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Ting Liu and Michael J. Garvin

Public agencies may opt to support public_private partnerships (PPPs) to enhance their viability. Increasingly, fiscal support in the form of public subsidies, governmental loans, governmental guarantees or direct payments are offered to mitigate PPP revenue risk. For instance, a public agency may choose to retain revenue risk in an availability payment arrangement, whereas it can elect to cover revenue shortfalls when a minimum revenue guarantee is provided. Despite the increased use of fiscal support mechanisms in PPPs, government sponsors have limited guidance when considering such options. Consequently, a framework is presented that considers a mechanism’s impact on ability to raise financing and government’s financial risk exposure to assess alternative fiscal support options that mitigate revenue risk. The framework is illustrated using a hypothetical example and three alternative support mechanisms. The example demonstrates how the framework supports identifying a dominant alternative and making trade-offs among alternatives.