Economics and Financing Flashcards
geographic area of impact
- provide, region, city
- usually reflects funding source
- displaced spending
expenditure approach
- Estimate attendance at an event
- Survey attendees to find spending associated with the event
- Apply multiplier to account for recirculation if money in local economy
- Multiplier: The degree to which spending induces additional rounds of spending
income approach
- Total payments to workers and suppliers in related industry
- Apply multiplier
substitution effect
If attendees spend money on an event instead of something else in the local economy = reallocation of expenditures, not net increase in economic activity
time switching
- Visit to city already planned
2. Schedule simply rearranged to accommodate event
casual visitors
Someone in an area for unrelated purpose but attends event while they are in town
incremental visitos
- Those who come to a region for the purposes of the event – direct spending fully attributable to the event
- These are the most important ones as they represent direct, new, spending as a result of the event
indirect spending
- recirculation of money in economy after direct spending on the event
- For example, event worker spends his/her salary on groceries
induced spending
how direct and indirect impacts affect earnings and employment
multiplier
- Helps to estimate indirect and induced impacts
- Estimates the number of times a dollar will get reused in an economy. Beware impact studies that employ a multiplier greater than 2
5 ways direct spending recirculates
1. Other private businesses in same economy Suppliers, maintenance, etc. 2. Employees in same economy Wages, tips, etc. 3. Local government Sales taxes, property taxes 4. Non-local government Sales taxes, taxes on profits 5. Employees, businesses, etc., outside the local economy
leakages
- Spending that does not remain in the local economy
- e.g. if economy is at or near full employment, may be hiring people who do not live in the area
crowding out
- May discourage economic activity in areas that are already popular as tourist destinations Where activity occurs during peak visiting times
- New event spending simply supplanting spending that would otherwise occur
- e.g. Athens Olympics
reverse time switcher
people who leave because of the event
Solutions to getting more accurate impact estimates
- Ignore local residents in impact estimates
- Exclude Time Switchers and Casual
- Consider costs and opportunity costs
mega event
- Huge infrastructure costs
- Huge operating costs
- Many estimates grossly exaggerated
physical impact of intangible benefits
the emotional impact that a community receives by virtue of hosting an event Impacts received by those not directly involved in the event. May be used to justify (part of) subsidy to build infrastructure or host an event
survey mythology
Respondents asked their willingness to pay an increase in taxes to see an increase in a public good (or avoid losing a public good)
hard taxes (investments of public sectors)
- Burden falls on most or all taxpayers
2. Hard to implement because typically require voter approval
soft taxes (investments of public sectors)
- Hotel-motel (bed); rental cars; liquor or cigarette (sin); athlete
- Easier to levy because borne by small group
bonds
- to raise the money to build something, and would tax it to pay back the bond
- Taxes are then collected and the proceeds are used to repay the bonds over a specified time period (usually 15-30 years)
- allows the government issuing the bonds to pay off the debt in instalments over time instead of creating a large tax increase
general property tax
- primary source of revenues for local governments
- used because other taxes
- tax is easier when property is immobile
benefit tax
Revenues from property taxes are used to finance expenditures that benefit property owners and therefore increase the value of the property (road improvements, tree lined roads, etc.)
tax base
The total value of all assessed property within a jurisdiction – determined by assessment
tax rate
The rate applied to the tax base that results in government getting the tax revenue it needs – determine how much you pay in property taxes
general property tax
- tax base
- tax rate
- everyone must pay
- can appeal assessment
- property owners may still pay more
general sales taxes
- largest source of revenues
- rate between 3% - 10%
- the greater the area covered by the tax, the more revenues generated and the greater the dispersion of tax burden
soft taxes
- places burden on smaller groups
2. many target at non residents
2 ways tourist taxes occurs
- hotel or occupancy tax
2. car rental tax
hotel taxes
- Also called Bed taxes
- Usually levied at rate of 2%-5%
- Example: San Antonio has 2% tax to fund arena, 6% general sales tax, 9% city occupancy
car rental taxes
- Average 8% in US
- Problem – half of car rentals may be from local residents
- Example, car rental industry in San Antonio took in $120M in revenues in one year. Means that local citizens using car rentals are paying an additional $3M per year towards the arena there.
sin taxes
Alcohol and Cigarettes
player taxes
- Visiting players pay a tax for work done while in the designated area
- e.g. Road team players must pay based on games played or duration in the city
- Nonresident players pay tax
- e.g. Can be home players, too
- Usually defined in terms of duty days, at a rate of 1%-4%
- For example, would represent game days, practice days, meeting days, promotional days, and pre- season training
- Some US states raise up to $10M a year this way Given high salaries of professional athletes
debt financing
- Similar to the way individuals purchase cars or homes
- 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
general obligation bonds
- An unconditional promise to repay debt
- Usually secured through property taxes
- Statutory debt ceiling -Limit on amount that governments can borrow
certificates of obligations
- Do not require voter approval
- Still unconditional promise to repay
- A public hearing is announced
- Electorate can request a referendum
non guaranteed debt
- Used due to resistance towards guaranteed debt
2. Debt repaid by revenue streams, but government not obligated to make up shortfalls
3 advantages of non guaranteed debt
- voter approval not required
- does not count against governments debt ceiling
- if revenues to repay debt drawn directly from the project, then those benefitting fm project pay for it
2 reasons for shortfall of general revenues
- to reduce investor risk and lower borrowing rate
2. defaulting would damage cities reputation in investment markets
non guaranteed debt - revenue bonds
- Where revenues from facility used to repay debt – “user pay”
- No vote required
3 .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
Certificates of Participation
- Intermediary organization (such as a nonprofit recreation organization)(IO) sells COPs to financial institution (FI)
- FI delivers funds to IO
- IO pays builder to construct facility using COP funds
- Builder delivers facility to IO who holds title
- IO signs lease with Facility Operator (FO)
- FO pays lease fee to IO that is enough to cover annual debt charges on COPs
- IO pays FI debt charges on FI
Tax Increment financing
- tool for facilitating urban development
- Cities or other entities allowed to create district to subsidize development costs
- Incremental increase in taxes in (re)developed area used to service debt on the development
- Tax-increment bonds secured by increase in property taxes in area
advantages of Tax increment financing
- no tax increase
2. when dissolved city receives additional tax revenues
disadvantages of Tax increment financing
- Incremental increases in tax base used to service debt
2. Risk that development will not occur at anticipated rate, or appraised development not high enough
Community Revitalization Levy (CRL)
- same logic as TIF
- tool for facilitating urban development
private placement bond
- organization developing the facility issues long-term, fixed rate certification to private lender
- include private pension funds and insurance companies
- secured by facility revenues
asset-backed securitization
- Most credit-worthy revenue streams are bundled and sold to private investors
- Does not require all revenue from a facility to be pledged to debt service (Naming rights, concession contracts, corporate sponsorship deals)
- Future cash flow from these sources essentially “sold” to investors
