One of the most important features of PPPs is the opportunity to supplement public sources of funding with private equity and debt. In order for the private sector to be willing to invest (or lend) funds for development of a project, it needs to have access to a predictable stream of revenues from which it can earn a return. For certain projects, financing can be based on projected revenues from the project itself (farebox). However, most transit projects do not generate sufficient revenues for this purpose, and it is therefore necessary to explore finance alternatives based on infusion of public dollars to leverage the private investment and/or utilization of other sources of public revenue to pay down the project's debt. Where public dollars are needed, private moneys typically will not be put at risk until such time as the public funding is firmly committed.
As part of its unsolicited proposal, Bechtel Enterprises provided $28.2 million in up-front project funding for the Portland MAX Airport Extension, in exchange for the right to develop a 120-acre parcel adjacent to the airport with mixed use development as well as for Bechtel Infrastructure to lead design-build activities for the project. The contribution funded 23 percent of the project's capital expenses and reduced the public subsidy required to construct the project.
Private financing is a key reason that BART is using a PPP structure for its Oakland Airport Connector project. Under the proposed DBFO structure for the project, the private consortium would be expected to finance half of the project's capital cost, with debt service to be repaid from fare revenue generated by the project's operation.