INFRASTRUCTURE PUBLIC PRIVATE PARTNERSHIPS AND CONTINGENT LIABILITIES: A VALUE CAPTURE CASE STUDY FROM TEXAS

摘要

Transportation infrastructure needs throughout the United States are at levels that governments are unable to meet their capacity needs from traditional funding sources. One innovative financing method that is a form of public private partnership (PPP) is value capture (VC). VC initiatives involving municipal bond financing are all a non-commercial alternative form of PPP that like many PPPs, also involve contingent liabilities. This paper presents a VC mechanism recently established in the state of Texas that is innovative from a municipal transportation financing standpoint because it allows for the establishment of Transportation Reinvestment Zones (TRZ). The paper uses a case example to demonstrate that TRZ’s are a way for cities to leverage state and local funds for infrastructure construction and uses the case example to discuss financial risk issues implicit in contractual arrangements of this type of PPP especially those stemming from risk allocation. The paper argues that there is a need to better define this risk allocation and understand the contingent liabilities implicit in these forms of partnerships. Finally, the paper proposes a contingent claims analysis approach to value the liability implicit in the TRZ model using a corridor example.