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Transportation Funding & Financing

Nonprofit 63-20 Financing


The use of nonprofit corporations (sometimes referred to as "63-20 Corporations") in structuring public/private infrastructure financings can preserve the ability for a project to be financed with tax-exempt bonds, while maintaining for both the public and private participants most of the benefits of private development.

Public benefit corporations have long been used as a vehicle to finance the construction of public buildings, including hospitals, court houses and schools. Historically, such projects have been accomplished through the use of nonprofit corporations to avoid statutory debt limitations and other restrictions. More recently, private developers in association with public agencies around the country have also begun to utilize the nonprofit structure to develop major transportation projects, particularly those involving innovative contracting and PPPs. Rather than issuing debt through an established conduit, debt issuance is done through a nonprofit corporation pursuant to IRS Revenue Ruling 63-20.

Qualified Projects

Any transportation project with a secured revenue source could be financed through the formation of a 63-20 corporation. The use of a nonprofit project sponsor could facilitate the qualification of a project to receive public funds because the revenues of the project would not inure to any private party. It also may be possible for the nonprofit corporation to issue public or privately-placed debt if it can enter into fixed and certain long-term contracts for the use of the facility.


The first public-private partnership transportation project in the U.S. financed through a 63-20 corporation was the Southern Connector, a 16-mile four-lane road linking Interstates 85 and 385 in southern Greenville County, South Carolina. It was completed in February 2001, nine months ahead of schedule. About $200 million in toll revenue bonds were issued by the Connector 2000 Association, a public benefit corporation established to partially finance the project.

The Pocahontas 895 near Richmond, Virginia, an 8.8-mile, four-lane tolled highway, was originally financed partially through toll-backed revenue bonds issued by the Pocahontas Parkway Association, a 63-20 corporation. The highway was sold to Transurban, a private Australian toll road operator, in June 2006, which defeased all of the NFP's underlying debt. A case study for this project can be found on FHWA's Public-Partnerships website.


An public benefit corporation is a private, non-stock corporation that may be formed under the nonprofit corporation act of a state. The formation does not require special legislation, nor does it require a referendum in the local or sponsoring jurisdiction. An public benefit corporation may be formed for any lawful purpose other than for pecuniary profit, including, without limitation, any charitable, benevolent, educational, civic, or scientific purpose.

Public benefit corporations are regulated by a state's Attorney General for compliance with relevant state legislation, as well as state tax authorities for compliance with the requirements relating to their state income tax exemption, and the Internal Revenue Service for compliance with the requirements relating to their Federal income tax exemption and the issuance of tax-exempt debt.

Such debt may be issued on a tax-exempt basis, which would result in significant savings in financing costs to the project. Notwithstanding the fact that the nonprofit corporation is private, it may qualify to issue tax-exempt debt if it satisfies certain IRS requirements, including those set forth in Revenue Ruling 63-20 and Revenue Proclamation 82-26, as follows:

  • The corporation must engage in activities which are essentially "public in nature"
  • It must be not organized for profit
  • The corporate income must not inure to any private person
  • The State or political subdivision must have a "beneficial interest" in the corporation while the indebtedness remains outstanding
  • The corporation must be approved by the State or the political subdivision, which must also approve the specific obligations issued by the corporation
  • Unencumbered legal title in the financed facilities must vest in the governmental unit after the bonds are paid

The rules for determining whether the governmental unit has the requisite "beneficial interest" in the nonprofit corporation are likewise quite straightforward:

  • The governmental unit must have exclusive beneficial possession and use of at least 95 percent of the fair market value of the facilities; or
  • If the nonprofit corporation has exclusive beneficial use and possession of 95 percent of the fair market value of the facilities, the governmental unit appoints 80 percent of the members of the board of the corporation and has the power to remove and replace members of the board; or
  • The governmental unit has the right at any time to obtain unencumbered title and exclusive possession of the financed facility by defeasing (paying off or providing for payment of) the bonds.

Further information can be obtained by contacting:

Barney A. Allison
Attorney at Law
777 South Figueroa Street, 34th Floor
Los Angeles, CA 90017
T 213.612.7800 F 213.612.7801
D 213.612.7847


Summary of IRS Section 63-20 Ruling.pdf (7 KB)
Establishes the conditions which corporations must meet in order to be considered "non-profit" organizations.