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Appendix A - Illustrative Examples of Tax Receipts under Different P3 Arrangements

The following tables and accompanying graphs are for illustrative purposes only and should not be viewed as a comprehensive treatment of the complex considerations involved in determining tax revenues generated by a specific P3 project. For illustrative purposes, we have analyzed the high-level taxes associated with:

• A revenue risk concession
• An availability payment concession, and
• A 50% sale of the revenue risk concession's equity interest

The scenarios used a number of assumptions which are discussed below. We note that these assumptions are intended to reflect a credible approximation of a hypothetical P3 project, but are not reflective of any specific P3 project in existence, and are not intended to be used to draw generalized conclusions about taxes on all P3s. They are intended to demonstrate how potential taxes could be modeled.

A.1 Scenario Assumptions

Key assumptions in each case include:

• Analysis only includes direct taxes on the project and not on indirect taxes like taxes paid on taxable debt by banks who have made loans or bondholders in taxable project finance debt.
• Revenues (tolls or availability payments) were the variable adjusted to meet the constraints and other assumptions listed herein.
• In the revenue risk model, the concessionaire is treated as the owner of the assets for income tax purposes.
• Total construction capital costs of $400 million.
• Debt-equity ratio of 70%:30% for construction costs (after accounting for capitalized interest in both scenarios and taxes due during construction in the availability payment scenario).
• The P3 is an LLC treated as a disregarded entity for federal income tax purposes (i.e., a "pass-through" entity) 100% owned by a US corporation subject to US income tax in the availability payment and revenue risk concessions scenarios.
• Net operating losses accumulate at the corporate level, and can be carried forward 20 years. No net operating loss carryback is assumed. The same schedule is assumed for both federal and state level income tax. We assumed that the state treatment of net operating losses is similar to the federal treatment of net operating losses to simplify our evaluation.
• For the availability payment model, a profit margin on the construction contract of 5% for the SPV was assumed, which is used for the determination of recognized revenues during construction. The profit margin in this case accounts for total contract costs, including interest payments during construction. Therefore, the recognized revenue will lead to positive taxable income for the P3 owner. Since taxes during construction are paid for with additional equity, the required profit margin and resulting recognized revenues directly impact the optimization of availability payments required to meet the target equity return.
• The debt is drawn proportional to the capital requirements in each year of construction, and interest is capitalized during construction for all of the scenarios, ¹⁰⁴ with an additional $35 million in financing costs for the revenue risk and $61 million for the availability payment (reflecting the additional taxes from the PCM's recognition of revenues during construction).
• In the revenue risk scenario, capitalized interest is included in the tax basis of the underlying property and recovered using the MACRS schedule. Financing costs are added to the depreciation pool as per ASC 835-20-05-1. ¹⁰⁵ In the availability payment scenario, capitalized interest is treated as "contract costs" under the PCM (i.e., it is included in the PCM completion factor). ¹⁰⁶
• For the availability payment model, a 50% milestone payment is made to the P3 concessionaire upon completion of construction, which is used to reimburse upfront capital costs and capitalized interest in accordance with contract cost calculations under the PCM, and is therefore considered non-taxable.
• Construction period of 4 years
• Concession period of 45 years for the revenue risk, and 35 years for the availability payment
• Debt structured as:
  • 5% interest rate
  • tenor of 30 years
  • Level P&I payments, after principal payments begin in year 5
• A pre-tax equity return of 12% for revenue risk, and 10% for availability payment.
• The only items that are directly impacted by inflation (fixed at 1.89%, the BLS 2006-2015 average) are revenues and operating expenses. Construction costs are fixed with a DB contract that is firm fixed price and does not allow escalation.
• Annual Opex assumed at 1.5% of capex (in real terms).
• No alternative minimum tax (AMT) is applied.
• Federal income tax rate of 35% (reflecting the typically-used rate applicable to corporate entity members of the pass through entity).
• State income tax rate of 5% (an approximate net of federal benefit). ¹⁰⁷
• Sales Tax rate of 8% (the rounded combined average of all sales taxes in the US). ¹⁰⁸
• 25 percent of operating expenses assumed to be subject to sales tax. (Reflective of property owned by the company that may not be covered by sales tax compensation events. We note that this number is likely high relative to a real-world project, and was used to demonstrate the calculation, not to reflect a "typical" transaction.)
• For the revenue risk scenario, it is assumed that this is a greenfield project and there is no upfront payment to acquire intangible assets (tolling rights) and associated amortization are not assessed. ¹⁰⁹
• For the revenue risk scenario, per IRS Publication 946, the class life of the asset is 20 years, with 15 year GDS MACRS depreciation (Land Improvements). ¹¹⁰
• For the availability payment scenario, the $229.7 million in capital costs and capitalized interest that were not reimbursed through the Milestone payment are recovered on a straight-line basis over the O&M period. This reimbursing portion of the availability payment is recognized as non-taxable, while the rest of the availability payment is recognized as taxable (covering O&M payments, financing costs, and equity).
• In the case of the equity sale scenario, the LLC is treated as a partnership for income tax purposes owned by two partners, each a US corporation subject to US income tax, and each owning 50% of the LLC. A new partner, also a US corporation subject to US income tax, purchases all of the LLC interests from one of the two existing partners in a taxable sale. For purposes of the tax calculation, it is assumed that there is no "technical termination" of the partnership under the tax rules upon the sale. Revenue, debt service, tax depreciation, and net operating losses are allocated to each of the members pro rata based on their ownership interests (i.e., 50-50). Available net operating losses are used to offset the capital gains incurred by the selling partner. ¹¹¹ For simplicity, no depreciation recapture is assumed.
• In the equity sale scenario, we only assumed net operating losses carryforward and no carrybacks.
• For the equity sale scenario, a 15% gain on 50% of the initial equity position is assumed for a sale at the end of year 10, and is subject to a 35% tax rate, as capital gains to the corporation. For simplicity, debt relief is not considered as additional proceeds to the seller for federal income tax purposes.
• For the equity sale scenario, there is no change in the original tax depreciation schedule, but rather the original corporation continues depreciating its 50% share of the SPV's assets after the sale according to the initial MACRS schedule, and the new partner takes over the 50% share of tax depreciation originally allocated to the selling partner.
• For the equity sale scenario, the 15% gain results in a tax basis "step-up" for the new partner, who amortizes this step up straight-line over 15 years, assuming the purchase price premium is allocable entirely to goodwill ($3 million, or 15% of $20 million representing 50% of total equity). For simplicity, assumption of debt is not considered as additional consideration paid by the buyer for federal income tax purposes.

A.2 Scenario Results

Key observations and points of distinction between the scenarios are as follows:

• Overall, state income tax and sales tax costs and benefits associated with the P3 SPV are relatively modest compared to the cashflows from the project overall and, presumably, the benefits in Construction, Operations and Maintenance that are realized from using a P3 mechanism. On a present value basis, after accounting for net operating losses, it appears that the revenue risk P3 generates more tax receipts (at discount rates of 3% and 5%) than the availability payment P3. Under the given assumptions, all scenarios generate positive tax receipts at both discount levels used.
• Under the revenue risk example, income taxes are not paid until year 22. This arises due primarily to the tax depreciation schedule used as well as deductions for interest payment. Net operating losses accumulate at the corporate level and are carried forward, delaying tax payments until year 22 despite earnings before taxes becoming positive in year 14.
• Under the availability payment example, taxable income is positive throughout the life of the concession. Positive taxable income during construction occurs because the model recognizes revenue based on the percentage completion method. Since interest payments are included in the firm's bid price, it recognizes taxable income during construction at the assumed 5 percent profit margin.
• The availability payment model's smoother ramp up of taxable income relative to the revenue risk model is due to a "straight-line" method applied to the portion of the availability payment that reimburses the P3 for initial capital costs (that were not already reimbursed by the milestone payment), versus accelerated depreciation in the revenue risk model.
• The debt service during operations is lower for the availability payment model than the revenue risk model because the milestone payment received reduces the balance of the debt financing raised by the P3.
• With the availability payment model, the P3 shows EBITDA during the construction period due to the embedded earnings on the construction contract (including capitalized interest), realized according to the percent completion method.
• Given a target pre-tax equity IRR of 12% for revenue risk and 10% for the availability payment, the revenue risk model generates approximately $512 million in nominal tax receipts, while the availability payment model generates $216 million. At 3 and 5 percent, the revenue risk model yields $188.87 million and $99.21 million, respectively. The availability payment yields $121.26 million and $88.01 million, respectively. This arises due to the fact the concession pays much more in taxes in later years in the revenue risk model despite the net operating losses accumulated by the P3. The revenue risk scenario also yields relatively more nominal tax receipts because periodic revenues are much higher than in the availability payment scenario, which ultimately means more taxes paid. The availability payment model recognizes revenue based on a percentage completion method. Since interest payments are included in the firm's bid, it recognizes taxable income during construction, and has positive taxable income in the early years due to straight-line treatment of the return of capital.
• In the equity sale scenario, overall nominal and present value tax proceeds are higher than the no-sale revenue risk scenario ($523 million versus $512 million, and $193 million versus $186 million, respectively). The increase comes from the fact that the selling partner is withdrawing Net Operating Losses from the project, which cannot be used later to offset project income. ¹¹² The impact of this is greater than the offsetting facts that (1) net operating losses are applied by the selling partner to the capital gains tax due at the time of sale and (2) there is an increase in the total depreciable base (and thus future depreciation) with the tax step-up of the new investor.

Table A-1: Revenue Risk Tax Receipts

	Revenues	Opex	EBITDA	Tax Depreciation	EBIT	Interest	EBT	NOLs Used	Taxable Income	Federal Tax	State Income Tax	Sales Tax	Total	Cumulative	NPV of Tax Receipts @ 3%	NPV of Tax Receipts @ 5%
	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M
Total	2,381.75	(395.09)	1,986.65	(435.40)	1,551.26	(290.01)	1,261.25	(80.37)	1,261.25	441.44	63.06	7.90	512.40		186.87	99.21
Tax Rate	0	0	0	0	0	0	-	-	0	35.00%	5.00%	8.00%	0	0
Year 1	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Year 2	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Year 3	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Year 4	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Year 5	38.98	(6.47)	32.52	(21.77)	10.75	(15.24)	(4.49)	-	-	-	-	0.13	0.13	0.13	-	-
Year 6	39.72	(6.59)	33.13	(41.36)	(8.23)	(15.01)	(23.24)	-	-	-	-	0.13	0.13	0.26	-	-
Year 7	40.47	(6.71)	33.76	(37.23)	(3.47)	(14.77)	(18.24)	-	-	-	-	0.13	0.13	0.40	-	-
Year 8	41.24	(6.84)	34.40	(33.53)	0.87	(14.52)	(13.65)	-	-	-	-	0.14	0.14	0.53	-	-
Year 9	42.01	(6.97)	35.05	(30.17)	4.87	(14.25)	(9.38)	-	-	-	-	0.14	0.14	0.67	-	-
Year 10	42.81	(7.10)	35.71	(27.13)	8.58	(13.97)	(5.39)	-	-	-	-	0.14	0.14	0.81	-	-
Year 11	43.62	(7.24)	36.38	(25.69)	10.69	(13.68)	(2.99)	-	-	-	-	0.14	0.14	0.96	-	-
Year 12	44.44	(7.37)	37.07	(25.69)	11.38	(13.37)	(1.99)	-	-	-	-	0.15	0.15	1.11	-	-
Year 13	45.28	(7.51)	37.77	(25.73)	12.04	(13.05)	(1.01)	-	-	-	-	0.15	0.15	1.26	-	-
Year 14	46.14	(7.65)	38.48	(25.69)	12.80	(12.71)	0.09	(0.09)	-	-	-	0.15	0.15	1.41	-	-
Year 15	47.01	(7.80)	39.21	(25.73)	13.48	(12.35)	1.13	(1.13)	-	-	-	0.16	0.16	1.57	-	-
Year 16	47.90	(7.95)	39.95	(25.69)	14.26	(11.98)	2.28	(2.28)	-	-	-	0.16	0.16	1.72	-	-
Year 17	48.80	(8.10)	40.71	(25.73)	14.98	(11.59)	3.39	(3.39)	-	-	-	0.16	0.16	1.89	-	-
Year 18	49.73	(8.25)	41.48	(25.69)	15.79	(11.18)	4.61	(4.61)	-	-	-	0.16	0.16	2.05	-	-
Year 19	50.67	(8.40)	42.26	(25.73)	16.53	(10.74)	5.79	(5.79)	-	-	-	0.17	0.17	2.22	-	-
Year 20	51.62	(8.56)	43.06	(12.84)	30.22	(10.29)	19.93	(19.93)	-	-	-	0.17	0.17	2.39	-	-
Year 21	52.60	(8.73)	43.87	-	43.87	(9.81)	34.06	(34.06)	-	-	-	0.17	0.17	2.56	-	-
Year 22	53.59	(8.89)	44.70	-	44.70	(9.31)	35.39	(9.10)	26.29	9.20	1.31	0.18	10.69	13.26	-	-
Year 23	54.61	(9.06)	45.55	-	45.55	(8.79)	36.76	-	36.76	12.87	1.84	0.18	14.89	28.14	-	-
Year 24	55.64	(9.23)	46.41	-	46.41	(8.23)	38.17	-	38.17	13.36	1.91	0.18	15.45	43.60	-	-
Year 25	56.69	(9.40)	47.29	-	47.29	(7.65)	39.63	-	39.63	13.87	1.98	0.19	16.04	59.64	-	-
Year 26	57.76	(9.58)	48.18	-	48.18	(7.05)	41.13	-	41.13	14.40	2.06	0.19	16.65	76.28	-	-
Year 27	58.85	(9.76)	49.09	-	49.09	(6.41)	42.68	-	42.68	14.94	2.13	0.20	17.27	93.55	-	-
Year 28	59.97	(9.95)	50.02	-	50.02	(5.74)	44.28	-	44.28	15.50	2.21	0.20	17.91	111.46	-	-
Year 29	61.10	(10.14)	50.96	-	50.96	(5.03)	45.93	-	45.93	16.08	2.30	0.20	18.58	130.04	-	-
Year 30	62.25	(10.33)	51.93	-	51.93	(4.29)	47.63	-	47.63	16.67	2.38	0.21	19.26	149.30	-	-
Year 31	63.43	(10.52)	52.91	-	52.91	(3.52)	49.39	-	49.39	17.29	2.47	0.21	19.97	169.27	-	-
Year 32	64.63	(10.72)	53.91	-	53.91	(2.70)	51.21	-	51.21	17.92	2.56	0.21	20.70	189.97	-	-
Year 33	65.85	(10.92)	54.93	-	54.93	(1.84)	53.08	-	53.08	18.58	2.65	0.22	21.45	211.42	-	-
Year 34	67.09	(11.13)	55.97	-	55.97	(0.94)	55.02	-	55.02	19.26	2.75	0.22	22.23	233.65	-	-
Year 35	68.36	(11.34)	57.02	-	57.02	-	57.02	-	57.02	19.96	2.85	0.23	23.04	256.68	-	-
Year 36	69.66	(11.55)	58.10	-	58.10	-	58.10	-	58.10	20.34	2.91	0.23	23.47	280.16	-	-
Year 44	80.91	(13.42)	67.49	-	67.49	-	67.49	-	67.49	23.62	3.37	0.27	27.26	484.62	-	-
Year 45	82.44	(13.68)	68.76	-	68.76	-	68.76	-	68.76	24.07	3.44	0.27	27.78	512.40	-	-

The Table 1 above describes the cash flows associated with a revenue-risk P3. The table does not display the years 37 to 43.

Table A-2: Availability Payment Tax Receipts

	Availability Payment	Milestone Payment	Capital Reimbursement	Construction Cost	Opex	EBITDA	Interest Deduction	Taxable Income	Federal Tax	State Income Tax	Sales Tax	Total	Cumulative	NPV of Tax Receipts @ 3%	NPV of Tax Receipts @ 5%
	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M
Total	1,507.48	229.69	(533.47)	(400.00)	(269.21)	534.50	(88.65)	445.85	181.98	26.00	7.90	215.88		121.26	88.01
Tax Rate	Note: Years 1-4 of the AP column is recognized revenue on the contract								35.00%	5.00%	8.00%
Year 1	114.84	-	-	(100.00)	-	14.84	-	14.84	5.20	0.74	-	5.94	5.94	-	-
Year 2	114.84	-	-	(100.00)	-	14.84	-	14.84	5.20	0.74	-	5.94	11.87	-	-
Year 3	114.84	-	-	(100.00)	-	14.84	-	14.84	5.20	0.74	-	5.94	17.81	-	-
Year 4	114.84	229.69	(229.69)	(100.00)	-	14.84	-	14.84	5.20	0.74	-	5.94	23.75	-	-
Year 5	25.18	-	(7.41)	-	(6.47)	11.30	(4.66)	6.64	2.32	0.33	0.13	2.79	26.54	-	-
Year 6	25.65	-	(7.41)	-	(6.59)	11.65	(4.59)	7.07	2.47	0.35	0.13	2.96	29.49	-	-
Year 7	26.14	-	(7.41)	-	(6.71)	12.01	(4.51)	7.50	2.63	0.38	0.13	3.13	32.63	-	-
Year 8	26.63	-	(7.41)	-	(6.84)	12.38	(4.44)	7.94	2.78	0.40	0.14	3.31	35.94	-	-
Year 9	27.13	-	(7.41)	-	(6.97)	12.76	(4.36)	8.40	2.94	0.42	0.14	3.50	39.44	-	-
Year 10	27.65	-	(7.41)	-	(7.10)	13.14	(4.27)	8.87	3.10	0.44	0.14	3.69	43.13	-	-
Year 11	28.17	-	(7.41)	-	(7.24)	13.53	(4.18)	9.34	3.27	0.47	0.14	3.88	47.01	-	-
Year 12	28.70	-	(7.41)	-	(7.37)	13.92	(4.09)	9.83	3.44	0.49	0.15	4.08	51.09	-	-
Year 13	29.24	-	(7.41)	-	(7.51)	14.32	(3.99)	10.34	3.62	0.52	0.15	4.28	55.38	-	-
Year 14	29.80	-	(7.41)	-	(7.65)	14.73	(3.89)	10.85	3.80	0.54	0.15	4.49	59.87	-	-
Year 15	30.36	-	(7.41)	-	(7.80)	15.15	(3.78)	11.38	3.98	0.57	0.16	4.71	64.58	-	-
Year 16	30.93	-	(7.41)	-	(7.95)	15.58	(3.66)	11.92	4.17	0.60	0.16	4.93	69.50	-	-
Year 17	31.52	-	(7.41)	-	(8.10)	16.01	(3.54)	12.47	4.37	0.62	0.16	5.15	74.65	-	-
Year 18	32.12	-	(7.41)	-	(8.25)	16.46	(3.42)	13.04	4.56	0.65	0.16	5.38	80.04	-	-
Year 19	32.72	-	(7.41)	-	(8.40)	16.91	(3.28)	13.62	4.77	0.68	0.17	5.62	85.65	-	-
Year 20	33.34	-	(7.41)	-	(8.56)	17.37	(3.15)	14.22	4.98	0.71	0.17	5.86	91.51	-	-
Year 21	33.97	-	(7.41)	-	(8.73)	17.84	(3.00)	14.84	5.19	0.74	0.17	6.11	97.62	-	-
Year 22	34.61	-	(7.41)	-	(8.89)	18.31	(2.85)	15.47	5.41	0.77	0.18	6.36	103.99	-	-
Year 23	35.27	-	(7.41)	-	(9.06)	18.80	(2.69)	16.11	5.64	0.81	0.18	6.63	110.61	-	-
Year 24	35.93	-	(7.41)	-	(9.23)	19.29	(2.52)	16.78	5.87	0.84	0.18	6.90	117.51	-	-
Year 25	36.61	-	(7.41)	-	(9.40)	19.80	(2.34)	17.46	6.11	0.87	0.19	7.17	124.68	-	-
Year 26	37.30	-	(7.41)	-	(9.58)	20.31	(2.15)	18.16	6.36	0.91	0.19	7.46	132.14	-	-
Year 27	38.01	-	(7.41)	-	(9.76)	20.84	(1.96)	18.88	6.61	0.94	0.20	7.75	139.88	-	-
Year 28	38.73	-	(7.41)	-	(9.95)	21.37	(1.75)	19.62	6.87	0.98	0.20	8.05	147.93	-	-
Year 29	39.46	-	(7.41)	-	(10.14)	21.92	(1.54)	20.38	7.13	1.02	0.20	8.35	156.28	-	-
Year 30	40.21	-	(7.41)	-	(10.33)	22.47	(1.31)	21.16	7.41	1.06	0.21	8.67	164.95	-	-
Year 31	40.97	-	(7.41)	-	(10.52)	23.03	(1.07)	21.96	7.69	1.10	0.21	8.99	173.95	-	-
Year 32	41.74	-	(7.41)	-	(10.72)	23.61	(0.83)	22.78	7.97	1.14	0.21	9.33	183.28	-	-
Year 33	42.53	-	(7.41)	-	(10.92)	24.20	(0.56)	23.63	8.27	1.18	0.22	9.67	192.95	-	-
Year 34	43.33	-	(7.41)	-	(11.13)	24.79	(0.29)	24.50	8.58	1.23	0.22	10.02	202.97	-	-
Year 35	44.15	-	(7.41)	-	(11.34)	25.40	-	25.40	8.89	1.27	0.23	10.39	213.36	-	-

Table A-3: Equity Sale Tax Receipts (Aggregate Income Statement, Sale Occurs Year 10)

	Revenues	Opex	EBITDA	Tax Depreciation	EBIT	Interest	EBT	Taxable Income	Federal Tax	State Income Tax	Sales Tax	Capital gains tax	Total	Cumulative	NPV of Tax Receipts @ 3%	NPV of Tax Receipts @ 5%
	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M	$ M
Total	2,381.75	(395.09)	1,986.65	(445.20)	1,541.46	(290.01)	1,251.45	1,288.64	451.02	64.43	7.90	-	523.36	-	192.83	103.22
Tax Rate									0.35	0.05	0.08
Year 1	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Year 2	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Year 3	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Year 4	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Year 5	38.98	(6.47)	32.52	(21.77)	10.75	(15.24)	(4.49)	-	-	-	0.13	-	0.13	0.13	-	-
Year 6	39.72	(6.59)	33.13	(41.36)	(8.23)	(15.01)	(23.24)	-	-	-	0.13	-	0.13	0.26	-	-
Year 7	40.47	(6.71)	33.76	(37.23)	(3.47)	(14.77)	(18.24)	-	-	-	0.13	-	0.13	0.40	-	-
Year 8	41.24	(6.84)	34.40	(33.53)	0.87	(14.52)	(13.65)	-	-	-	0.14	-	0.14	0.53	-	-
Year 9	42.01	(6.97)	35.05	(30.17)	4.87	(14.25)	(9.38)	-	-	-	0.14	-	0.14	0.67	-	-
Year 10	42.81	(7.10)	35.71	(27.13)	8.58	(13.97)	(5.39)	-	-	-	0.14	-	0.14	0.81	-	-
Year 11	43.62	(7.24)	36.38	(26.34)	10.04	(13.68)	(3.64)	-	-	-	0.14	-	0.14	0.96	-	-
Year 12	44.44	(7.37)	37.07	(26.34)	10.73	(13.37)	(2.64)	-	-	-	0.15	-	0.15	1.11	-	-
Year 13	45.28	(7.51)	37.77	(26.39)	11.39	(13.05)	(1.66)	-	-	-	0.15	-	0.15	1.26	-	-
Year 14	46.14	(7.65)	38.48	(26.34)	12.14	(12.71)	(0.57)	-	-	-	0.15	-	0.15	1.41	-	-
Year 15	47.01	(7.80)	39.21	(26.39)	12.83	(12.35)	0.47	-	-	-	0.16	-	0.16	1.57	-	-
Year 16	47.90	(7.95)	39.95	(26.34)	13.61	(11.98)	1.63	-	-	-	0.16	-	0.16	1.72	-	-
Year 17	48.80	(8.10)	40.71	(26.39)	14.32	(11.59)	2.73	-	-	-	0.16	-	0.16	1.89	-	-
Year 18	49.73	(8.25)	41.48	(26.34)	15.14	(11.18)	3.96	-	-	-	0.16	-	0.16	2.05	-	-
Year 19	50.67	(8.40)	42.26	(26.39)	15.88	(10.74)	5.13	-	-	-	0.17	-	0.17	2.22	-	-
Year 20	51.62	(8.56)	43.06	(13.50)	29.56	(10.29)	19.27	9.08	3.18	0.45	0.17	-	3.80	6.02	-	-
Year 21	52.60	(8.73)	43.87	(0.65)	43.22	(9.81)	33.41	16.38	5.73	0.82	0.17	-	6.73	12.75	-	-
Year 22	53.59	(8.89)	44.70	(0.65)	44.05	(9.31)	34.74	30.19	10.57	1.51	0.18	-	12.25	25.00	-	-
Year 23	54.61	(9.06)	45.55	(0.65)	44.89	(8.79)	36.11	36.11	12.64	1.81	0.18	-	14.62	39.63	-	-
Year 24	55.64	(9.23)	46.41	(0.65)	45.76	(8.23)	37.52	37.52	13.13	1.88	0.18	-	15.19	54.82	-	-
Year 25	56.69	(9.40)	47.29	(0.65)	46.63	(7.65)	38.98	38.98	13.64	1.95	0.19	-	15.78	70.60	-	-
Year 26	57.76	(9.58)	48.18	-	48.18	(7.05)	41.13	41.13	14.40	2.06	0.19	-	16.65	87.24	-	-
Year 27	58.85	(9.76)	49.09	-	49.09	(6.41)	42.68	42.68	14.94	2.13	0.20	-	17.27	104.51	-	-
Year 28	59.97	(9.95)	50.02	-	50.02	(5.74)	44.28	44.28	15.50	2.21	0.20	-	17.91	122.42	-	-
Year 29	61.10	(10.14)	50.96	-	50.96	(5.03)	45.93	45.93	16.08	2.30	0.20	-	18.58	141.00	-	-
Year 30	62.25	(10.33)	51.93	-	51.93	(4.29)	47.63	47.63	16.67	2.38	0.21	-	19.26	160.26	-	-
Year 31	63.43	(10.52)	52.91	-	52.91	(3.52)	49.39	49.39	17.29	2.47	0.21	-	19.97	180.23	-	-
Year 32	64.63	(10.72)	53.91	-	53.91	(2.70)	51.21	51.21	17.92	2.56	0.21	-	20.70	200.92	-	-
Year 33	65.85	(10.92)	54.93	-	54.93	(1.84)	53.08	53.08	18.58	2.65	0.22	-	21.45	222.38	-	-
Year 34	67.09	(11.13)	55.97	-	55.97	(0.94)	55.02	55.02	19.26	2.75	0.22	-	22.23	244.61	-	-
Year 35	68.36	(11.34)	57.02	-	57.02	-	57.02	57.02	19.96	2.85	0.23	-	23.04	267.64	-	-
Year 36	69.66	(11.55)	58.10	-	58.10	-	58.10	58.10	20.34	2.91	0.23	-	23.47	291.11	-	-
Year 44	80.91	(13.42)	67.49	-	67.49	-	67.49	67.49	23.62	3.37	0.27	-	27.26	495.58	-	-
Year 45	82.44	(13.68)	68.76	-	68.76	-	68.76	68.76	24.07	3.44	0.27	-	27.78	523.36	-	-

The Table 3 above describes the cash flows associated with the sale of a revenue-risk P3. The table does not display the years 37 to 43.

Figure A-1: Tax Receipts under Revenue Risk Scenario

Figure A-1 above shows the annual and cumulative receipts of Federal, State, and Sales taxes for a revenue-risk P3. Due to the accumulated NOLs, the P3 project is only effectively paying taxes after Year 22 for a total aggregate amount of approximately $512 million.

Figure A-2: Tax Receipts under Availability Payment Scenario

Figure A-2 above shows the annual and cumulative receipts of Federal, State, and Sales taxes for an availability payment P3. The Availability Payment P3 pays taxes immediately without benefiting from any NOLs. The total aggregate amount is approximately $213 million.

Figure A-3: Tax Receipts under Equity Sale of Revenue Risk Scenario

Figure A-3 above shows the annual and cumulative receipts of Federal, State, and Sales taxes for the sale of a portion of the equity in a revenue-risk P3. In this scenario, the P3 starts paying taxes in Year 20 after NOLs are used. The capital gains tax proceeds do not appear, as they are offset by NOLs.

Footnotes

¹⁰⁴ Please note that for federal income tax purposes: 1. Interest expense incurred on debt proceeds not yet spent is generally deductible; 2. Interest expense incurred on debt proceeds spent to construct project assets is generally capitalized to the tax basis of the assets; 3. Interest expense incurred on debt proceeds after completion of construction is generally deductible.

¹⁰⁵ See FASB Rules for more information on this topic

¹⁰⁶ Treatment of capitalized interest (interest accrued on debt attributable to, and incurred during, construction activities) would depend on whether the project is accounted for using (a) the concessionaire's general method of accounting (e.g., accrual) (i.e., typically for the entirety of revenue risk projects, and for the portion of an availability payment project not accounted for using the percentage of completion method), or (b) the percentage of completion method (i.e., the portion of an availability payment project accounted for using the PCM).

¹⁰⁷ See the Tax Foundation State Corporate Income Tax Rates and Brackets for 2016

¹⁰⁸ See Thomas Reuters Indirect Tax Rate Reports 2015

¹⁰⁹See Section 3.2.1 for more information on this topic

¹¹⁰ To the extent that major maintenance costs result in permanent improvements or betterments of a project, the costs would generally be characterized as a capital expenditure and be required to be capitalized to the cost of the relevant asset(s) and depreciated over the applicable recovery period of such asset. Routine maintenance that does not result in a betterment of an asset may generally be deductible when incurred.

¹¹¹ The purchasing partner does not inherit the remaining balance of net operating losses from the selling partner. However, any remaining NOLs of the selling partner do not disappear with the sale and may continue to be utilized by the seller to the extent the seller generates income from other sources subsequent to the sale. An analysis regarding the utilization of the seller's net operating losses post-sale is beyond the scope of this analysis.

¹¹² We note that the net operating losses accumulated by the selling partner could be used to offset other businesses' income depending on the corporate structure of the selling partner, but this analysis is beyond the scope of this exercise.

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