Public-Sector Deficit Risk and Infrastructure P3s: A Value for Funding Analytical Approach to Evaluation

Abstract

In a previous article, the authors identified Value for Money (VfM) as the standard evaluation framework for infrastructure public–private partnership (P3) alternatives to traditional public-sector project procurement and financing. They noted VfM’s primary focus on a net present value cost comparison between the alternatives. In light of the challenges that U.S. state and local governments face in the current economic environment, they introduced “Value for Funding” (VfF) as an additional analytical framework that explicitly expands the focus to include public-sector funding and fiscal issues in the evaluation of an infrastructure P3, which they believe would be useful in many cases. This article presents an example of a VfF approach applied to a specific topic: the risk-absorption features of various types of P3 contracts with respect to U.S. state and local public-sector deficits. More generally, the article outlines a stochastic methodology for the comparative assessment of P3 and traditional alternatives that will likely be the basis of much other VfF analysis, especially where the funding stream is relatively independent of specific project operation and the public sector is fiscally constrained.

TOPICS: Project finance, other real assets, legal/regulatory/public policy