risk that the agency incurs or has, and
the potential effect on cash flows, if the risks were, in fact,
realized.

[Robin Gilliam:] Thank you. Dom, how would agencies reach out to FASAB
to get help with P3 disclosures?

[Domenic Savini:] What you and Monica have done, changing and improving
our technical inquiry process, is probably the best format to deal with
helping agencies address these issues. But before even the TI process, I
would encourage agencies to, you know, give us an informal call for an
initial consultation. And then we can help assess if a formal technical
inquiry is needed. If so, we have an easy, web-based portal that, thanks
to you and Leigha and others here at FASAB, have been developed, to
submit questions, where we can get back to people, we think, in about
three to four weeks. And what they receive is a written, peer-reviewed
response that's reviewed by our Madam Executive Director, and they get
this in writing. It's a great way to really document how we see the
guidance playing out. And at the same time, I'd like to extend a
training invitation or opportunity to those interested in improving
federal financial management over P3s. You know, some people, including
even auditors, aren't sure what P3s are, and the potential huge risk
some of these P3 arrangements or transactions pose to their agencies. As
such, an education session could just not help improve awareness in the
field of these P3s, but they might help us identify areas where our
guidance can be improved. We've seen, far too often, the adverse effects
of the government not adequately reflecting its off-balance sheet risk
to the public. And then when it's too late, the public is left with the
tax bill. We owe it to our great country and people the most transparent
reporting possible in this regard.

[Robin Gilliam:] Absolutely, Dom. And for the last question, do you
think FASAB is ready to begin phase two of the P3 project?

[Domenic Savini:] I think a lot of this is certainly subject to our
technical agenda, which continually changes and evolves over time. But
given this COVID-19 pandemic and the crisis that we're dealing with,
that's really also brought up some interesting questions. Many of the
actions taken by the federal government have involved the use of private
partners. So, we have to stand prepared. So, notwithstanding any
potential change in the Board's direction concerning P3s and assuming
staff resources stay in place, I think we are ready, and I think you're
right in asking the question, because this may become a huge chunk of an
agency's reporting for this fiscal year. One of the things I want to
talk about here is too, we can also begin addressing some measurement
and recognition issues, while we address current disclosure issues. For
example, we have measurement and recognition issues regarding tangible
assets, whether these tangible assets should be measured or remeasured
at fair market value or fair value. Another consideration for
measurement and recognition is whether gains or losses on investments in
P3s should be accounted for annually, or do we just wait until the
culmination of the expected life of the P3, to basically tally up gains
and loses? These are questions we need to, you know, have answered.
Also, we can address the use of government licenses that may be given to
a private partner that has a cost associated with it, and it has a value
to the private partner. This is also something that we need to look at.
So, yes, I do think we're ready to address this, but I do believe, as
you suggest, Robin, we've got to look at our technical agenda and
consider the COVID-19 impact on our work.

[Robin Gilliam:] Thank you, Dom.

[Leigha Kiger:] Thank you for listening to FASAB Bits and Bytes. I'm
Leigha Kiger. For more from FASAB, please visit us at fasab.gov.

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