Availability Payments in Public-Private Partnerships: Issues and Implications

Public-private partnerships (P3s) to build infrastructure, are increasingly structured around “availability payments,” which advocates argue are a better alternative than more traditional revenue-risk contracts. However, availability payments are long-term financial commitments that can lead local governments to take on unsustainable amounts of debt. Availability payments are made by the governmental entity to the private group once the piece of infrastructure is available or completed. These recurring payments are generally much less risky for the private groups since the risk is placed onto the governmental entity. For the availability payment to be considered, it is important to understand the long-term financial implications of the plan and for policymakers to ask questions of both the private group and the process itself. These recommended questions include: Are there any anticipated or even somewhat likely events that could cause challenges to the governmental entity making the availability payments at any point in the long-term contract period? Has the governmental entity identified contingent liabilities associated with a proposed availability payment P3?.