The 63-20 Ruling, P3s and US Infrastructure

Nossaman Infrastructure Partner Barney Allison is quoted in the Infrastructure Journal article "The 63-20 Ruling, P3s and US Infrastructure," about an alternative financing method known as the 63-20.

The 63-20 ruling in the Internal Revenue Service (IRS) allows governments to create non-profit corporations to finance infrastructure projects, among other things, by issuing tax-exempt bonds on behalf of the public entity. These structures basically allow the state or municipality to issue debt on an "off-balance sheet" basis.

"Rather than having a black-eye on the state with the credit markets with their name on the bonds if there's risk of default, the  public agency may set-up this off-balance sheet entity to sell the bonds for them," Mr. Allison said.

He continued: "These corporations whether they comply with the 63-20 requirements or not are set up as non-profit organisations. So right away you can see it's not going to work too well for a P3 with a rate of return to equity."

"You can set up a non-profit to issue the bonds, but you won't have a non-profit to be quote-unquote the concessionaire. A private party is not going to take the risks assumed in these P3s deals without some upside and you can't have an upside with a non-profit  where's there can be no profits or dividends to equity," he said.