The constitutionality of using the states’ and municipalities’ participation funds as guarantees in public-private partnerships: Constitutional limits and challenges for federative financial governance

Abstract

Objective: This article examines the constitutionality of using revenues from the State Participation Fund (FPE) and the Municipal Participation Fund (FPM) as guarantees in Public-Private Partnership (PPP) contracts. It aims to clarify the distinction between ex ante budgetary earmarking, prohibited by Article 167, IV of the Federal Constitution, and ex post conditional asset allocation typical of guarantees, assessing constitutional, jurisprudential and fiscal foundations that support this practice.

Method: The study adopts a legal-doctrinal and documentary approach, analyzing Supreme Court decisions, opinions of the Federal Attorney General’s Office, Federal Court of Accounts precedents and subnational experiences. It also examines escrow account structures, fiscal limits established by the Fiscal Responsibility Law and accounting guidance provided by the MCASP.

Findings: The results indicate that the use of FPE and FPM revenues as guarantees, when structured as conditional allocation and not as prior budgetary earmarking, is compatible with the constitutional prohibition on revenue earmarking. The mechanism enhances project bankability, mitigates default risk and facilitates private investment, provided that transparency, patrimonial segregation, fiscal responsibility and specific legal authorization are ensured.

Conclusions: The study concludes that the prudent use of FPE and FPM as guarantees in PPPs is constitutional, fiscally sound and beneficial for federative financial governance. It recommends the adoption of a national public guarantees framework, standardized accounting procedures and strengthened transparency to enhance legal certainty and reduce asymmetries among subnational governments.