Bond financing allows private or public bodies to spread the burden of cost for a program or project over a long period of time. In some instances, the program created as the result of a bond issue provides enough revenue to pay off the bond; in other cases, general tax revenues are required for repayment. Thus, a project must have enough political support within a jurisdiction to win approval because the people of the designated area pay for the bond either through higher taxes or user fees. States and "special districts" or regions are authorized to issue bonds yielding interest that is exempt from federal taxation to finance programs with some recognized national public interest.
Governments raise revenue mostly through taxes. Taxes can be grouped into three general categories: income taxes, property taxes, and taxes on goods and services. Personal and business income is taxed by national, state, and some local governments. Rates may be progressive or flat. Taxing income creates incentives for taxpayers to reduce their liabilities by changing the form or the place income is earned or by changing the amount of effort they expend to earn taxable income.
Taxing personal property, such as real estate, boats, and automobiles, is common among local governments. Exemptions for government property and leaseholds are often granted, and some personal exemptions may be granted as well. Real estate taxes are thought to be appropriate for financing local government
services enjoyed by all residents (police and fire protection, for example) but are increasingly being supplemented by specific user fees.
Taxes on goods and services are charged by most states and include taxes on many consumer items. Broad-based sales and value-added taxes are like consumption taxes or income taxes with exemptions for savings. In addition, excise taxes are sometimes levied on specific commodities to provide revenues for government programs related to the commodity (federal gasoline taxes) or to discourage consumption (taxes on alcohol and tobacco, for example). If the market price of an activity does not fully reflect its full economic costs, taxing it may improve the allocation of resources by reducing excessive demand.
Examples of Taxes
Motor Fuels and Petroleum Production Taxes
Because recreational boating has an impact on water quality, marine fuel taxes may be viewed as an equitable method for financing both the capital and operating expenses of water quality improvements. This tax applies to both resident boaters and people who use their boats for transportation, thereby making the tax more equitable and harder to circumvent than boat registration fees. Commercial carriers are currently assessed a federal marine fuels tax that is used to finance the Inland Waterways Trust Fund. State taxes on marine fuels can be assessed on both commercial and recreational users.
Tourist Development and Impact Taxes
The quality of marine resources in the United States is affected by activities that support seasonal tourism. For example, the use of package plants by hotels, motels, and restaurants has been suspected of increasing nutrient loadings. Revenue generated by taxes on lodging and meals can be used to offset some of the costs of tourist-related impacts.
Foodfish and Shellfish Taxes
Another method of financing activities to protect water quality and enhance foodfish and shellfish resources is a foodfish and shellfish tax. Washington state levies a tax on the person with first possession of foodfish or shellfish for commercial purposes after it has been caught. The state is currently investigating removing the exemption for aquaculture. The tax rate is on a variable scale by type of fish or shellfish.
In Maryland and Georgia, a shellfish tax is levied on the leasing of commercial shellfish harvesting areas. In Virginia, a saltwater take fee is applied to "taking" or harvesting oysters by the commercial shellfish industry. Virginia requires both vendors and fishermen to document the amount of oysters sold.
Proceeds from these taxes are generally used for resource management and assisting commercial fishermen. Activities to improve water quality could also be funded as resource management and enhancement. Although the burden of these taxes in Maryland and Georgia falls directly on commercial fishermen, it is assumed that some of the burden of the tax is shifted to consumers in the form of higher shellfish prices. Washington's tax is imposed directly on consumers.
Aquatic Lands Leasehold Tax
In Washington state, a leasehold tax on all public lands leased to private parties (including aquatic lands) is levied at both the state and local levels. Properties are charged at a rate of 12.84 percent on the contract or true rental value of lands that are exempt from property taxes.
This category covers a range of taxes charged on specific pollutants. The state of Florida has, for example, three pollutant taxes that are allocated to various water quality related trust funds. A coastal protection tax of two cents per barrel is charged for pollutants produced in, or imported into, the state. Under this tax, pollutants include petroleum products, pesticides, chlorine, and ammonia. Proceeds from this tax are allocated to the Coastal Protection Trust Fund to be used by the Florida Department of Environmental Resources for cleaning up spills. The tax will remain in force until the balance of the trust fund reaches or exceeds $50 million. If the U.S. Department of the Interior approves offshore oil drilling in the waters off the Florida coast, the cap on the Coastal Protection Trust Fund will be increased to $100 million.
Nine other states also impose some type of pollutants tax. Washington state has a pesticide tax of 0.7 percent of the wholesale value of the product. Consideration has been given to basing the amount of the tax on toxicity, persistence and bioaccumulation of the pesticide. Activities toward which the proceeds from this tax could be directed include pollution control, household hazardous waste programs, wetlands, storm water, environmental education, and environmental enforcement.
Several states currently charge taxes on goods or activities that have a perceived impact on public resources. Rather than having a number of specific fees, an impact tax could cover all public costs associated with development, for example. Alternatives for levying impact taxes on development are: per unit charges for new construction (i.e., per living unit, square foot, or land unit area), an excise tax on construction materials, a gross receipts tax on contractors and developers,
and a rezoning tax based on the category to which the land is zoned and the number of acres. The amount of revenue generated by impact taxes would depend on the amount of development. The funds could be used to finance water quality and habitat enhancement related activities, such as wastewater and storm water treatment and wetlands preservation or mitigation.
Surtaxes on Sales Taxes
General sales taxes may provide substantial revenue that is allocated via various appropriation and revenue sharing programs. These revenues may not always provide for the complete financing needs of a state or region, and in some cases governments may authorize additional sales taxes to meet specific needs. This is the case in Florida, where in addition to general sales taxes the state of Florida allows certain ''discretionary sales surtaxes" to be levied.
Impact of Taxes
Taxes, whether on income, pollutants, resource uses, or sales of goods and services, can provide a significant source of revenue for marine resource management programs. Unfortunately, some taxes, such as personal income taxes, tend to be allocated to general revenue funds from which monies must be appropriated for specific programs. There is no guarantee that funds allocated one year will be available in subsequent years, making it difficult to finance long, ongoing programs with these taxes. Sales and use taxes can be more easily tied to specific programs, as has been done in Florida. These taxes can also be used to discourage the use of, or to mitigate the impacts of, goods and services that have an adverse effect on the environment.
The major disadvantages of taxes are their unpopularity and their often unequal impact on various segments of the population. Generally, taxes require voter approval, and gaining public acceptance can be a costly process. Sales and use taxes have been criticized as regressive because all goods and services are taxed at the same rate regardless of the purchaser's ability to pay. In addition, although a few sales and use taxes can have a relatively small impact, in combination they can create a significant burden. Implementation of numerous taxes can also create additional administrative burdens and costs.
Whether a tax is equitable depends both on the item on which the tax is assessed (i.e., property, goods, or services) and the way the tax is implemented. Most of the sales and use taxes identified in this section have been considered equitable taxes for the purposes of natural resource quality enhancement and environmental protection on the basis that the goods and services on which the taxes are levied affect water quality and the environment. These taxes are merely a variation of the "polluter pays" principle.
GRANTS AND LOANS
Marine resource management programs should be viewed as unique cooperative arrangements between the federal government and states or regions. A number of sources of state and federal funds are available for financing resource management, protection, and restoration. Information on funding sources is available in the Catalog of Federal Domestic Assistance published by the U.S. Office of Management and Budget (OMB, 1994).
INNOVATIVE SOURCES OF FUNDING
Financing alternative marine area governance and management programs will require the creative use of financial resources. Financing alternative marine area governance programs solely through federal and state taxes, grants, low interest loans and cost-sharing programs, and bond issues is becoming increasingly difficult. As pressures on government budget increase and many funding sources are reduced or eliminated, alternative sources of financing will have to be developed.
Alternative financing is not complicated, but it has been shrouded in mystery for many years because, as long as federal and state funding sources could be relied upon, creative financing was not necessary. One basic premise of finance is identifying a steady, reliable source of revenues to repay the costs of implementing a project.
Revenues are streams of funds collected periodically, but reliably, for services or benefits rendered. Revenues can be generated in many ways, for example, user fees, impact fees, special surcharges, and utility rates. Revenue streams are ideally suited to support the ongoing operations and management requirements of a management program. Once a revenue stream has been dedicated to pay for the operations and management and debt repayment requirements of a management program, then sources of capital can be identified and committed to the program.
Capital is usually a lump sum of funds used to build a facility or other capital asset. Most capital (or commitment to provide capital) arrives at the beginning of a management program and is used to develop program infrastructure. Sources of capital for a management program include the bond market or any capital market; banks and other financial institutions, such as insurance, finance, and leasing companies; and private investors, such as corporations, foundations, and individuals. Capital will not be invested in a program, however, until a steady, reliable source of revenue can be identified and dedicated to the program for debt repayment and maintenance.
Just as a diverse group of people will enjoy the opportunities provided by marine area management programs, so too should diverse sources of funding be used to pay for these programs. No single source of funds should be relied on. A few innovative ideas for identifying steady, reliable sources of revenues and capital to support management programs are outlined below.
Establish special assessment districts (e.g., watershed or ecosystem management districts.) A special assessment district is an independent government entity formed to finance governmental services for a specific geographic area. These districts can range in size from a city block to a multijurisdictional area. Special districts focus the costs of enhanced services on the beneficiaries of those services by separating benefitted taxpayers from general taxpayers. Residents of special districts pay taxes (usually in the form of increased tax rates) to finance improvements from which they will benefit. If, for example, citizens in a certain geographic area are interested in reclaiming area wetlands or enhancing recreational opportunities by improving the quality of a waterway, a special district can provide needed structure, management, and financing.
Special districts have the power to levy taxes and to collect fees and special assessments to pay for the development and operation of management programs. Special districts may issue revenue bonds to finance revenue-generating programs, such as fee-based wetland preserves or fee-based fisheries management. Special districts can issue debt, independent of region or state, thus reducing the burden on general debt capacity.
Dedicate a sales tax surcharge on certain products, such as prepared foods and beverages, to management programs. A surcharge is added to the existing prepared food and beverage sales tax. Revenues generated are dedicated to specific beneficial use projects. The surcharge may be time-limited (e.g., 10 years), with optional renewal by the legislature.
Price at full cost the public sector service fees associated with coastal and marine resource management programs (e.g., commercial fisheries management.) Existing fee systems associated with public sector oversight programs are modified to cover most or all of the costs of a program. The fee system should ensure that staff, supplies, and overhead costs associated with program development and implementation are covered.
Implement tax-increment financing (similar to a special assessment district.) This technique requires the creation of a special district when a government-financed enhancement is made that benefits the residents of the special district. From that time on, two sets of tax records are maintained for the district: one that reflects the value of assets up to the time of the enhancement and one that reflects growth in assessed property value in the district after the enhancement. Tax revenues collected on the increased property values can be diverted to pay for the cost of the government-financed program in the special district. In some cases, governments issue tax-increment bonds for revitalization projects, with the bond being backed, in part, by the anticipated increase in property values resulting from the investment.
Tax-increment financing differs from a special assessment district in that property tax rates are increased in a special assessment district to cover improvements made in the district. In special districts utilizing tax-increment financing, tax rates may not be increased, but additional revenues are collected based on increased assessed property values enjoyed after the improvements are made.
Office of Management and Budget. 1994. Catalog of Federal Domestic Assistance. Library of Congress No. 73-600118. Washington, D.C.: Government Printing Office.