2009 Annual Forum
Transportation Finance, Public Private Partnerships, Risk Allocation and Contingent Liabilities: Case Evidence from a Specific Type of PPP Venture from Texas
Sharada Vadali, Texas Transportation Institute, firstname.lastname@example.org
Rafael M. Aldrete, CIITR, Texas Transportation Institute, email@example.com
Transportation needs throughout the country are at levels that governments are unable to meet their capacity needs through traditional revenue collection methods. One innovative financing method that is a form of public private partnership (PPP) is value capture. These value capture initiatives are an inward-looking, non-commercial alternative form of PPP's that like typical PPP's, also involve contingent liabilities. This paper discusses the legislative background for such initiatives in the state of Texas via Senate Bill 1266 which is innovative from a municipal transportation financing standpoint and allows for the establishment of Transportation Reinvestment Zones (TRZ). The paper uses a case example from Texas to demonstrate that TRZ's are a way for cities to leverage their own funds for infrastructure construction and uses the case example to discuss various issues implicit in contractual arrangements of this type of PPP. How does this happen, and what are the implications? It is well known that although financial risk in PPP initiatives cannot be eliminated, it can be transferred to the party best able to manage it. Who bears the risk of financial non-performance of a TRZ? This paper also discusses other key issues inherent in such PPP ventures; how does one estimate financial flows and risk management implicit in the flow of funds in a TRZ, and argues that there is a need to better define the allocation of the contingent liabilities that are created as a result of this innovative financial mechanism.