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Build America Transportation Investment Center (BATIC) Institute: An AASHTO Center for Excellence
Build America Transportation Investment Center (BATIC) Institute: An AASHTO Center for Excellence

Financing

Other Finance Mechanisms

Availability Payments

Availability payments are a means of compensating a private concessionaire for its responsibility to design, construct, operate, and/or maintain a tolled or non-tolled roadway for a set period of time. These payments are made by a public project sponsor (a state DOT or authority, for example) based on particular project milestones or facility performance standards. Project milestones can refer to the completion of the facility itself by a certain deadline, while performance standards can be measured operationally. Examples include lane closures for maintenance purposes, incident management, or snow removal. Level-of-service performance could also be used as the primary payment metric for availability payment concessions involving the implementation of HOT/express toll lanes.

Availability payments are often used for toll facilities that are not expected to generate adequate revenues to pay for their own construction and operation. In this case the project sponsor retains the underlying revenue risk associated with the toll facility rather than the private partner. Availability payments can also be used for projects without tolls, as the mechanism still presents an attractive means to engage a private sector partner who will take on project risk, such as construction, operations, and upfront financing, and then compensate the concessionaire on an established, performance-based schedule. The desire to avoid encouraging traffic to use non-toll alternative routes may also make an availability payment project without tolls a preferred option. The Port of Miami Tunnel is an example of this type of project.

A project financed with availability payments also presents less overall risk to the private entity than with a full concession. Rather than relying on achieving certain levels of traffic and revenue, the concessionaire receives a predictable, fixed set of payments over the life of the agreement. The concessionaire also can rely on the public agency's credit to secure financing rather than unpredictable toll revenue. Private financings involving availability payment concessions could include private equity, taxable debt, federal credit assistance such as TIFIA, and private activity bonds. The question of who sets the toll rates is also eliminated under an availability payment arrangement, making concessions with private companies more politically palatable.

Availability payments may be structured in a variety of ways. In certain cases, no payments may be made until after construction is complete. Alternatively they may be predicated on particular construction milestones. Project sponsors may also define how the periodic payments are to be made, and may also set a maximum payment cap based on agreed-to operating and maintenance performance standards.

Resources

Design Build Finance Operate Maintain Availability Payment Projects
The FHWA Center for Innovative Finance Support P3 website defines availability payment design-build-finance-operate-maintain concessions and provides profiles of all U.S. projects using this model.

Federal-aid Funding and Availability Payments (pdf)
This factsheet from the FHWA Center for Innovative Finance Support discusses FHWA policy on the use of Federal-aid funds to make availability payments.

Introduction to Public-Private Partnerships with Availability Payments (pdf)
This paper provides a brief overview of availability payments within the context of deciding to utilize a public-private partnership for project delivery.