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34 Grant Anticipation Revenue Vehicles (GARVEEs). State Infrastructure Bank (SIB) Loans GARVEEs are like GANs, but they have been largely restricted SAFETEA-LU contains a provision authorizing every state to use in financing highway improvements, generally in con- to set up a state infrastructure bank (SIB) that can manage a junction with advance construction to enable using federal- revolving loan fund, provide credit enhancements, or issue aid funds for future debt service payments. Fourteen states bonds capitalized with seed money from federal and state have issued GARVEE bonds, and authority to use GARVEEs sources. The use of SIB loans is included here because it rep- has been established in nine more.47 resents a means by which local transit agencies can exercise Revenue Anticipation Notes (RANs). Flows of funds added leverage in attracting and using the full range of local other than grant monies may be available to be borrowed and regional funding sources available. As of 2005, 33 states against, depending on their strength, yield, and reliability. had SIBs in operation. In the aggregate, these states have Although not in widespread use, a transit agency's earned entered into 457 loan agreements totaling over $5.0 million and have disbursed $3.7 million.49 income is available to be bonded against, including farebox revenues. New York's MTA; Los Angeles MTA; WMATA in Washington, D.C.; and Las Vegas all have issued RANs. 3.7 Public Transportation Funding Mechanisms Not in Widespread Use Certificates of Participation (COPs) Because of varying philosophies of governance and taxation Acquiring the use of capital equipment through leasing across state and local governments, arriving at an acceptable instead of outright, large capital purchases represents a capital mix of revenues to support public transportation has often budgeting and programming action that lies within agencies' resulted in combinations of unique revenue sources suited to traditional administrative authority, providing transit agencies the political and budgetary landscape of individual areas and a way of avoiding long-term debt as well as the associated need jurisdictions. Among these combinations are some of the tra- for voter approval. COPs are tax-free securities that represent ditional or common sources described above for which there the right to purchase a future stream of revenue made up of may be established authority but little willingness on the part lease payments for capital equipment. COPs have been used by of local and/or regional jurisdictions to put them to use and local government agencies for a variety of projects, generally other potential revenue sources that are only infrequently used with mid-level time horizons (10 to 12 years). For transit sys- to support public transit. tems, COPs are most often used for the acquisition of rolling stock--buses, subway cars, locomotives, and so forth. COPs have proven useful to large and small transit agencies for Traditional Sources Authorized many years. but Not Used--"Latent Sources" The size of COP issues can vary widely, and they have There are several instances in which traditional (and non- supported leasing of a few buses (e.g., Los Angeles' $1.6 mil- traditional) funding sources have been authorized for local lion lease of six buses in 1991) as well as leasing of hundreds and regional use through state legislative action, but have not of buses. The Sacramento Regional Transit District partici- been enacted at the local level. State department of transporta- pated in a COPs transaction valued at $32 million in 1992 tion transit program managers and state transit association for the acquisition of 75 buses. The City of Culver City, leaders were asked for examples of these "latent sources." California, participated in the sale of $10 million in COPs Examples from Florida, Iowa, Missouri, New Hampshire, to support part of the cost of a municipal transportation New Mexico, Oregon, Virginia, and Washington are discussed maintenance and administration facility for the city-owned below. bus lines.48 Florida 47AASHTO. "Grant Anticipation Revenue Vehicles (GARVEES)." Innovative "Charter County" transit systems (those that came into exis- Finance for Surface Transportation.org (website). Available at http://www. tence before 1984) are authorized to enact a 1-cent sales tax or innovativefinance.org/topics/finance_mechanisms/bonding/bonds_garvees. asp. "transit system surtax." To date, only MiamiDade County has 48 Collins, M. A. TCRP Legal Research Digest 13: Report on Innovative Financing Techniques for Transit Agencies. Transportation Research Board, 49Federal Highway Administration, U.S. Department of Transportation. National Research Council, Washington, DC, 1999. TransTech Management, Inc. and PA Consulting, Inc. TCRP Report 89: Financing Capital Investment: "SIB Highlights." FHWA's Innovative Finance Quarterly, Vol. 11, No. 1, Fall A Primer for the Transit Practitioner. Transportation Research Board of the 2005. Available at www.fhwa.dot.gov/innovativefinance/ifq1101.htm#sib_ National Academies, Washington, DC, 2003. highlights.

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35 done so, with proceeds available for all transportation, includ- Virginia ing transit. Recent state enactment of a series of regional "self-help" Consolidated local governments and small counties are transportation taxes has led to different strategies in the state's authorized to enact a local option gas tax. Not all eligible juris- two largest metropolitan regions--the metro Washington, dictions have chosen to do so. D.C., region (including Northern Virginia) and the Hampton Roads region. The authorized regional taxes include a real Iowa estate transfer tax, a 2-percent car rental tax, a 2-percent hotel- motel tax, a $10 safety inspection fee, a 1-percent initial regis- All municipal transit systems are authorized to enact a prop- tration fee, a 5-percent auto repair sales tax, and a $10 vehicle erty tax of 95 cents per $1,000 valuation for transit through a registration fee. In Northern Virginia, all taxes have been vote of city councils. Twenty of the 38 municipalities in Iowa enacted locally and will be used for a combination of transit make use of this authority, but none does so to the maximum and road projects. In Hampton Roads, the revenues will be authorized level. used only for road improvements, at least initially. Missouri Washington "First Class Counties" have the authority within their broader enabling legislation to enact up to a 1-percent sales A recent analysis suggests that significant revenues from tax for any transportation purpose. The one county transit authorized funding sources in the state of Washington are not agency formed under this authority has not chosen to enact being used, largely because of popular resistance to taxing at the 1-percent sales tax as a result of the county board's unwill- the local level. The analysis cited nearly $300 million in unused ingness to do so. sales tax authority and nearly $50 million in commercial park- State law also enables creation of transportation develop- ing and employee taxes.50 ment districts and transportation corporations, both of which have taxing authority, and both of which can provide Tax and Funding Sources Not Widely Used for transit service delivery. No such organizations have yet been created. There are numerous tax and fee mechanisms in existence that traditionally have not been in widespread use as funding sources for public transit investment or have been used only New Hampshire infrequently. Some of these are reserved for and used at the state level as a matter of the primary role of states in the federal sys- State law authorizes a local surcharge of up to $5 on vehi- tem, i.e., where general or specific state legislation or constitu- cle registration fees. This surcharge was originally intended tional provisions are required to empower local governments to to support transit improvements. Subsequent changes act. Other tax and fee mechanisms have been used infrequently broadened its use to all transportation projects. This cate- at the local level with grants of special state authority. gory still includes transit, but use of this surcharge has been A number of these sources are described briefly below. Some limited. may represent potential targets for new local and regional fundraising for transit. In other cases, however, enactment of New Mexico these tax or fee mechanisms on a local or regional level would not make sense. State law enables regional transit districts (RTDs) with more than two member jurisdictions to enact a 0.50-percent regional sales tax. Although four RTDs have been created under this Motor Fuel Taxes provision, none has enacted the tax. Motor fuel taxes are a type of sales tax or excise tax applied by all states to gasoline, diesel fuel, and gasohol at varying rates. Oregon State gasoline tax rates range from 4 to 36 cents per gallon on top of the 18.4-cent per gallon federal gas tax. Although it has The state of Oregon authorizes a number of local or regional taxes for supporting transit systems and services, including 50 Richard, J. "Revenue Sources for Transportation Financing." PowerPoint employer payroll taxes. Among those taxes authorized, how- presentation. Available at http://www.discovery.org/scripts/viewDB/files ever, neither business license fees nor income taxes have been DB-download.php?id=218#256,1,Revenues Sources for Transportation approved locally. Financing.

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36 not been a common source of transit revenue, a number of "Sin" taxes can provide considerable revenue along with states have authorized local option gasoline taxes, including the providing a disincentive to engaging in behavior that is consid- following: Alabama (1 to 3 cents); Alaska, Florida, and Hawaii ered undesirable by many. (8.8 to 18.0 cents); Illinois (5 cents in Chicago, 6 cents in Cook County); Mississippi and Nevada (4 to 9 cents); Oregon (1 to Cigarette Taxes. State excise taxes are charged on ciga- 3 cents); South Dakota (1 cent); Tennessee (1 cent); and rettes in all 50 states at an average rate of $1.11 per pack and Virginia and Washington (2 cents).51 In over 30 states, state ranging from 17 cents in Missouri to $2.59 in New Jersey. In constitutional provisions or state statutes preclude the direct addition to state taxes, more than 460 local jurisdictions use of state motor fuel tax revenues for purposes other than nationwide also tax cigarettes, bringing in over $500 million funding highways.52 annually.55 States with the largest number of localities with cigarette taxes include Alabama (240 cities and 46 counties), Missouri (120 cities and 2 counties), and Virginia (50 cities Income Taxes (Personal and Corporate) and 2 counties). Typically, cigarette tax revenues go to state State and federal income taxes, both personal and corporate, and local general funds as part of deficit reduction efforts, are well-known major revenue sources. Local income taxes are with significant amounts frequently supporting health care, far less common. Rare examples are the three county-level, education, and smoking prevention programs for children local option income taxes collected in some Indiana counties and adults. In addition to regular taxes on cigarettes, the 1998 and used predominantly for property tax relief. In Lafayette, multistate tobacco settlement is projected to yield $246 bil- Indiana, these taxes are used for transit as well.53 lion in settlements to states over the first 25 years.56 TriMet in A related revenue source is the business and occupation Portland, Oregon, is one of the few transit systems reporting (B&O) tax. The B&O tax is a gross receipts tax assessed on the revenues from state cigarette taxes, having reserved $844,000 value of products, gross proceeds of sale, or gross income of the in 2007. business. In Washington, one of seven states with no personal Liquor, Beer, and Wine Taxes. State excise taxes as well as income tax, the B&O tax is calculated on gross income from sales taxes are imposed on liquor in various forms nationwide, business activities. Rates vary by business classification.54 generally based on some combination of alcohol content, price, and/or volume.57 It is less common for local taxes to be "Sin" Taxes applied. For distilled spirits, state and local excise and sales taxes A number of taxing mechanisms, grouped under the head- account for 21 percent of the cost consumers pay per bottle.58 ing of "sin" taxes, have existed at the state level for hundreds State liquor tax rates in 2007 ranged from $1.50 to $12.80 per of years, including cigarette taxes; liquor, beer, and wine gallon, nationwide.59 While local liquor taxes are not as wide- taxes; gambling taxes; and lottery proceeds. These are typi- spread, there are instances of liquor taxes being applied in des- cally state-level taxing mechanisms, often with local analogs, ignated subareas of communities, e.g., special liquor taxes in that are used to support health and education programs and the downtown area of Minneapolis, Minnesota.60 For beer, the general spending, but are rarely used for transit investment. combination of state and federal excise and sales taxes accounts Exceptions include the use of state cigarette tax revenues to support Portland's MAX light rail transit system, the dedica- tion of state lottery proceeds to transit services for elderly per- sons in Pennsylvania, and the use of a Casino Revenue Fund 55 Boon, A. Top Combined State-Local Cigarette Tax Rates. Campaign for to support paratransit in New Jersey. Tobacco-Free Kids, Washington, DC, August 1, 2008. Available at http:// tobaccofreekids.org/research/factsheets/pdf/0267.pdf. 56 Campaign for Tobacco-Free Kids. "A Broken Promise to Our Children: The 1998 Tobacco Settlement Nine Years Later" 2007. Available at www.tobacco 51 Federation of Tax Administrators. "Motor Fuel Excise Tax Rates: January freekids.org/reports/settlements/2008/fullreport.pdf. 57 National Institute on Alcohol Abuse and Alcoholism. Alcohol Policy 1, 2008." Available at www.taxadmin.org/fta/rate/motor_fl.html. 52 Sundeen, M. and J. B. Reed. Surface Transportation Funding Options for Information System. "Discontinued APIS Policy Topics." Available at States. National Conference of State Legislatures, Washington, DC, May 2006. http://www.alcoholpolicy.niaaa.nih.gov/index.asp?Type=B_BASIC&SEC= 53 Purdue University, Department of Agricultural Economics, Cooperative {AB8BE556-BD09-4D82-AF6E-79FAEDC07329}. 58 "Tax bites."Americans for Tax Reform website. http://www.atr.org/special/ Extension Service. Hot Topic: CAGIT, COIT, EDIT, Whatzit? Indiana's Local Income Taxes (Online article). Available at http://www.agecon.purdue. taxbites/liquor.html (Accessed: Sept. 22, 2008). 59 Federation of Tax Administrators. "State Liquor Excise Tax Rates" (online edu/crd/Localgov/Topics/Hot_Topics/HotTopic_LocalIncomeTaxes.htm. 54 Other states include Alaska, Florida, Nevada, South Dakota, Texas, and document). Available at http://www.taxadmin.org/fta/rate/liquor.html. 60 "Special Local Taxes: Minneapolis, Rochester, St. Cloud, St. Paul." Sales Tax Wyoming according to GovSpot, "Which states have no personal income tax?" (online article), http://www.govspot.com/know/incometax.htm. Fact Sheet 164S. Minnesota Department of Revenue. Available at http:// Washington Department of Revenue, "Business & occupation tax," http:// www.taxes.state.mn.us/sales/publications/fact_sheets_by_name/content/ dor.wa.gov/content/FindTaxesandRates/BandOTax/default.aspx#whatis. BAT_1100112.pdf.

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37 for 20 percent of the consumer cost.61 State tax rates in 2007 sible for commercial airport ownership and operations) to ranged from 2 cents to $1.00 per gallon.62 In 2007, Allegheny collect fees on a sliding scale for each "enplaned passenger." County in Pennsylvania enacted a 10-percent tax on poured- ACRP Synthesis 1 reported that over $2.2 billion is raised alcoholic-drink revenues; this tax will support Port Authority from passenger facility charges (PFCs) each year and used Transit.63 For wine, state tax rates in 2007 ranged from 11 cents directly to fund FAA-approved projects that enhance safety, to $2.50 per gallon.64 security, or capacity; reduce noise; or increase air carrier There is little evidence of liquor taxes serving as a direct competition. These funds can also be used as leverage for source of funding for public transportation. debt to make such improvements. Because of overall levels of traffic congestion, "land-side" access to airports has Lotteries and Gambling. Lotteries are established in 42 become a major challenge, and increasing consideration is states, the District of Columbia, and the Virgin Islands. being given to using airport revenues in coordination with Typically, a significant portion of state lottery revenues are revenues from other agencies to support transit access to air- used to support state education programs and systems, ports. Examples of these kinds of arrangements include the although they frequently are used to support general fund following: expenditures.65 Several states use substantial portions of lot- tery proceeds to directly support public transportation. The Metropolitan Airports Commission in the Twin Pennsylvania dedicates lottery revenues to a Free Transit Cities provided $87 million to the Hiawatha Light Rail Program for persons over 65 years old traveling in off-peak hours as well as providing over $60 million to cover 85 per- project that links to the MinneapolisSt. Paul Inter- cent of door-to-door, shared-ride trip costs for seniors. In national Airport; The Port of Portland, Oregon, is a partner in the Airport New Jersey, 8 percent of casino gross revenues, roughly $30 million per month in 2007, is paid into the Casino Revenue MAX light rail extension to Portland's airport; and PFCs were used to support development of the Warwick, Fund, a portion of which supports a Senior Citizens and Disabled Residents Transportation Assistance Program.66 Rhode Island, Intermodal Station.68 Road Utility Fees Battery Tax The National Conference of State Legislatures describes the The National Conference of State Legislatures reports that possible addition to utility bills of an "access charge" against some states charge an excise tax on the sale of batteries; how- properties that are accessed by the state trunk highway system, ever, those revenues are used to support battery disposal pro- measured and sized in any of several ways, including trip gen- grams. Instituting local option battery taxes to support transit eration rates, amount of parking, number of employees, front projects might be possible, but it would likely be a poor rev- footage, or a flat fee.67 enue generator.69 Airport Passenger Facility Charges Special Districts as Funding Sources In 1990, the federal government authorized local and Pressures to limit traditional local and regional taxation regional airport authorities (or other public agencies respon- have given rise to the use of various special districts within which revenues can be raised to support necessary public services and facility improvements in the designated areas. 61 Americans for Tax Reform. "Tax bites." Available at http://www.atr.org/ California enacted the Mello-Roos Community Facilities Act special/taxbites/beer.html (Accessed: Sept. 22, 2008). in 1982, Arizona passed the Arizona Community Facilities 62 Federation of Tax Administrators. "State Liquor Excise Tax Rates" (online District Act in 1988, and Florida has similar legislation on the document). Available at http://www.taxadmin.org/fta/rate/liquor.html. 63 Pittsburgh Post-Gazette. "Drink Tax Would Have Significant Impact, Study books. The districts typically are created by local units of gov- Finds." November 29, 2007. Available at www.post-gazette.com/pg/07333/ ernment in advance of development and include the author- 837829-100.stm. ity to issue various types of bonds that are serviced by charges 64 Federation of Tax Administrators. "State Liquor Excise Tax Rates" (online document). Available at http://www.taxadmin.org/fta/rate/liquor.html. 65 www.usa.gov/Topics/Lottery_Results.shtml and www.naspl.org 66 68 "CCC Announces March Casino Revenue." Press release. New Jersey Nichol, C. ACRP Synthesis 1: Innovative Finance and Alternative Sources of Casino Control Commission, Atlantic City, NJ, April 10, 2006. Available at Revenue for Airports. Transportation Research Board of the National Acade- http://www.nj.gov/casinos/home/news/pdf/2007marchrevenue.pdf. mies, Washington, DC, 2007, pp. 89. 67 69 Sundeen, M. and J. B. Reed. Surface Transportation Funding Options for Sundeen, M. and J. B. Reed. Surface Transportation Funding Options for States. National Conference of State Legislatures, Washington, DC, May 2006, States. National Conference of State Legislatures, Washington, DC, May p. 33. 2006, p. 32.

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38 to property calculated through formulas that incorporate a Special Assessment Districts. Revenue from special variety of factors.70 assessment districts represents "remuneration that a govern- mental unit may demand from property owners to fund a public project which creates a `benefit' in properties lying Transportation Development Districts within a special geographic area known as a `special assess- Transportation Development Districts (TDDs) are a more ment district.' "72 State laws for the establishment of special specific form of community improvement or community assessment districts vary from state to state. While special facilities district intended to provide a means of raising funds assessment districts are in widespread use, there is little evi- for transportation improvements, typically through the use dence of resulting revenues playing a major role in support of bonding authority supported by tax increment procedures of transit services. or dedicated sales taxes. State-enabling legislation authoriz- ing formation of TDDs typically allows investment in tran- Tax-Increment Financing Districts. Tax-increment financing districts (TIFs) are a form of special district with the sit facilities, but has been focused predominantly on highway same purpose as special assessment districts; TIFs, however, and parking improvements. TDDs are established at the local are focused on capturing the added increment of a future level subject to processes and procedures established in state- stream of revenues from taxes that will rise as the value of the enabling legislation. State departments of transportation property increases in response to markets and public invest- play a large role in project planning, development, funding, ments of one type or another. Typically, the "tax increment" and prioritization for improvements on the state highway is used to repay bonds dedicated to fund the public improve- system; local jurisdictions maintain control of projects on ments that led to the increase in value and tax returns. The the local street and highway network. TDDs have been City of Cedar Rapids, Iowa, used a TIF to help finance a established in urban communities (areas with population ground transportation center that includes an intermodal over 50,000) and small urban communities (areas with pop- terminal, a 500-space parking garage, a 15-story private office ulation under 50,000). Mercer County, New Jersey, and building, a 96-unit elderly and handicapped housing project, communities in Missouri and Kansas have used this tech- and other amenities. nique to support varied transportation investments.71 Tax-increment financing has detractors, however, who take issue with the diversion of added increments of tax rev- 70 California Tax Data. "What is Mello-Roos" (online fact sheet). Available enue from community-wide programs and needs to site- at www.mello-roos.com/pdf/mrpdf.pdf. Froelich, C. "Comparison of specific improvements associated with new development. Improvement Districts and Community Facilities Districts." Development Detractors further dislike the use of site-specific revenues to Planning and Financing Group, Inc. Phoenix, AZ, November 2, 2004. Avail- able at http://www.dpfg.com/news/view_news.php?newsID=25. "Arizona advantage project sponsors and projects often located in Community Facilities District Act Overview." Development Planning and affluent areas where there may be less need to spur economic Financing Group, Inc., Phoenix, AZ, September 6, 2004. Available at http:// development. www.dpfg.com/news/view_news.php?newsID=17. 71 "Frequently Asked Questions--Transportation Development Districts (applies to `on state system' projects)." Missouri Department of Transpor- tation website, October 2004. Available at http://www.modot.org/services/ 72 community/documents/tdd.pdf. Dosedel vs. City of Ham Lake, Minn. App., 44 N.W.2d 751, 755.