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47 Cards in this Set
- Front
- Back
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Hard taxes
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-Burden falls on most or all taxpayers
-Hard to implement because it typically requires voter appeal |
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Soft taxes
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Hotel-motel (bed), rental cars, liquor or cigarette (sin)
-Easier to levy because borne by a small group |
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Bonds
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-"long-term debt instruments that allow localgovernments to borrow in advance (typically froma bank) the money needed to underwriteconstruction costs”
-Taxes are then collected and the proceeds are used to repay the bonds and over a specific time period -Allows the government issuing the bonds to pay off the debt in instalments over time instead of creating a large tax increase |
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Primary source of revenue for local governments
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General property tax
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Why are general property taxes used (a hard tax)
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because other taxes (business, sales, income) might actually reduce tax base
-Principle of ability-to-pay |
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Property is immobile, making it...
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easier to tax
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HARD TAXES, GENERAL PROPERTY TAX. If not paid...
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Can have tax lien placed on property (gov't takes your property until you pay your taxes).
-can appeal assessment -General property taxes are "benefit taxes"-providing a public service |
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When property values go up, city can respond by..
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Reducing tax rates
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Soft taxes places burden on..
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Smaller groups
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Many soft taxes targeted at
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Non residents-Tourist taxes
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Tourist taxes
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Occurs in two ways
-Hotel/occupancy tax -car rental tax * justified on ground that tourist will be beneficiaries of infrastructure development *unpredictable source of revenue |
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Tourest taxes: Hotel taxes
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-Also called "bed taxes"
-Levied (taxed) at rate of 2%-5% -Used frequently in US to fund major league sport facilities |
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Tourist taxes: Car rental
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-Average 8% in the US
-Problem: half of car rentals may be from local residents |
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Soft taxes: sin taxes
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-Taxed to discourage consumption
-Alcohol & cigarettes -Problem; very regressive, taxes borne by those who can't afford it |
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Player taxes "jock taxes"
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-Visiting players pay a tax for work done while in area
-Nonresident players pay a tax -Defined in terms of duty days |
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Debt financing
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-Money borrowed from a lending institution, then debt serviced through installments over a set period
-Revenues from hard or soft taxes pledged to repay debtobligation |
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Downside to debt financing
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Interests costs paid over length of the repayment period
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Upside to debt financing
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Payments spread out over a period of time to reduce annual tax burden
-If paid upfront, would burden taxpayer who may never use facility |
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Bonds
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A promise by the borrower to repay the lender a certain amount of money over a certain amount of time (with interest)
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three components to bonds
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-A face value (such as $5000)
-A fixed rate of interest (such as 6%) -A maturity date – the point at which the bond must be repaid in full |
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Serial retirement schedule
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– bonds sequenced with different maturity dates so that a number of bonds get paid off over time
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Graduated serial retirement schedule
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– annual principal payment increases over duration of borrowing period
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Never set a maturity date that is
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longer than the life of the project – try to align with lease length.
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General obligation bonds
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-An unconditional promise to repay debt
-Usually secured through property taxes |
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Statutory debt ceiling
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Limit on amount of money that governments can borrow
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General obligation bonds come with lower
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Interest rates
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Because all taxpayers bear the burden of general obligation bonds, this requires a
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referendum
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Certificates of obligation
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-Do not require voter approval
-Still unconditional promise to repay -A public hearing is announces -Electorate can request a referendum -Also retired over designated period -Usually done when investment is needed quickly |
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Non guaranteed debt used due to
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Resistance toward guaranteed debt
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Nonguaranteed debt repaid by
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Revenue streams, but gov't not obligated to make up shortfall
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Three advantages to nonguaranteed debt
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-Voter approval not required
-Does not count against gov't debt ceiling -If revenues to repay debt are drawn directly from project, then those benefitting from project pay for it |
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Cities will generally agree to make up shortfalls for non guaranteed debt for two reasons (non guaranteed debt)
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-To reduce investor risk and lower borrowing rate
-Defaulting would damage city's reputation in investment markets |
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Revenue bonds
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-Revenue from facility used to repay debt-user pay
-No vote -Doesnt count against debt ceiling -Higher interest rates as not guaranteed -Only facilities that turn a profit -Higher user fees |
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Certificates of participation ****** WAT
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1. Intermediary organization, such as nonprofit rec org (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 delivers facility to IO who holds title 5. IO signs lease with facility operator 6. FO pays lease to IO that is enough to cover debt charges on COPs 7. IO pays FI debt charges on FI *when COP's are paid off, title usually transfers to FO |
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Certificate of participation models
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-Public trust model
-Public private partnership model - |
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Public trust model
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-Where lease fees are a revenue stream from the facility
-If revenues less than projected, then shortfall id covered by public agency's general fund |
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Public private partnership model
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-Same as Public trust model, 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 |
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Tax increment financing is a tool used for..
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Facilitating urban development
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Tax increment financing- Cities or other entities allowed to create district to
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subsidize development costs
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Tax increment financing
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-Incremental increase in taxes in (re)developed area used in service debt on the development
-Tax increment bonds secured by increase in property taxes in area -TIF districts exist for a set amount of time -When used for sport facilities, facility viewed as centrepiece or catalyst for broader development |
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TIF Advantages
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-No tax increase required
-When TIF dissolved city receives additional tax revenues |
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TIF disadvantages
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Incremental increase in tax base to service debt
Risk that development will not occur at anticipated rate, or appraised development not high enough |
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Community revitalization levy
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Same logic as TIF
-Proposed to fund part of new arena development in edmonton |
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Private placement bonds
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-organization developing the facility issues long term, fixed rate certificates to private lenders
-May include private pension funds, insurance companies -Secured by facility revenues -Sometimes guaranteed by a private party |
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Asset-cacked securitization
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-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 |
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Examples of sources of asset-backed securitization
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-Examples, Naming rights, concession contracts, corporate sponsorship deals
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Future cash flow from Asset-back sources essentially sold to
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Investors
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