Section 4- Part 5-7 Flashcards
Other Forms of Revenue
License fees
User Fees
Donations
Lotteries and Gambling
Investment Income
Public-Private Partnerships
License Fee
Fee paid to the government for a specific privilege, often related to an activity. Ranges from recreation (fishing license) to business (real estate license).
User Fees
Fee imposed on the specific beneficiary of a good or service. User fees range from the admission charge for a museum, to tuition at a municipal day-care center.
Governments impose user fees to ensure that beneficiaries of the service pay for the service; to fully or partially recover costs; and to expand services without raising taxes.
Donations
Voluntary contribution that confers no rights or benefits on the giver.
A city “adopt a pothole” or “adopt a sidewalk” program is based on donations. A school district may receive donations for new playground equipment. A state university may receive a multimillion-dollar donation for medical research. And when citizens file their annual federal income tax forms, they are invited to make a donation to reduce the national debt.
Note: Donations are not always voluntary. For instance, each year the Transportation Security Agency collects valuable property, including cash, which travelers leave behind at airport security checkpoints
Lotteries and Gambling
State-controlled gambling, used by many states as a source of revenue.
Investment Income
Many states sponsor a Local Government Investment Pool (LGIP). The LGIP operates much like a mutual fund, but the investors are exclusively government entities. The LGIP may contain only local government resources, or may mingle state and local government funds. The respective state establishes investment policies for the LGIP; investment policies vary widely.
Public Private Partnerships
Many public services are provided through public-private partnerships. Each partnership is tailored to meet local circumstances. One example is a hospital facility constructed by a private developer, who provides the capital investment, then leases it to the public hospital authority. The private developer acts as landlord, providing housekeeping and other nonmedical services, while the public hospital authority provides medical services.
Overview: Government Debt
Purpose of Debt
Debt Limitations
Underfunded Liabilities
Other Considerations
Purpose of Debt
The most common purpose of debt at state and local levels is to fund capital improvements. Given the high cost of constructing new buildings, highways or other infrastructure, current receipts typically do not provide enough cash to fund these projects. Long-term debt allows capital projects to be paid for as they are used—over a period of many years
Refunding and Advance Refunding
Occasionally, governments will issue new debt that allows them to pay off existing debt at more favorable interest rates, similar to when individuals refinance a home at lower mortgage interest rates. This is called a refunding.
In advanced refunding, the proceeds from the new debt issue are not directly applied to the old debt. The new debt proceeds are used to buy securities that are placed in escrow; the interest from the escrow account is used to retire the old debt
Debt (Fed, State, Local)
At state and local levels, long-term debt is seldom, if ever, used to pay for current operating expenses. Most states have constitutions or statutes that limit government debt (including debt of lower-level entities) to capital improvement projects. If debt is issued to finance operating needs, it is usually due to timing differences and must be repaid within the fiscal year.
In contrast, the U.S. Constitution allows the national government to use debt to fund current operating expenses, which accounts for the size of the national debt. The national debt of the United States is the amount owed by the federal government of the United States. The measure of the public debt is the value of the outstanding Treasury securities at a point of time that have been issued by the Treasury and other federal government agencies
Short Term Debt
Debt may also be used to provide interim (short-term) financing in anticipation of future receipts. These are called tax anticipation notes or TANs, revenue anticipation notes (RANs), or grant anticipation notes (GANs). Short-term financing for capital projects is accomplished through use of bond anticipation notes (BANs).
Debt Limitations
All governments are limited as to the amount of debt they can incur. Even the national government, with its penchant for deficit spending, is subject to debt limits that are set and periodically raised by Congress.
Covenants
Legal requirements pertaining to a specific bond issue. Typically defines the maturity date, revenue stream that will be used to repay the debt, interest rate and repayment schedule. May require a sinking fund and may specify conditions that must be met while the bonds are outstanding, and/or before new debt can be issued.
Ex of Covenant
s illustration, if a city plans to issue debt to fund a new electricity plant, the covenant might specify:
* The bonds are to be repaid over 25 years, with revenues generated from billings to electricity customers.
* A reserve account must be established with minimum funds to cover one year’s debt service.
* Projected cash flows from operations must equal at least 200 percent of annual debt service.
