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KRLS 105 > Economic Funding > Flashcards

Economic Funding Flashcards

1
Q

How does the public sector pay for its investment in sports and recreation infrastructure?

A
  • hard taxes

- soft taxes

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2
Q

Hard taxes:

A
  • burden falls on most or all taxpayers

- hard to implement because typically require voter approval

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3
Q

Soft taxes:

A
  • hotel-motel (bed); rental cars; liquor or cigarette (sin); athlete
  • easier to levy because borne by small group
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4
Q

Bonds:

A

long-term debt instruments that allow local governments to borrow in advance (typically from a bank) the money needed to underwrite construction costs

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5
Q

How are bonds repayed?

A

taxes are collected and proceeds are used to repay the bonds over a specified time period (usually 15-30 years)

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6
Q

Bonds allow the government to …

A

pay off the debt in instalments over time instead of creating a large tax increase

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7
Q

Primary source of revenue for local governments:

A

hard taxes (general property tax)

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8
Q

General property tax is used because….

A
  • other taxes (business, sales, income) might actually reduce tax base
  • property is immobile so easier to tax
  • principle of ability-to-pay
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9
Q

What type of tax is general property tax?

A
  • hard tax

- a benefit tax

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10
Q

When property values go up, city can ____ tax rate.

A

reduce

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11
Q

When general property tax is used to fund capital projects, a _____ is almost always required.

A

referendum

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12
Q

Largest single source of revenue for many US states:

A

general sales tax (hard tax)

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13
Q

General sales taxes are typically at rate between ___ - ____%.

A

3 and 10%

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14
Q

In the US, general sales taxes can be used by…

A
  • cities

- counties

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15
Q

The greater the area covered by the general sales tax, the ____ revenues generated and the greater the _____ of the tax burden.

A
  • more

- dispersion

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16
Q

Soft taxes place burden on _____ group. Many targeted at ______.

A
  • smaller

- non-residents

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17
Q

Tourist taxes occurs 2 ways:

A
  • hotel or occupancy tax

- car rental tax

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18
Q

How is tourist tax justified?

A

on grounds that tourist will be beneficiaries of infrastructure development

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19
Q

Why can tourist tax be an unpredictable source of revenue?

A

due to fluctuations in tourism market

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20
Q

Hotel taxes:

A
  • soft tax
  • aka bed taxes
  • usually levied at rate of 2-5%
  • used frequently in US to fund major league sports facilities
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21
Q

Car rental taxes:

A
  • soft tax
  • average 8% in US
  • problem: half of car rentals may be from local residents
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22
Q

Sin taxes:

A
  • soft taxes
  • alcohol and cigarettes
  • problem: very regressive; costs borne by those who can’t afford it
23
Q

Player taxes:

A
  • aka jock taxes
  • visiting players pay a tax for work done while in the designated area
  • nonresident players pay tax
  • usually defined in terms of duty days, at rate of 1-4%
  • some US states raise up to $10M a year this way
24
Q

Player taxes in Alberta:

A
  • visiting NHL players pay based on games played in Alberta, as well as home-based players in Calgary and Edmonton
  • discontinued
25
Q

Player taxes in city of Pittsburgh:

A

1% tax on players used to service debt on sports stadiums

26
Q

Debt financing:

A
  • money borrowed from a lending institution, then debt serviced through instalments over a set period
  • revenues from hard or soft taxes pledged to repay debt obligation
  • preferred method from a political perspective
27
Q

Downside of debt financing:

A

interests costs paid over length of the repayment period

28
Q

Upside of debt financing:

A

payments spread out over time to reduce annual tax burden

29
Q

Why is debt financing more equitable to taxpayers?

A

if paid upfront, we would burden taxpayer of today who might never use the facility in the future

30
Q

Bonds is a certificate with 3 elements:

A
  • a face value
  • a fixed rate of interest
  • a maturity date
31
Q

Maturity date:

A

the point at which the bond must be repaid in full

32
Q

Serial retirement schedule:

A

bonds sequenced with different maturity dates so that a number of bonds get paid off over time

33
Q

Graduated serial retirement schedule:

A

annual principal payment increases over duration of borrowing period

34
Q

Never set a maturity date that is longer than…

A
  • the life of the project

- try to align with lease length

35
Q

General obligation bonds:

A
  • an unconditional promise to repay debt
  • usually secured through property taxes
  • because they are guaranteed, come with lower interest rate
  • because all taxpayers bear the burden, must get approval (referendum)
36
Q

Statutory debt ceiling:

A

limit on amount that governments can borrow

37
Q

Certificates of obligation:

A
  • do not require voter approval
  • still unconditional promise to repay
  • a public hearing is announced
  • electorate can request a referendum
  • also retired over designated period
38
Q

When are certificates of obligation typically done?

A

when investment is needed quickly and/or doubts

39
Q

Nonguaranteed debt:

A
  • used due to resistance toward guaranteed debt

- debt repaid by revenue streams, but government not obligated to make up shortfalls

40
Q

3 advantages to nonguaranteed debt:

A
  • voter approval not required
  • does not count against government’s debt ceiling
  • if revenues to repay debt drawn directly from the project, then those benefitting from project pay for it
41
Q

Cities will generally agree to make up any shortfall with general revenues for 2 reasons:

A
  • to reduce investor risk and lower borrowing rate

- defaulting would damage city’s reputation in investment markets

42
Q

Nonguarenteed debt revenue bonds:

A
  • where revenues from facility used to repay debt (user pay)
  • no vote required
  • does not count against debt ceiling
  • higher interest rates as not guaranteed
  • can only use in facilities that turn a profit
  • may result in higher user fees
43
Q

7 steps to certificates of participation (COP):

A
  1. intermediary organization (IO) sells COPs to financial institution (FI)
  2. FI delivers funds to IO
  3. IO pays builder to construct facility using COP funds
  4. builder deliver facility to IO who holds title
  5. IO signs lease with facility operator (FO)
  6. FO pays lease fee to IO that is enough to cover annual debt charges on COP
  7. IO pays FI debt charges on FI
44
Q

When COPs are paid off, title usually transfers to ____.

A

FO

45
Q

Bank may also sell COPs, called _____ _____ in the project.

A

participation shares

46
Q

Tax increment financing (TIF):

A
  • tool for facilitating urban development
  • cities or other entities allowed to create district to subsidize development costs
  • incremental increase in taxes in redeveloped area used to service debt on the development
  • tax-increment bonds secured by increase in property taxes in are
47
Q

TIF districts exist for a set amount of time, such as ____ years.

A

15-25

48
Q

When TIFs are used for sport facilities, facility viewed as _____ or _____ for broader development.

A
  • centerpiece

- catalyst

49
Q

Advantages of TIF:

A
  • no tax increases required

- when TIF dissolved, city receives additional tax revenues

50
Q

Disadvantages of TIF:

A
  • incremental increases in tax base used to service debt, not address increased infrastructure demands within the district
  • risk that development will not occur at anticipated rate, or appraised development not high enough
51
Q

Community revitalization levy (CRL):

A
  • same logic as TIF

- proposed to fund part of new arena development in Edmonton

52
Q

Private-placement bonds:

A
  • organization developing the facility issues long-term, fixed rate certificates to private lenders
  • may include private pension funds, insurance companies
  • secured by facility revenues (similar to revenue bonds)
  • sometimes guaranteed by a private party (such as a team owner)
53
Q

Asset-backed securitization:

A
  • a variation on private-placement bonds
  • most credit-worthy streams are bundled and sold to private investors
  • does not require all revenue from a facility to be pledged to debt service
  • future cash flow from these sources essentially sold to investors
54
Q

Examples of sources for asset-backed securitization:

A
  • naming rights
  • concession contracts
  • corporate sponsorship deals

KRLS 105 (16 decks)

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