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New Fla. Legislation Will Facilitate P3 Projects

The state of Florida, a longtime leader among states in facilitating public-private partnership projects, has recently passed legislation that will expand available options for the tax-exempt financing of P3 projects. On April 4, 2016, the governor of Florida signed into law House Bill 7027[1], which, among other things, created the Florida Department of Transportation Financing Corporation, a nonprofit corporation which has the power to serve as a financing mechanism for P3s of the Florida Department of Transportation (the FDOT) across the state.

The corporation is to be governed by a board of directors consisting of the director of the Office of Policy and Budget within the Executive Office of the Governor, the director of the Division of Bond Finance (the DBF) of the State Board of Administration and the Secretary of Transportation. The director of the DBF shall be the chief executive officer of the corporation, shall direct and supervise the administrative affairs of the corporation and shall control, direct and supervise the operation of the corporation.[2]

It is anticipated that the corporation will assist in the financing of needed transportation projects by incurring indebtedness payable from, and secured by, contractually committed payments from the FDOT. This will provide the FDOT, which already has statutory authority to enter into long-term public-private partnership contracts with private entities for the design, construction, operation or financing of transportation projects, the ability to fund significant, currently needed projects that might otherwise have to wait for traditional funding sources to become available.[3] The interest and income on such obligations, as well as all security agreements, letters of credit, liquidity facilities or other obligations arising out of, entered into in connection with or given to secure the payment of such obligations, will be exempt from taxation under Florida law (other than Florida’s corporate net income tax).[4] While the impact of the state tax exemption on borrowing rates is not expected to be significant, obligations issued under the act could potentially be structured in a manner that would cause the interest on such obligations to be excludable from gross income for federal income tax purposes. The ability of the corporation to borrow on a federally tax-exempt basis could reduce interest rates associated with its obligations below those of other available financing alternatives customarily associated with P3 transactions. “We've had to rely on the private sector” for P3 financing, FDOT Secretary Jim Boxold told The Bond Buyer after the governor signed HB 7027. “This [bill] gives us the option to do public-sector financing with bonds and presumably obtain lower interest rates.”[5]

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