(Discussion draft September 27, 2023)

U.S. airports are required to implement Governmental Accounting Standards Board (GASB) Statement No. 94 (GASB 94) Public-Private and Public-Public Partnerships (PPP) and Availability Payment Arrangements (APA) for fiscal years beginning after June 15, 2022. A PPP is defined as “… an arrangement in which a government (the transferor) contracts with an operator to provide public services by conveying control of the right to operate or use a nonfinancial asset, such as infrastructure or other capital asset (the underlying PPP asset), for a period of time in an exchange or exchange-like transaction.” This document includes a tentative discussion of the definition of “public service,” but has not been reviewed by GASB staff or other industry experts.

Public Service in GASB 94

Paragraph B6 mentions, “Some respondents to the Exposure Draft requested a definition of public services as that term is used in the definition of a PPP. The Board believes that governments understand that the services provided through a PPP are considered public services and that the term does not need to be defined.”

Paragraph B3 mentions, “The Board decided to define a PPP in this Statement as an arrangement in which a government (the transferor) contracts with an operator to provide public services by conveying control of the right to operate or use a nonfinancial asset, such as infrastructure or other capital asset, for a period of time in an exchange or exchange-like transaction.”

It is interpreted that “public service” in GASB 94 is not merely goods or services provided to the general public, such as by fast-food restaurants or grocery stores. Instead, public service are those services for public interests typically provided by a government.

Common Definitions of Public Service

Merriam-Webster defines “public service” as one of the three types:

1. the business of supplying a commodity (such as electricity or gas) or service (such as transportation) to any or all members of a community
2. a service rendered in the public interest
3. governmental employment

Wikipedia further strengthens the concept of public interest:

“A public service or service of general (economic) interest is any service intended to address specific needs pertaining to the aggregate members of a community. Public services are available to people within a government jurisdiction as provided directly through public sector agencies or via public financing to private businesses or voluntary organizations (or even as provided by family households, though terminology may differ depending on context). Other public services are undertaken on behalf of a government's residents or in the interest of its citizens. The term is associated with a social consensus (usually expressed through democratic elections) that certain services should be available to all, regardless of income, physical ability or mental acuity. Examples of such services include the fire brigade, police, air force, and paramedics (see also public service broadcasting).”

Therefore, it is interpreted that a public service is to address the public needs and interests as a necessity, and is typically provided by public section agencies. All illustrations used in GASB 94 are for toll roads, a variety of public roadway, which is an example of public service through a private-sector financing. Availability to the public, such as by a fast-food restaurant, does not meet the definition of public service.

Public Service at U.S. Airports

U.S. airports are primarily operated as enterprise funds of local governments, and provide both aeronautical uses and non-aeronautical uses. The airport financial operation is typically viewed as three cost centers: an airfield that is aeronautical use and is almost always breakeven, a terminal complex that is mixed use and is typically at a loss or breakeven, and a landside that is non-aeronautical and generates a profit.

• Airfield: constructing runways and taxiways is a public service because the airport operators have an obligation to keep the airport open for public as part of the grant assurance. Almost all airports set the landing fee rates to breakeven through a residual ratemaking, or at a slight loss through a compensatory ratemaking.
  • There could be many buildings on the airfield that are within the security perimeter.
    • An airport sponsor may build the facilities and charge both ground rents and building rents. Sometimes there is a minimum investment requirement.
    • A tenant may lease a piece of land and build their own facilities, and pay a ground rent to the airport sponsor. There is typically a minimum investment requirement.
  • Those buildings may be used by the private sector to (a) support their own operations, such as a cargo hangar or an aircraft maintenance hangar, (b) provide service to other airfield tenants, such as providing aircraft maintenance services to other tenants, or to tourists for helicopter tours, and (c) lease to other tenants for commercial activities.
  • An airport sponsor constructs those buildings primarily to provide a transportation infrastructure, although those buildings may generate a net profit. Therefore, construction of those buildings may be a public service. If a private sector decides to construct those buildings and lease to other tenants for a profit, it may be subject to PPP.
  • Otherwise, when an airport lease a land or land/building to other tenants with a minimum investment requirement, the tenants are not providing a public service.
• Terminal: the charge for aeronautical use of a terminal is almost always based on cost recovery methods, and results in a partial recovery of costs. The non-aeronautical use of a terminal in aggregate typically cannot cover the remaining costs, resulting in a net loss of the terminal.
  • Terminals are often referred to as part of the transportation infrastructure. Building a new terminal almost always results in a financial loss and deteriorating financial situations. However, many airport operators proceed to construct new terminals to accommodate air traffic demand as an economic engine to the local economy. Therefore, constructing a terminal to provide the infrastructure is considered a public service in this document
  • If a private company is hired to construct and operate a terminal, and to collect fees with the intention to generate a profit, that arrangement may be subject to PPP
  • When an airport leases some terminal space to airlines or other tenants to conduct business, and requires the tenants to have a minimum investment, it is not subject to PPP because the tenants are not providing a public service. Instead, they will be using the airport’s asset to provide commercial goods or commercial services.
• Landside: this is typically the only cost center that generates a profit, primarily due to parking and rental car operations.
  • An airport does not price the airport parking at breakeven as a public service. Instead, an airport sets the airport parking rates to be competitive against other modes of transportation, such as Transportation Network Companies (TNCs), taxis, or off-airport parking operators. Therefore, the airport parking is not a public service
  • Rental car operations are always provided by the private sector and are not public service
  • TNCs, taxis, and other commercial ground transportation operators are not providing a public service
  • Airport rail link is considered a transportation infrastructure, and is a public service
  • Free intra-terminal shuttle services, free automatic people mover facilities, or public busing for free or at a nominal fee, are likely public services

The conclusion of constructing runways, taxiways and public roadways as a public service is further supported by tax regulations. U.S. airports can issue Non-Alternative Minimum Tax (Non-AMT) bonds to finance airfield improvements (not including cargo or other hangars) and public roadways. Such bonds are called governmental purposes, and indicates that the financed projects are used to provide public service.

Terminals and other airfield buildings are primarily financed by the AMT bonds that are subject to AMT, but are still tax-exempt. This supports the argument that constructing such facilities to enable air transportation may be a public service.