Economics and Financing

Question 1

Hard taxes

Answer 1

burden falls on most or all tax payers, hard to implement because typically require voter approval

Question 2

Soft taxes

Answer 2

hotel-motel, rental cars, sin taxes, easier to levy because borne by small group

Question 3

Bonds

Answer 3

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

Question 4

General property tax

Answer 4

primary source of revenue for local governments, used because other taxes might actually reduce tax base, property is immobile so easier to tax, principle of ability to pay, a benefit tax, tax base, tax rate, must pay - can have tax lien placed on property, can appeal assessment

Question 5

General sales taxes

Answer 5

largest single source of revenue for many US states, typically at rate between 3-10%, can be used by cities and counties in US, the greater the area covered by the tax, the more revenues generated and the greater the dispersion of the tax burden

Question 6

Tourist taxes

Answer 6

hotel or occupancy tax, car rental tax - justified on grounds that tourist will be beneficiaries of infrastructure development

Question 7

Hotel taxes

Answer 7

“bed taxes”, usually levied at rate of 2-5%, used frequently in US to fund major league sports facilities

Question 8

Car rental taes

Answer 8

avg 8% in US, problem = half of car rentals may be from local residents

Question 9

Sin taxes

Answer 9

very regressive, costs borne by those who can’t afford it

Question 10

Player taxes “jock”

Answer 10

visiting players pay a tax for work done in area, nonresident players pay tax, 1-4%

Question 11

Debt financing

Answer 11

similar to the way individuals purchase cars or homes, money bored from a lending institution then debt serviced through instalments over a set period, revenues from hard or soft taxes pledged to repay debt obligation, downside is interest costs paid over length of the repayment period, upside is payments spread out over time to reduce annual tax burden, preferred method from a political perspective, ore equitable to taxpayers – if paid upfront would burden taxpayer of today who might never use the facility in the future

Question 12

Bond 3 elements

Answer 12

face value, fixed rate of interest, maturity date

Question 13

General obligation bonds

Answer 13

unconditional promise to repay debt

Question 14

Statutory debt ceiling

Answer 14

limit on amount that govt can borrow

Question 15

Certificates of obligation

Answer 15

do not require voter approval, unconditional promise to repay, public hearing announced, electorate can request referendum, also retired over designated period

Question 16

Non guaranteed debt

Answer 16

used due to resistance towards guaranteed debt, debt repaid by revenue streams, but govt not obligated to make up shortfalls

Question 17

Three advantages of NG debt

Answer 17

voter approval not required, does not count against govt debt ceiling, if revenues repay debt drawn directly from the project then those benefiting from the project pay for it

Question 18

Cities generally agree to make up shortfall because

Answer 18

two reduce investor risk and lower borrowing rate, defaulting would damage city’s reputation in investment markets

Question 19

Non guaranteed debt revenue bonds

Answer 19

where revenues from facility used to repay debt - user pay, no vote, no count to debt ceiling, higher interest rates as NG, can only use in facilities that turn a profit, may result in higher user fees

Question 20

COP public trust model

Answer 20

lease fees are a revenue stream from the facility (eg. An arena or golf course) and
revenues less than projected, then shortfall is covered by public agency’s general fund

Question 21

COP Public-private partnership model

Answer 21

Same as above, except public agency does not take direct operational responsibility for facility
Instead, turns it over to private company to manage day-to-day operations
Works best when expertise needed

Question 22

Tax increment financing TIF

Answer 22

tool for facilitating urban development, allowed to create district to subsidize development cost, exists for set amount of time

Question 23

TIF advantages

Answer 23

no tax increases required, when dissolved city receives additional tax revenues

Question 24

TIF disadvantages

Answer 24

incremental increases in tax base used to service debt, not address increased infrastructure demands within the district (police, fire, roads, etc.), risk that development will not occur at anticipated rate, or appraised development not high enough

Question 25

Private placement bonds

Answer 25

organization developing the facility issues longterm fixed rate certificates to private lenders, may include private pension funds, insurance companies, secured by facility revenues, sometimes guaranteed by a private party

Question 26

Asset-backed securitization

Answer 26

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

Question 27

Examples of sources of asset-backed:

Answer 27

Naming rights, concession contracts, corporate sponsorship deals