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Van Slyke weighs in on tax law changes, PPPs in Bloomberg article

April 3, 2018


David M. Van Slyke

David M. Van Slyke

Reproduced with permission from Daily Tax Report, 42 DTR 4 (March 2, 2018). Copyright 2018 by The Bureau of National Affairs, Inc. (800-372-1033) <>

Tax Law Could Impede Another Trump Goal: Infrastructure

• Law limits tax breaks for public-private partnerships

• To get tax benefit, projects must be subject to existing comprehensive plan

By  Laura Davison

A last-minute wording change in the new tax law may limit the number of infrastructure public-private partnerships, one of the vehicles President Donald Trump has touted to finance his plan to revive roads, bridges, and airports.

The 2017 tax act limits the tax breaks for payments from government entities to private companies unless the monetary exchanges are tied to a “master development plan,” a term that isn’t defined in tax code Section 118.

The change could have the effect of limiting a host of undertakings—toll roads, real estate development, and environmental projects—that don’t meet the new standard.

Payments pursuant to master development plans are excluded from gross income, meaning the Internal Revenue Service’s determination about what is—or isn’t—such a plan could affect the economics of projects already in progress.

The new law also requires the master development plan to have been approved prior to the law’s enactment. Thus tax breaks for public-private partnerships won’t be available for projects that have yet to be fully planned. So the new airport that’s been in the works for some time could be safe, but the drainage system for a river that changes course in the future could be out of luck.

The new law puts a lot of pressure on how a master development plan is ultimately defined, Jason Washington, executive director at the National Council for Public-Private Partnerships, told Bloomberg Tax.

“Many public entities have development plans that are basically all the projects they would like to do over the next 10-15 years, but it’s not clear that those have enough specificity they’re requiring,” he said.

Infrastructure Week

The Trump administration has proposed using $200 billion in federal money to leverage an additional $800 billion from the private sector through public-private partnerships. The plan has been criticized for relying too heavily on private dollars, and the profitability of such ventures will need to be further examined in light of the new tax law. However, the tax law change could temper the cost of the $200 billion Trump has proposed to spend if a portion of that could be recaptured as tax revenue the recipients pay on those contributions.

Development agreements should have all the substantive terms of the deal, including the procedures for property acquisitions and easements; who is responsible for building what, and when and how the construction is paid for; responsibilities for complying with building standards and laws; project costs and reimbursement plans; timetables; and breach of contract provisions, according to a list of best practices from the Urban Land Institute.

The tax law changes are causing confusion among existing public-private partnership arrangements and prompting entities to look at possible ways to restructure deals that don’t comply with the new tax law, Brad Gould, a shareholder at Dean Mead in Fort Pierce, Fla., said.

“You can’t assume if you are getting money from government that it will be covered” by Section 118, Gould said.

Instead of capital contributions, which could now be taxable if they don’t meet the requirements of Section 118, companies could look to restructure the projects so that the public entity takes on more of the responsibility and owns the equipment, and the private partner just leases the land where the project is taking place, he said. Another option is for the government to use other tax incentives—such as steep property tax discounts—to woo potential partners. 

Money Talks

Discussions between public and private entities will ultimately come down to how profitable a deal is in light of the changes, David M. Van Slyke, dean of the Maxwell School of Citizenship and Public Affairs at Syracuse University, said.

“The real question is how profitable is profitable enough,” he said. Returns for the private partner typically fall between 8 percent and 12 percent, so if deals can meet that threshold they can usually get done, Van Slyke said.

Ultimately, the requirement for master development plans will probably lead to better-managed projects, Van Slyke said. These plans require due diligence to be done upfront, which leads to better outcomes. Maryland and Virginia, for example, have shown an aptitude for managing projects, particularly those where multiple levels of government are involved. In other states, such as Florida and Texas, results are more mixed, he said.

The law change could “limit the initial rush to get it started on some projects,” Van Slyke said. “But this should also facilitate more successful partnerships.”

By  Laura Davison

To contact the reporter on this story: Laura Davison in Washington at

To contact the editor responsible for this story: Meg Shreve at

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