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 TaxWho Can Impose ?How Much In Three Counties? MVETKing, Pierce, Snohomish counties or RTID $80 million per year at 0.3% Sales TaxSound Transit, Metro, RTID $60 million per year at 0.1% Employee TaxSound Transit, Metro, three counties, RTID $35 million per year at $2 per employee Commercial Parking Counties, cities, RTIDUncertain. Generated $4.6 million in SeaTac Gas TaxCounties, RTID$56 million per year at 2.8 cents

Potential New Revenue Sources 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 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 FacilityDistanceRevenue - LowRevenue - High Viaduct6.1 miles$8.5 million$14.8 million SR miles$11.5 million$20.1 million I miles$102.8 million$189.2 million I miles$64.4 million$119.0 million SR miles$17.9 million$32.5 million I miles$24.1 million$41.8 million SR miles$23.0 million$40.0 million Total Network131.3 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 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