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P3 Fiscal Impact Assessment Guide


Public agencies in the U.S. and globally enter into P3 contracts for various reasons, including to generate value for money and overcome funding or financing constraints. Although P3s can achieve these objectives, they typically also create budgetary impacts for public agencies during the short and long term—some of which may be unpredictable. The sustainability of a public agency’s P3 program will depend on its ability to thoroughly understand and account for the fiscal impacts of P3s. This research would provide guidance on assessing these impacts.

Fiscal impacts can be categorized as either direct or contingent. Direct impacts include: 1) fixed payments from the public agency to the concessionaire (milestone payments, availability payments, or grants/subsidies), or 2) the retained costs associated with the public agency developing and managing the P3 contract (P3 transaction costs, contract management, and oversight). Direct impacts are predictable and therefore relatively easy to budget and account for. Contingent liabilities, however, depend on the occurrence of a specific, probabilistic event. Contingent impacts are challenging to price, budget, and account for because the public agency has no payment obligation until the (uncertain) event occurs. Examples include compensation for supervening events, revenue guarantees, or shadow tolls.

Fiscal liabilities can also be categorized as explicit or implicit. Explicit liabilities are stated in the P3 agreement or in the legal and regulatory framework. Explicit liabilities may include government obligations to ensure civil servants’ salaries or pensions (direct) or national state guarantees for subnational governments (contingent). Implicit liabilities are moral or political obligations likely to be borne by government because of public expectations or political pressures. For example, even if not explicitly stated in the P3 contract, the government would likely intervene in the case of a bank failure or a bankruptcy related to a critical public asset or service (for example, water or power provision) that could impact service delivery to citizens.

Risk valuation is at the heart of both value for money and fiscal impact assessments. In a value for money assessment, however, risks that would be retained by the public agency under both P3 and conventional delivery models are often not explicitly considered. Explicit consideration of retained risks may not be necessary when the purpose of a value for money assessment is to compare differences between the two delivery models. A fiscal impact assessment, however, requires public agencies to explicitly consider (and possibly value) these retained risks that are common between delivery models. As a result, risk valuation for a fiscal impact assessment is often more challenging than for a value for money assessment. Few governments have systematically analyzed these retained risks.

Public agencies have developed different policies and practices to manage fiscal impact in P3s. Some examples include:

In North Carolina’s I-77 project, NCDOT provided a Developer Ratio Adjustment Mechanism (DRAM) to the concessionaire to cover operational and/or debt service costs over specified periods should toll revenues be insufficient. NCDOT includes the full exposure of the DRAM on its books.

FDOT has set a state-wide cap on the total availability payment amount that can be committed for a project, regardless of the revenues collected. Florida statutes require FDOT to provide a debt and debt-like contractual obligations load report on department commitments payable from the State Transportation Trust Fund. Examples of department obligations include: Debt service payments; availability payments, milestone payments and substantial completion payments; and loan repayments on state infrastructure bank loans.

Texas statutes enforce restrictions on total dollar amount disbursed to Comprehensive Development Agreements (CDAs). Further, the Texas Transportation Commission (TTC) requires a final analysis of proposed project’s Traffic and Revenue (T&R) study and projected fiscal impacts and obligations for TxDOT.

A fiscal analysis that considers both direct and contingent impacts is critical to effective decision-making on P3s. Conventional fiscal analysis tends to focus on a public agency’s direct and explicit liabilities. It is important, however, to explicitly consider and price the “hidden” subsidy that contingent liabilities represent. Not considering those subsidies may: (i) incentivize public agencies to favor contingent support (e.g. guarantees or financing through state-guaranteed institutions), which may appear more attractive in the short-term than direct support, and (ii) increase the risk that public agencies will face significant, unexpected liabilities when the uncertain event occurs, thus stressing government budgets and debt limits. Ignoring the full fiscal impacts of P3s may incentivize public agencies to structure P3 transactions in such a way that does not provide value for money and becomes the worst of both worlds: long-term contracts without an optimal and effective risk transfer.


The objective of this research effort is to provide guidance on assessing the fiscal impacts of P3s.


Effective assessment of the fiscal impact of P3s using rigorous accounting methods is critical for public-sector fiscal health, especially considering recent growth in the U.S. P3 market. Public agencies currently lack clear guidance on how to develop effective and comprehensive fiscal-impact assessments. This research will help fill that gap by presenting successful practices and providing guidance on developing fiscal impact assessments.

Related Research:

Examples of contingent liabilities for the public sector include minimum revenue guarantees; interest rate guarantees; debt guarantees; subordinated loans; and concession extensions and revenue enhancements (IMF 2005). Furthermore, some contract provisions may also result in government obligations. These provisions may include: change of law or regulations, termination payments, or permitting risks (EIB 2011), or risk sharing or protection, for example, utilities relocation, contamination. The private sector does not solely depend on the project’s revenue streams (or availability payments) but also on these government guarantees or risk sharing mechanism. The challenge for the public sector is the valuation of these guarantees and their subsequent fiscal impacts (Angelides and Xenidis 2009). Government guarantees need to be evaluated from a time, process, applicability, and payment priority perspectives. Based on the results of government guarantees and obligations valuation in combination with their risk tolerance, public agencies can make an educated decision regarding the project’s fiscal impacts.

Angelides and Xenidis, 2009, PPP Infrastructure Investments: Critical Aspects and Prospects.

European Investment Bank (EIB), 2011, “State Guarantees in PPPs A Guide to Better Evaluation, Design, Implementation and Management”.

International Monetary Fund (IMF), 2005, “Government Guarantees and Fiscal Risks”.


Key tasks are:

1) Examination of existent literature and accounting rules on different fiscal impacts;

2) Development of a categorization for the different types of fiscal impacts;

3) Identification of relevant U.S. case studies of public agencies and their fiscal impact assessment practices;

4) Development of criteria to evaluate the effectiveness of fiscal impact assessment practices;

5) Analysis of case studies, including identifying challenges faced by public agencies and best practices in assessing fiscal impacts;

6) Definition of key considerations and successful practices in developing fiscal impact assessments; and

7) Development of a step-by-step guide for public agencies on how to effectively and comprehensively assess fiscal impact.

Sponsoring Committee:AJE50, Economics, Revenue, and Finance
Research Period:6 - 12 months
Research Priority:High
RNS Developer:Marcel Ham
Date Posted:06/09/2017
Date Modified:07/03/2017
Index Terms:Fiscal impacts, Economic impacts, Contract administration, Liabilities, Public private partnerships, Sustainable development, Guidelines, Project delivery, Risk management, North Carolina Department of Transportation, Florida Department of Transportation,
Cosponsoring Committees: 
Administration and Management

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