Goldman Sachs points out major advantages in the toll concession model. They report:
"A concession sale offers an opportunity for public entities, like the State of Missouri to monetize non-core assets while maximizing taxpayer benefit and transferring operating risk to equity investors. If structured properly, this form of PPP merges public interest with the deep pockets of private investors to effectively meet ever-growing infrastructure needs. The economics of a concession sale generally deliver a more efficient leveraging of an asset's revenues. First, unlike a traditional municipal financing, a concession sale provides an opportunity to capture the 'growth wedge' in future volume and toll and fee increases. Traditional municipal bond investors typically rely on historical revenues to determine leverage levels, which can constrain the total value of an asset, while equity investors tend to focus on growth and future returns.
"In addition, tax treatment for depreciation and interest cost deductibility on a
concession sale can provide a lower cost of capital for the concessionaire than tax-exempt financing. Finally, the infrastructure investors with large portfolios of similar assets are able to improve operating efficiencies and capture economies of scale, thereby increasing the amount they are willing to pay for an asset."
In short, a concession shifts the risk away from taxpayers to investors and can raise a lot more capital for a given project than a public authority bond financing. Precedents have been addressed in Chapter 2.
On the St. Louis region project Goldman Sachs reports:
"A public-private partnership ('PPP') for the proposed I-70 Mississippi River Bridge (the 'Project') is a viable alternative to finance a portion of the estimated total cost of the Bridge and related roadway and interchange improvements. A wide range of values is achievable and will depend greatly on a variety of factors, including:
• Toll schedule and structure
• Variable Pricing (e.g., trucks/cars; peak/off-peak hours; electronic toll collecton
• Toll growth
• Maximum tolls
• Length of concession
• Capital expenditures required
• Operating cost allocation
• Demand elasticity
• Volume Growth"