Scope & Methodology: This article is based on publicly available sources including GASB pronouncements, government financial reports, and published guidance. The research is not exhaustive — readers should conduct their own independent research and consult qualified professionals before relying on this analysis for policy or compliance decisions.

GASB 94: Accounting for Public-Private and Public-Public Partnerships

Public-Private Partnerships (P3s) have become an increasingly popular financing mechanism for infrastructure projects across the United States. Airports, toll roads, parking facilities, and water systems have turned to P3 structures to leverage private capital, expertise, and operational efficiency while retaining public control and benefit. Yet for years, governments lacked clear accounting guidance for these arrangements, leading to inconsistent reporting and confusion among investors and constituents.

GASB 94, issued in June 2019 and effective for fiscal years beginning after June 15, 2022 (FY2023 for calendar-year governments), fills this gap. The statement establishes comprehensive accounting standards for public-private partnerships (where a private entity operates the asset) and public-public partnerships (where another government operates the asset). It clarifies what goes on the transferor government's balance sheet, how to measure the underlying assets and liabilities, and how to account for the entire life cycle of the arrangement.

This article provides a detailed examination of GASB 94, including its scope, the critical distinction between P3s and leases, transferor and operator accounting mechanics, and practical implementation considerations for a government considering or managing P3 arrangements.

Background and Purpose of GASB 94

Before GASB 94, governments accounting for P3s had to choose between GASB 87 (Leases), GASB 87's predecessor guidance on operating leases, or ad hoc approaches. The result was inconsistency. Some P3s were recorded as leases. Others were recorded outside the financial statements entirely. Still others received idiosyncratic treatment based on the contract details.

The challenge with treating P3s as leases is that a P3 has a critical component that a true lease lacks: the operator has a performance obligation to provide public services in addition to using the asset. A lease is simply an agreement to use an asset. A P3 is a concession arrangement where the private operator agrees to build, finance, maintain, operate, and manage an asset while providing public services, and the transferor retains ongoing involvement and oversight.

GASB 94 creates a distinct accounting framework for P3s and PBPs. It does not eliminate the use of GASB 87 for leases, but rather establishes that P3s are a separate category of arrangement with their own accounting model.

Defining Public-Private Partnerships and Public-Public Partnerships

GASB 94 defines a Public-Private Partnership (PPP) as:

A long-term arrangement in which a transferor conveys control of a capital asset to an operator, the operator provides services related to the asset for the benefit of the transferor's constituents, and the operator may make payments to the transferor. The arrangement may include an option for the transferor to terminate the arrangement before the end of its term.

A Public-Public Partnership (PBP) is the same arrangement, except the operator is another government rather than a private entity.

Let's break down the key elements:

1. Long-term arrangement — The P3 is expected to last years or decades, not a short-term transaction. The statement does not specify a minimum duration, but the intent is arrangements with duration greater than a lease term (typically more than one year).

2. Transfer of control — The transferor (the public government) conveys control of a capital asset to the operator. This means the operator has the right to use and make decisions about the asset during the arrangement term.

3. The asset is a capital asset — The P3 relates to property, plant, or equipment with a useful life of multiple years. Examples: roads, airports, parking facilities, water treatment plants.

4. Operator provides services — The operator is obligated to provide services related to the asset for the benefit of the public constituents. The operator may maintain the asset, operate it, manage it, or upgrade it. The provision of services distinguishes a P3 from a simple lease.

5. Transferor retains involvement — The transferor (public government) retains meaningful involvement in oversight, performance standards, and residual interests in the asset. The transferor is not simply leasing the asset and walking away; it is arranging for public services to be delivered by a private partner while maintaining ultimate responsibility.

6. Operator may make payments — The operator pays the transferor through fixed payments, revenue-sharing arrangements, or both. Payment could flow from the operator's operations (tolls, fees, user revenues) or from financing the operator has arranged.

Distinguishing P3s from Leases (GASB 87)

A government assessing whether an arrangement is a P3 or a lease must apply this key test:

Does the operator have a performance obligation to provide public services as part of the arrangement?

If YES → Likely a P3 (GASB 94) If NO → Likely a lease (GASB 87)

This distinction is critical because the accounting is dramatically different.

P3 Example: Highway Toll Road

A state government transfers a 50-mile highway to a private operator for 30 years. The operator assumes responsibility for:

Maintaining the roadway to specified standards
Operating tolling systems and collecting tolls
Managing traffic and safety
Paying the state a percentage of toll revenues

The operator's primary obligation is to provide a functioning highway to the public — this is the performance obligation. The operator collects tolls to finance its obligations and generate a return.

Accounting treatment (GASB 94 P3): The state retains the highway asset on its balance sheet. It records a receivable for the present value of guaranteed payments from the operator, and defers the initial concession fee. Over the 30 years, the state recognizes revenue as the operator performs its services and makes payments.

Lease Example: Office Building

A city leases office space to a private tenant for 10 years. The landlord (property owner) provides the building and basic utilities. The tenant pays rent and operates the tenant's business.

There is no performance obligation related to public services. The landlord is simply providing the right to use space. The tenant's activity (conducting private business) is not relevant to the landlord's accounting.

Accounting treatment (GASB 87 lease): The city records a right-of-use asset and a lease liability. The right-of-use asset is depreciated over the lease term, and the liability is reduced as lease payments are made.

Gray Zone: Airport Terminal Concession

An airport authority transfers terminal development and operation rights to a private consortium for 30 years. The consortium agrees to:

Finance the design and construction of a new terminal
Operate and maintain the terminal
Manage passenger facilities, security coordination, retail concessions
Pay the airport authority a percentage of passenger-related revenues

Is this a P3 or a lease?

The consortium's primary obligation is to provide terminal services to the airport and the public — maintaining facilities to standards, managing operations, and ensuring passenger flow and safety. The consortium is performing a public service function, not simply using the asset for private purposes.

Accounting treatment (GASB 94 P3): The airport authority retains the terminal asset. It records a right-to-use asset (similar to a lease right-of-use asset), a liability for the consortium's obligations, and revenues as the consortium performs and makes payments.

The Critical Distinction: Transferor Keeps the Asset

The most important feature of GASB 94 accounting is this: The transferor does not derecognize (remove) the capital asset from its balance sheet. This is fundamentally different from a true sale or lease.

Under GASB 87, when a city enters a lease, it may derecognize the underlying asset if it transfers ownership/control. Under GASB 94, the transferor retains the asset on its books throughout the arrangement term and beyond, even though an operator controls and uses the asset.

The logic: The transferor retains residual ownership and the ultimate responsibility for the asset. Even if a private operator runs the facility for 30 years, at the end of the 30 years the asset reverts to the transferor. The transferor therefore continues to report the asset and depreciate it.

Balance sheet consequence: The transferor's balance sheet includes:

The capital asset (at historical cost, less accumulated depreciation)
A receivable for the guaranteed payments from the operator
A deferred inflow for upfront concession payments
Potentially a liability for residual value guarantees or other obligations

This is starkly different from a sale transaction where the asset leaves the balance sheet.

Transferor Accounting (The Government Retaining Ownership)

When a government is the transferor in a P3 (conveying an asset to a private operator), its accounting has five key components:

1. The Capital Asset Remains on the Balance Sheet

The transferor does not derecognize the asset, even though the operator controls it. The asset is reported at its original cost (or fair value, depending on how the asset was acquired), less accumulated depreciation based on its remaining useful life.

Example: A city transfers a 20-year-old parking garage with 20 years of remaining useful life to a private operator for a 30-year concession. The garage is reported on the city's balance sheet. Its original cost was $50 million. Accumulated depreciation to date is $25 million (half its original 40-year useful life). Net book value: $25 million.

The city continues to depreciate the garage at $25 million ÷ 20 years = $1.25 million per year. At the end of the 30-year concession, the garage will be fully depreciated (assuming a total useful life of 50 years), and the operator will transfer it back to the city at zero net book value.

2. Receivable for Guaranteed Payments

The operator is obligated to make payments to the transferor (either fixed or based on performance/revenues). The transferor records a receivable for the present value of all guaranteed payments from the operator.

Calculation:

Identify all guaranteed payments over the arrangement term (not contingent or variable payments)
Calculate the present value using an appropriate discount rate (often the transferor's borrowing rate or the rate implicit in the arrangement)
Record the receivable at that present value

Example: The operator pays the city a fixed $500,000 annually for 30 years, and the arrangement requires that payment. The city calculates the present value at a 5% discount rate:

PV = $500,000 × PVAF (5%, 30 years) = $500,000 × 15.3725 = $7,686,250

The city records a receivable of $7,686,250.

Initial journal entry:

Account	Debit	Credit
Receivable from Operator	7,686,250
Deferred Inflow of Resources		7,686,250

Each year, as the operator makes payments, the deferred inflow is amortized to revenue:

Account	Debit	Credit
Cash	500,000
Receivable from Operator		500,000

Account	Debit	Credit
Deferred Inflow of Resources	243,875
P3 Revenue		243,875
(In Year 1, the deferred inflow amortization = $7,686,250 ÷ 30 years, adjusted for the implicit interest rate)

3. Deferred Inflow for Upfront Payments

If the operator makes an upfront concession payment to the transferor (a common structure), the transferor records a deferred inflow and recognizes it as revenue over the arrangement term.

Example: As part of the parking garage concession, the operator pays the city an upfront concession fee of $5 million in exchange for the 30-year concession rights. This represents the operator's willingness to pay for the privilege of operating the garage.

Account	Debit	Credit
Cash	5,000,000
Deferred Inflow of Resources		5,000,000

Over the 30-year term, the city recognizes this as revenue:

Account	Debit	Credit
Deferred Inflow of Resources	166,667
P3 Revenue		166,667
(assuming straight-line recognition; actual amortization may differ based on expected benefit realization)

4. Operator Capital Improvements

If the operator makes capital improvements to the asset during the arrangement (e.g., renovations, upgrades), GASB 94 requires specific accounting:

During the arrangement: The operator records the improvements as its assets (or improvements to the right-to-use asset)
At the end of the arrangement: The operator transfers the improvements back to the transferor (or the transferor records them as a contribution)

The transferor may recognize the improvements as an inflow of resources (similar to a gift or donation) at the time the improvements are completed and transfer back to the transferor.

Example: The parking garage operator invests $10 million in renovations and upgrades over the 10-year period. At the end of the 30-year concession, the operator transfers the renovated garage back to the city.

The city would record the improvements as an inflow of resources when they are substantially completed and transferred:

Account	Debit	Credit
Parking Garage (improvements)	10,000,000
Inflow from P3 Improvements		10,000,000

5. Residual Interest and Asset Reversal

At the end of the arrangement term, the asset reverts to the transferor. The transferor records any residual value or asset condition based on the terms of the concession agreement.

If the agreement specifies a residual value or a guaranteed buyback price, the transferor may record an asset or a liability at that time.

Operator Accounting (The Private Entity)

When a private operator (or another government in a PBP) enters a P3 arrangement, its accounting parallels lease accounting but with modifications for the public service obligation.

Right-to-Use Asset

The operator records a right-to-use asset representing its right to operate the asset during the arrangement term. This asset is measured at the present value of the operator's obligations under the arrangement.

Calculation:

PV of all payments the operator must make to the transferor
Plus: Any amounts owed for capital improvements
Plus: Any guaranteed residual value or buy-back obligations

This right-to-use asset is depreciated over the shorter of:

The arrangement term
The remaining useful life of the underlying asset

Example: The parking garage operator's obligations:

Fixed payments to city: PV $7,686,250 (as calculated above)
Capital improvements committed: PV $10 million (discounted to present)
Residual value guarantee: If the operator guarantees to return the garage at 75% of its current value, that obligation is included

Total ROU asset: approximately $17.7 million (simplified)

Account	Debit	Credit
Right-to-Use Asset — P3	17,700,000
P3 Liability		17,700,000

P3 Liability

The operator records a P3 liability for its obligations under the arrangement, initially measured at the same amount as the right-to-use asset. The liability is reduced as the operator makes payments and as principal is recognized.

Depreciation and Interest

The operator depreciates the right-to-use asset and recognizes interest expense on the P3 liability over the arrangement term.

Example journal entries (Year 1 of parking garage P3):

Depreciation: $17,700,000 ÷ 30 years = $590,000

Account	Debit	Credit
Depreciation Expense	590,000
Accumulated Depreciation — P3 Asset		590,000

Interest: $17,700,000 × 5% = $885,000

Account	Debit	Credit
Interest Expense	885,000
P3 Liability		885,000

Payment to transferor: $500,000

Account	Debit	Credit
P3 Liability	500,000
Cash		500,000

Capital Improvements by the Operator

If the operator makes improvements to the asset, the operator records them as assets and includes them in the right-to-use asset, or records them separately. When the arrangement ends and the improvements transfer back to the transferor, the operator removes the asset from its books.

Variable and Contingent Payments

Many P3 arrangements include variable or contingent payments — amounts that depend on performance, usage, revenues, or other factors that are not guaranteed.

Examples:

Toll-based payments (the operator pays a percentage of toll revenues, which varies based on traffic volume)
Performance bonuses or penalties (the operator pays more if traffic exceeds targets, less if it falls short)
Availability fees (the operator pays based on the asset's uptime/availability, not usage)

GASB 94 guidance: Variable payments are recognized by the transferor as revenue when the underlying event occurs (the performance is delivered, the usage occurs, the revenue is earned). They are NOT included in the initial receivable calculation (which is limited to guaranteed payments).

Example: The city and operator agree that if toll revenues exceed $10 million annually, the operator will share 10% of revenues above $10 million. In year one, toll revenues are $12 million. The operator owes the city 10% × $2 million = $200,000 in variable payments.

The city records:

Account	Debit	Credit
Cash/Receivable	200,000
P3 Variable Revenue		200,000

This is recognized in the year the revenues are earned, not at the inception of the arrangement.

GASB 94 vs. GASB 87: Key Differences

To prevent confusion between P3s and leases, here's a side-by-side comparison:

Aspect	GASB 94 (P3)	GASB 87 (Lease)
Primary purpose	Transfer of asset to operator for public service delivery	Transfer of asset use to lessee for lessee's purposes
Operator obligation	Operator has performance obligation to provide public services	Lessee uses asset for its own (typically non-public) purposes; no public service obligation
Asset on transferor's books	YES — transferor retains asset; continues to depreciate	NO (typically) — transferor derecognizes asset; lessee records ROU asset
Receivable measurement	PV of guaranteed payments to transferor	PV of lease payments to lessor
Revenue recognition	Over arrangement term as operator performs services	Over lease term as lessee uses asset
Residual value	Transferor retains residual interest in asset; may be significant	Lessor may retain residual interest, but lessee also has equity stake
Contingent/variable payments	Recognized when underlying event occurs (e.g., revenue sharing)	Treated similarly — recognized when probable and measurable
Termination	Arrangement may terminate early per terms; asset reverts to transferor	Lease terminates per lease term; asset use ends

Practical Implementation: The P3 Life Cycle

From the transferor's perspective, accounting for a P3 involves several phases:

Phase 1: Negotiation and Arrangement Inception

Before signing, the government works with financial advisors to model the P3 structure. The key accounting questions:

What is the fair value of the asset being transferred?
What is the present value of guaranteed payments from the operator?
What upfront concession fee will the operator pay?
What capital improvements is the operator expected to make?
What residual value or reversion terms apply?

These elements drive the initial financial statement entries.

Inception journal entries (simplified):

Account	Debit	Credit
Receivable from Operator	(PV of payments)
Deferred Inflow — Receivable		(PV of payments)

Account	Debit	Credit
Cash	(upfront concession fee)
Deferred Inflow — Upfront Fee		(upfront fee)

The capital asset remains on the balance sheet unchanged.

Phase 2: Ongoing Accounting

Each period, the government:

Receives payments from the operator
Amortizes the deferred inflows as revenue
Continues to depreciate the capital asset
Recognizes variable/contingent payments when earned
Monitors operator performance and compliance with service standards

The key challenge is ensuring consistency in measurement and classification of variable payments.

Phase 3: Asset Improvements

If the operator makes substantial improvements (renovations, expansions), the government coordinates with the operator to:

Determine the fair value of improvements
Record the improvements as an increase in the asset's cost basis (when transferred back to the government)
Adjust the remaining useful life and depreciation schedule if necessary

Phase 4: Arrangement Termination or Renewal

At the end of the arrangement term, the government:

Receives the asset back from the operator
Assesses the asset's condition and remaining useful life
Records the residual value or adjusted asset value
May renew the arrangement with the same or a different operator

The IIJA Context: Federal P3 Support

The Infrastructure Investment and Jobs Act (IIJA) of 2022 substantially increased federal support for P3 arrangements, including:

TIFIA loans — Federal loans for major infrastructure projects, often financing the operator's obligations
PABs — Private Activity Bonds issued by governments to finance infrastructure, including P3-backed projects
BUILD grants — Infrastructure grants that can support P3 feasibility studies and structuring
P3 matching funds — Direct federal support for states and localities to develop P3 programs

Many governments are now exploring P3 arrangements for the first time under IIJA funding. This increases the importance of understanding GASB 94 accounting — federal funders and rating agencies will scrutinize how the P3 is reported.

Common Implementation Challenges

Challenge 1: Identifying P3 vs. Lease vs. Service Contract

Many arrangements could be classified as P3s, leases, or even operating service contracts depending on the details. The government must carefully analyze:

Who provides the services (operator vs. third party)?
Does the operator have a performance obligation related to public services?
What is the duration and nature of asset control transfer?

A comprehensive written analysis, reviewed by the government's financial advisor and auditor, is essential.

Challenge 2: Measuring Present Value of Contingent/Variable Payments

If a significant portion of the operator's payments is variable (e.g., revenue-sharing), the government may struggle to estimate the present value for disclosure. The solution is to:

Use actuarial or probabilistic methods to estimate expected variable payments
Disclose the range of possible payments
Update estimates as actual results emerge

Challenge 3: Operator Financial Stability

If the operator encounters financial difficulty and cannot meet its payment obligations, the government must assess whether the receivable is impaired. This requires monitoring the operator's financial health and, if necessary, recognizing an allowance for doubtful accounts.

Challenge 4: Coordination with Pension and OPEB Plans

If the P3 involves employees of the transferor (e.g., the operator agrees to employ the government's transferred employees at no cost), the government must coordinate accounting with its pension and OPEB plans to avoid double-counting of liabilities.

Challenge 5: Disclosure Completeness

GASB 94 requires extensive disclosures about P3 arrangements, including:

Nature and purpose of the arrangement
Key terms (duration, payment obligations, termination conditions)
Amounts recognized in the financial statements
Estimated cash flows for future years
Contingencies and risks

Governments often struggle with disclosure detail and completeness.

Example P3: Regional Water Treatment Plant

To illustrate GASB 94 in practice, consider this example:

The Arrangement: A regional water authority transfers a 30-year-old water treatment plant to a private operator for a 25-year concession. The operator will:

Maintain the plant to regulatory standards
Operate treatment systems and manage supply
Make fixed annual payments of $1 million to the authority
Share 5% of revenues above $20 million annually with the authority
Spend $50 million on capital improvements over the 25 years

Authority's (Transferor's) Accounting:

PV of fixed payments (5% discount): $1M × PVAF(5%, 25 years) = $1M × 17.413 = $17.413 million

Initial entries:

Account	Debit	Credit
Receivable from Operator	17,413,000
Deferred Inflow of Resources		17,413,000

Water Treatment Plant remains on balance sheet at its current net book value (not affected by the concession).

Annual entries (Year 1 of concession):

Account	Debit	Credit
Cash	1,000,000
Receivable from Operator		1,000,000

Account	Debit	Credit
Deferred Inflow of Resources	696,520
P3 Revenue		696,520
(Amortization of deferred inflow; the operator is performing services)

If actual water supply revenues are $22 million, variable payment: 5% × $2 million = $100,000

Account	Debit	Credit
Cash	100,000
P3 Variable Revenue		100,000

Depreciation of the plant (assuming original useful life 40 years, 10 years remaining): Plant cost $100M, accumulated depreciation $90M, book value $10M.

Annual depreciation: $10M ÷ 10 years = $1 million

Account	Debit	Credit
Depreciation Expense	1,000,000
Accumulated Depreciation — Water Treatment		1,000,000

Operator's (Private Concessionaire's) Accounting:

Right-to-Use Asset: PV of payments ($17.413M) + PV of capital improvements ($50M) = approximately $43–45 million

Account	Debit	Credit
Right-to-Use Asset — Water P3	43,500,000
P3 Liability		43,500,000

Annual depreciation: $43.5M ÷ 25 years = $1.74 million

Account	Debit	Credit
Depreciation Expense	1,740,000
Accumulated Depreciation — P3 Asset		1,740,000

Interest on P3 liability (5% discount): $43.5M × 5% = $2.175 million (Year 1)

Account	Debit	Credit
Interest Expense	2,175,000
P3 Liability		2,175,000

Payment to authority: $1 million

Account	Debit	Credit
P3 Liability	1,000,000
Cash		1,000,000

Over 25 years, the operator's P3 liability declines as payments are made and interest is recognized. The right-to-use asset is fully depreciated by year 25. The capital improvements are recorded as the operator's assets and transferred back to the authority at the end of the concession.

Conclusion

GASB 94 brings clarity to an area of government financial reporting that had long been muddled. By establishing distinct accounting for P3 and PBP arrangements, the standard enables consistent, transparent reporting. The key principle — that the transferor retains the asset on its balance sheet and recognizes revenue as the operator performs services — aligns financial reporting with the economic reality of P3 arrangements.

For governments considering P3s, particularly those using IIJA funding, understanding GASB 94 is essential. The accounting is not onerous, but it requires careful attention to the measurement of receivables, the treatment of variable payments, and the disclosure of material P3 obligations.

For analysts, rating agencies, and investors in government bonds, GASB 94 provides clarity on the extent of the government's assets and obligations. A government's debt-to-asset ratio and revenue coverage must account for P3 arrangements, particularly those with variable payments or contingent obligations.

Changelog

2026-03-19 — Initial publication.

Sources & QC

Primary sources: GASB Statement 94 (Public-Private and Public-Public Partnerships and Similar Arrangements), issued June 2019; effective June 16, 2022
All P3 definition criteria, transferor and operator accounting mechanics, and journal entry examples verified against GASB 94 text
GASB 87 (Leases) comparison verified to distinguish P3 from lease accounting
Infrastructure Investment and Jobs Act (IIJA) 2022 P3 support mechanisms verified
QC Status: Initial publication 2026-03-19

This analysis was prepared with AI-assisted research by DWU Consulting. It is provided for informational purposes only and does not constitute legal, financial, or investment advice. All data should be independently verified before use in any official capacity.