The public benefit corporation that developed the Greenville Southern Connector toll road with the cooperation of the South Carolina Department of Transportation recently issued a request for qualifications for the private sector to operate and maintain the 16-mile toll road pursuant to a long-term concession. Like the Pocahontas Parkway and the Northwest Parkway, the Greenville Southern Connector has struggled with toll revenues that have been lower than originally forecasted. While traffic has been improving on the Connector, the Connector recently indicated its expectation that "a private sector Concessionaire may be best able to maximize the financial performance of the [Connector] over the long term, while providing economic value and high quality service for patrons of the road."33 The Connector's board is currently having an investment grade traffic and revenue study prepared to inform its decision regarding any potential concession.34
It is noteworthy that the Greenville Southern Connector was originally financed through a 63-20 not-for-profit corporation. These corporations are named for the requirements of IRS Rev. Rul. 63-20 and Rev. Proc. 82-26. In the context of transportation finance, a 63-20 not-for-profit corporation is a non-stock corporation formed to issue tax-exempt debt on behalf of a public authority, the proceeds of which are used to pay for a private developer to design, construct and/or operate a transportation facility. The governing structure typically includes representatives from both the public sector and the private sector and members of the 63-20 are generally insulated from financial risk. The corporation may not be formed for pecuniary profit and may not provide dividends or distributions to its members so the financing structure does not include any equity investments by the private sector.
Not-for-profit 63-20 corporations received a lot of attention when the Pocahontas Parkway, the Northwest Parkway and the Greenville Southern Connector were originally financed because they allow a project to be developed, designed, constructed, and/or operated by the private sector using tax-exempt debt (tax-exempt debt is typically only available for public projects). Of the handful of projects financed through a 63-20 corporation, however, a number have struggled to reach forecasted traffic and revenue. While it is difficult to say with certainty why these financings struggled, some have argued that 63-20 financings have failed because neither the public nor the private sector has financial liability if the facility cannot repay its debt, only the single-purpose 63-20 corporation does.35 By contrast, in PPPs, the private sector assumes financial liability for the project through debt financing, long-term warranties and equity investments.
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33 Southern Connector Toll Road: Request for Toll Road Concessionaire Qualifications, September 27, 2007, available at: http://www.southernconnector.com/pdfs/SCTR_RFQ2.pdf (last visited July 7, 2008)
34 Connector 2000 Association Seeks Firm to Prepare Investment Grade Traffic and Revenue Study, Southern Connector, Press Release, May 7, 2008.
35 See The 63-20 Not-for-Profit Contrivance, TOLLROADSnews, originally posted December 8, 1997 (http://www.tollroadsnews.com/node/2326 (last visited July 7, 2008)).