Policy References:

GASB Codification Section L20 – Leases (comprised of guidance primarily from the following original pronouncements: NCGA Statement 5 - Accounting and Financial Reporting Principles for Lease Agreements of State and Local Governments; GASB Statement 13 - Accounting for Operating Leases with Scheduled Rent Increases; GASB Statement 38 - Certain Financial Statement Note Disclosures, paragraph 11; GASB Statement 60 - Accounting and Financial Reporting for Service Concession Arrangements, paragraph 7; GASB Statement 62 - Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, paragraphs 211-271; and GASB Statement 65 - Items Previously Reported as Assets and Liabilities, paragraphs 7, 16, 17 and 18).

Note: The Governmental Accounting Standards Board (GASB) issued a new standard on Leases (GASB Statement (GASBS) 87 – Leases) in June 2017, which will fully supersede the existing guidance in GASB Codification Section L20. GASBS 87 will be effective in the State’s fiscal year beginning April 1, 2022 and will result in significant changes to the financial reporting of leases. To assist you with the changes related to implementing this standard, this section of the GFO has been updated to include future requirements applicable upon implementation of GASBS 87. Revisions to Section XVI.4.O which will be effective April 1, 2022 follows the current active text, and Section XVI.4.1A has been added to address Lease reporting procedures. Future sections will be added for Lease-Like Agreements as those applicable standards are implemented.

Process and Document Preparation:

A lease is defined as an agreement conveying the right to use property or equipment for a stated period of time.

The major policy issues concerning leases of New York State are:

• Accounting and financial reporting for capital leases and operating leases
• The impact of the provision of cancellation of State-governmental lease obligations in the event funds are not appropriated

ACCOUNTING AND FINANCIAL REPORTING FOR LEASE TRANSACTIONS

If, at its inception, a lease meets one or more of the following four criteria, that lease must be classified and accounted for as a capital lease:

1. By the end of the lease term, ownership of the leased property is transferred to the lessee (the State).
2. The lease contains a bargain purchase option (a provision allowing the State, at its option, to purchase the leased property for a price that is sufficiently lower than the expected fair value of the property at the date the option becomes exercisable).
3. The lease term is substantially equal (75% or more) to the estimated remaining useful life of the leased property and was not entered into within the last 25% of the original useful life.
4. At the inception of the lease the present value of the minimum lease payments is 90% or more of the fair value of the leased property, unless the lease was entered into within the last 25% of the original useful life.

All leases entered into with the State as the lessee that meet any one of the four criteria above should be reported as a capitalized lease. Leases that do not meet any of the four capital lease criteria above should be accounted for as operating leases.

CAPITAL LEASES

The State has entered into lease contract agreements with private vendors to finance various capital lease transactions. The long-term lease-purchase rental payments are reported as a long-term liability in the Government-wide financial statements.

Footnote disclosures for lease-purchase contracts require future minimum lease payments, as of the date of the latest balance sheet presented, for each of the five succeeding fiscal years and in five-year increments thereafter, with separate deductions from the total for: (1) the amount representing executory costs, including any profit thereon, included in the minimum lease payments; and for (2) the amount of the imputed interest necessary to reduce the net minimum lease payments to present value.

OPERATING LEASES

The State is also committed under numerous operating leases covering real property and equipment. For operating leases, the total rental payments should be charged as expenditures in the period in which the rent is incurred. In addition, for operating leases having initial or remaining non-cancellable lease terms in excess of one year the following information will be disclosed in a footnote in the State's financial statements:

• Future minimum rental payments required, as of the date of the latest balance sheet presented, for each of the five succeeding fiscal years, and any additional amount in five-year increments.
• The total of minimum rentals to be received in the future under non-cancellable subleases as of the date of the latest balance sheet presented.
• Total rental payments made during the fiscal year for all operating leases.

IMPACT OF CANCELLATION PROVISIONS

Most State leases contain provisions whereby the lease is canceled if funds to meet obligations under the lease are not appropriated. The contractual language making such lease contracts void if funds to meet the State obligations are not appropriated are generally more legal in form than substance. In most situations, the lease is renewed through the appropriation to the lessee agency of its annual operating budget. Additionally, the appropriations required to fund the lease obligations are made under the going concern theory. Thus, cancellation of a lease due to non-appropriation of funds must be considered a remote contingency. A lease shall be considered non-cancellable for purposes of the lease definition regardless of the possibility of the occurrence of some remote contingency.

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SECTION APPLICABLE EFFECTIVE APRIL 2022

Policy References:

GASB Statement (GASBS) 87 – Leases

This Statement increases the usefulness of governments’ financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset.

GASBS 94 – Public-Private and Public-Public and Availability Payment Arrangements

The primary objective of this Statement is to improve financial reporting by addressing issues related to public-private and public-public partnership arrangements (PPPs). As used in this Statement, a PPP is an arrangement in which a government (the transferor) contracts with an operator (a governmental or nongovernmental entity) 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.

Some PPPs meet the definition of a service concession arrangement (SCA), which the Board defines in this Statement as a PPP in which the operator collects and is compensated by fees from third parties; 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; and the transferor is entitled to significant residual interest in the service utility of the underlying PPP asset at the end of the arrangement.

This Statement also provides guidance for accounting and financial reporting for availability payment arrangements (APAs). As defined in this Statement, an APA is an arrangement in which a government compensates an operator for services 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.

GASBS 96 – Subscription-Based Information Technology Arrangements

This Statement provides guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs) for government end users (governments). This Statement defines a SBITA; establishes that a SBITA results in a right-to-use subscription asset—an intangible asset—and a corresponding subscription liability; provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and requires note disclosures regarding a SBITA.

A SBITA is defined as a contract that conveys control of the right to use another party’s (a SBITA vendor’s) information technology (IT) software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction.

Background:

The GASB issued Statements 87, 94 and 96 in June 2017, March 2020 and May 2020, respectively. Each of these statements provide the standard on the proper accounting and reporting for specific types of assets when the right to use the asset is conveyed to another party. New York State will adopt these standards in fiscal year 2022-2023 for GASBS 87 and fiscal year 2023-2024 for GASBS 94 and 96. To the extent relevant, GASBS 94 and 96 build upon the concept in GASBS 87 where the underlying agreement is a lease-like agreement for use of the underlying asset(s).

Process and Document Preparation:

Specific guidance for each of these individual statements is included in the following sub-segments of this guide. Overall, it is the responsibility of each applicable Agency and Reporting Entity to be aware of the requirements of these standards, review and document the applicability of all lease or lease-like agreement to the elements of the standard and to report to OSC all required information in accordance with the procedures as detailed.

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Lease Agreements - GASB 87

Policy References:

GASB Statement 87 – Leases (GASBS 87)

This Statement increases the usefulness of governments’ financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset.

GASBS 87 defines a Lease as a contract (e.g., an agreement between two or more parties that creates enforceable rights and obligations) that conveys control of the right to use another entity’s nonfinancial asset (the underlying asset) as specified in the contract for a period of time in an exchange or exchange-like transaction.

Agreements that transfer ownership, that lease biological or intangible assets, are for the use of inventory or supply contracts, or that have a maximum possible term of 12 months or less are not recognized as leases under GASBS 87. You should refer to the appropriate section of Chapter XVI of the Guide to Financial Operations (GFO) for guidance regarding those subjects.

Process and Document Preparation:

BACKGROUND

Governmental Accounting Standards Board Statement (GASBS) 87 – Leases was issued in June 2017 and will be implemented for NYS financial reporting purposes in Fiscal Year 2022-23. Under this Statement, NYS as a lessee is required to recognize a lease liability and an intangible right to use lease asset, and as a lessor is required to recognize a lease receivable and a deferred inflow of resources.

POLICY

As a lease represents the rights and obligations of the parties to the agreement, financial reporting entities within New York State, who are a party to the agreement, bear the responsibility of reporting to the Comptroller the elements of the agreement required for proper accounting and reporting under the standard.

Agreements that meet the above definition of a GASBS 87 Lease and do not fall into one of the above exceptions are recognized under OSC accounting policy as a Lease, and it is the reporting entities’ responsibility to maintain records necessary for the proper accounting of these leases and to report the required information timely to OSC in accordance with the procedures set forth in this section of the GFO.

DEFINITIONS

The following definitions will aid in the proper accounting and reporting of leases.

NYS Reporting Entity

A NYS Reporting Entity is any entity within NYS government whose results and impacts of financial and operational activities are required to be reported in the State’s financial statements as required or defined by the Governmental Accounting Standards Board. NYS Reporting Entities include Executive Agencies, Statutory Agencies, Legislative Branch entities and departments, and the Unified Court System. For the purpose of GASBS 87, entities that independently produce and publish their own audited financial statements under the GAAP basis of accounting (such as the State University of New York and State corporations and authorities will employ their own system of data collection and will not submit the information from their lease contract to OSC. Throughout this guidance, policies and procedures, NYS Reporting Entity and Agency are synonymous in meaning.

Maximum Possible Term

The period of time, distinguished in months, that an agreement could be active including all possible renewal periods regardless of the likelihood of executing any of the renewal clauses. An agreement with a Maximum Possible Term of greater than 12 months is a Lease under GASBS 87 and is subject to evaluation as reportable under GASBS 87. An agreement with a Maximum Possible Term of 12 months or less in not a Lease under the standard and is treated as a short-term operating agreement within the current reporting statement as a current expense or revenue.

Reasonably Certain Term

The period of time, distinguished in months, that an agreement is reasonably expected to be in effect including all possible renewal periods reasonably expected to be executed and/or termination clauses reasonably expected to be utilized. The lease term agreement provides the noncancelable right to use the underlying asset while the reasonably certain term also includes the time frame of the parties reasonably certain actions based on all relevant factors. The Reasonably Certain Term is used to compute the value of the lease, the present value of the payments under the agreement and is used in computing the Annual Exchange of Value of the Lease.

Annual Exchange of Value

The computed value representing the dollar value anticipated to be exchanged between the parties to the lease or lease-like agreement during a 12-month period. The Annual Exchange of Value (AEV) is computed using the sum of all payments required under the agreement for the use of the asset (payments for taxes, management services, utilities, etc.; payments not directly related to the right to use the asset, should not be included in this calculation) divided by the number of months the lessee has the right to use the asset during the period the agreement is reasonably certain to be in effect (including the payment value and number of months for all agreement renewal periods reasonably certain to be executed and/or excluding payments and months for termination clauses reasonably certain to be executed) multiplied by 12 months.

AEV = (∑ reasonably certain right to use payments/reasonably certain term in months) * 12

DOCUMENT PREPARATION

Reasonably Certain Lease Term Documentation

All agreements which meet the definition of a Lease under GASBS 87 as outlined above must be analyzed to determine the reasonably certain term by the contracting NYS entity at the inception of the underlying lease agreement. The determination of the reasonably certain lease term and the reasoning for such determination must be documented and maintained. Agreements should be reassessed when a lease modification is made to determine if current relevant factors have changed the reasonably certain lease term determination.

GASB Reportable Agreement

Upon completion of the reasonably certain determination and computation of annual exchange of value, leases will be classified as GASBS 87 Reportable Leases in accordance with the following:

Any agreement, formal or informal, entered into by a NYS Reporting Entity subject to financial reporting and disclosure under GASBS 87 will fall into one of the following three scenarios.

Scenario 1 (OGS-managed Real Property Lease)

• The agreement is for a lease of real estate, and
• The Reporting Entity is the lessee in the agreement, and
• The lease agreement is managed for NYS by the Office of General Services (OGS) and OGS manages the agreement within the Statewide Financial System and OGS will act on behalf of the reporting entity in meeting the reporting requirements of GASBS 87, and
• The agreement results in an annual exchange of value more than $1.

Scenario 2 (Non-OGS-managed Payable Lease)

• The agreement is for the lease of an asset, and
• The Reporting Entity is the lessee in the agreement, and
• The agreement is managed by the Reporting Entity, and
• The agreement results in an annual exchange of value of $100,000 or greater.

Scenario 3 (Revenue Lease)

• The agreement is for the lease of an asset, and
• The Reporting Entity is the lessor in the agreement, and
• The agreement results in an annual exchange of value of $100,000 or greater.

Leases meeting the definition of scenario 1 will be maintained in the Statewide Financial System (SFS) as a standard component and used for the State’s financial reporting. No further action beyond the determination of the reasonably certain term for OGS-managed Real Estate Leases is required of OGS or the lease tenant agency to meet GASBS 87.

Leases meeting the definition of scenarios 2 or 3 will be reported directly by NYS Reporting Entities to OSC. OSC will be using a lease reporting software known as LeaseControllerTM by Deloitte LLC for this purpose. NYS Reporting Entities will use the appropriate lease reporting upload tool for reporting to OSC.

Lease Reporting System – LeaseController

The OSC website has a page dedicated to the GASBS 87 Lease Reporting standard (New GASB Standards | Office of the New York State Comptroller). This web page will continue to be updated with information and instructions necessary to understand LeaseController including instructional videos for all processes. The resources page has links to the tools required for use of the system. Separate upload tools exist for reporting new leases for both revenue and payable leases and for reporting lease modifications. As these tools will be updated periodically, be sure to visit the page often and download the most current version of the tools.

The following procedures outline the steps that will be used for financial reporting under GASBS 87:

Initial Reporting

To implement GASBS 87, the State needs to calculate a beginning balance as of April 1, 2022. The beginning balance will be a combination of the OGS-managed real property leases maintained in SFS and those leases reported to OSC by NYS Reporting Entities and maintained in LeaseController.

OSC has worked with OGS and SFS to ensure that OGS-managed real estate leases maintained in SFS are captured and the transactions are accounted for properly.

OSC has also worked closely with NYS Reporting Entities to inventory their leases that existed as of February 1, 2021 and are subject to GASBS 87. Material leases existing in that population have been analyzed by OSC and will be maintained in LeaseController for appropriate reporting.

The next phase requires NYS Reporting Entities to identify reportable lease agreements with a start date in calendar year 2021 (2/1/2021-12/31/2021) and an agreement end date after March 31, 2021. These new leases must be reported to OSC by March 1, 2022 utilizing the LeaseController new lease upload tool which is available on the OSC GASBS 87 website resources page.

Quarterly Reporting of New Leases

Reportable Lease agreements with a start date in the quarter January 1, 2022 through March 31, 2022 must be reported to OSC by April 30, 2022 utilizing the LeaseController new lease upload tool.

For each subsequent quarter (April-June, July-September, October-December, January-March), NYS Reporting Entities must complete a new lease upload tool detailing all reportable leases entered into during that quarterly period.

Leases which allow use of the underlying asset as of the start date of the agreement should be reported in the quarterly reporting during which the start date falls. In those situations, where the underlying asset is being used prior to the start date of the agreement: a) if the asset was being used under a short term agreement such as day-to-day, month-to-month, holdover or evergreen lease agreement, the lease should be reported to OSC in the quarter of the lease agreement start date; b) if the asset is being used pending the approval of the lease agreement and the use of the asset will be paid for under the lease agreement, the lease should be reported in the quarter of the start of the use of the asset.

All reporting tools must be submitted to OSC no later than 30 days after the end of the quarter.

Quarterly Reporting of Lease Modifications/Changes

During the last month of each calendar quarter, OSC will provide to each reporting entity a list of leases existing within LeaseController. It is the responsibility of each reporting entity to review this listing and notify OSC of any modifications/changes to the leases which change the data previously reported. This notification will be submitted using the tool provided for this purpose on the GASBS 87 web page.

All reporting tools must be submitted to OSC no later than 30 days after the end of the quarter.

Reporting of Leases in the Financial Statements of New York State

New York State will prepare the financial statements beginning with the Fiscal Year 2022-23 in accordance with all adopted standards including GASBS 87. It is the responsibility of each NYS Reporting Entity to ensure the lease reporting system has accurate information related to the reasonably certain lease term and all financial options to ensure accurate reporting. It is anticipated that all such values will be subject to audit as essential elements of our financial reporting and disclosures. 

Guide to Financial Operations

REV. 12/31/2021