Transcript Revenues Sources for Transportation Financing

Revenues Sources for Transportation
Financing
Jeffery A. Richard
Foster Pepper & Shefelman
Financing Transportation in Washington
• Combination of state, local and federal sources
• Traditionally relies primarily on excise taxes (sales tax,
gas tax and MVET)
• At least 50 different taxes are authorized by state law for
state and/or local transportation projects
Primary Existing Revenue Sources
• 28 cent statewide motor vehicle fuel tax – generates
approximately $910 million a year
• Local option sales taxes – generates approximately $1.1
billion a year
• Prior to its repeal in 2000, the state’s MVET generated
an additional $200+ million a year
Not all local option taxes have been used
• At least $300 million/year in remaining sales tax authority
• $60 million/year in local option MVET
• $50 million/year in commercial parking and employee
taxes
• Caveat: most unexercised local option taxes require
voter approval to impose
A Few Words on Bonds
• Bond financing provides government with funds
now in exchange for future revenues.
• Useful when a project requires more money up
front than is generated by a taxing district’s
immediate revenues and reserves and where it
is desirable to spread the cost equitably over the
projects useful life – like transportation projects.
• Two types of limits to how much bonds you can
issue: legal and practical
Legal Debt Limits
• State constitution limits nonvoted debt to 1 ½
percent of the value of the taxable property
within the jurisdiction.
• With a vote of 60% of the voters, additional debt
may be incurred, subject to a 5% limit.
• Revenue bonds do not count as “debt” for these
purposes.
Practical Bond Market Limitations –
Revenue, Credit and Interest Rates
• Ballpark Figure: assuming current interest rates,
approximately $1 billion of 25 year bonds with
an “A” rating could be issued leveraging a $100
million per year revenue stream with a debt
service coverage ratio of 1.5.
• For example, the RTID draft plan proposal
assumed annual revenues of $600 million per
year to support $12.8 billion of project
construction funded by bonds and cash.
Existing local option revenue sources
Tax
Who Can Impose ?
How Much In
Three Counties?
MVET
King, Pierce, Snohomish
counties or RTID
$80 million per year at
0.3%
Sales Tax
Sound Transit, Metro,
RTID
$60 million per year at
0.1%
Employee Tax Sound Transit, Metro,
three counties, RTID
$35 million per year at
$2 per employee
Commercial
Parking
Counties, cities, RTID
Uncertain.
Generated $4.6 million
in SeaTac
Gas Tax
Counties, RTID
$56 million per year at
2.8 cents
Potential New Revenue Sources
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System-wide Tolls
Tax Increment Financing (TIF)
Local Improvement District (LID)
Vehicle Mileage Tax (VMT)
Tolls
• Can be imposed on a single facility or on an
entire network
• Electronic tolling eliminates the necessity for
tolling plaza’s
• Congestion pricing on interstate highways is
permitted under certain circumstances
• Bonds supported by toll revenues do not count
as “debt” for purpose of calculating bond
capacity.
System-wide Tolls
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Collection of tolls across an entire network of
roads within a transportation system so that:
Revenue bonds can be issued across broad
area, reducing reliance on any single road
Economies of scale can be achieved in
measuring, collecting and billing
Potential diversion minimized
Rehabilitation and new lanes can be staged to
mitigate system congestion without loss of
revenue
2002 WSDOT Regional Toll Revenue Study
Toll Facility
Distance
Revenue - Low
Revenue - High
Viaduct
6.1 miles
$8.5 million
$14.8 million
SR 509
11.8 miles
$11.5 million
$20.1 million
I-5
43.1 miles
$102.8 million
$189.2 million
I-405
30.2 miles
$64.4 million
$119.0 million
SR 167
14.1 miles
$17.9 million
$32.5 million
I-90
13.3 miles
$24.1 million
$41.8 million
SR 520
12.8 miles
$23.0 million
$40.0 million
Total Network
131.3 miles $252.1 million
$457.3 million
Tax Increment Financing (TIF)
• TIF refers to a financing mechanism that allows
a local government to “trap” increased property
tax revenue resulting from the growth of
assessed value within an “increment area”.
• This tax revenue services debt issued to finance
public improvements that spur private
development within the increment area.
What Is An “Increment Area”?
An “increment area” is an area where the entity
creating the TIF expects that:
– the proposed public improvements will encourage
private development and increase the fair market
value of real property; and
– the anticipated private development will be consistent
with local and countywide planning policies.
• Those taxes derived from imposition of “regular
property taxes” on up to 75% of any increase in
the true and fair value of real property within an
increment area are allocated to the TIF.
Is a TIF financial feasible?
• Assessed value within an increment area must
increase by approximately $18 million to support
each $1 million of TIF bonds.
Legal Problems with TIFs
• Chapter 39.88 RCW, the prior TIF statutory
scheme, was ruled unconstitutional in Spokane
v. Leonard (1995) on the grounds it diverted tax
revenue intended to support the common
schools.
• Voters rejected attempts in 1973, 1982 and 1985
to amend Washington Constitution
• Washington’s newest TIF laws have not been
tested in court.
Local Improvement Districts (LID)
• Similar to a TIF, a LID is a special purpose
financing mechanism that may be created by
local government to fund improvements that
benefit property owners.
• Property owners who benefit from improvements
are assessed at levels proportionate to the
benefit they receive.
• Assessments cannot be greater than the benefit
to the property owners