Category Archives: Infrastructure

Infrastructure Default and Recovery Rates, 1983-2016

Source: Moody’s, Data Report, July 27, 2017
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This study is an update to our previous publication, “Infrastructure Default and Recovery Rates, 1983-2015,” published in July 2016, and focuses on the credit and ratings performance of Moody’s-rated infrastructure securities from 1983-2016. We first characterize the infrastructure universe on the basis of its regional and sectoral distributions, overall default and credit loss rates, ratings distribution, and ratings stability. We then compare the ratings performance of the infrastructure universe vis-à-vis non-financial corporate (NFC) issuers by examining migration rates, default and credit loss rates by rating as well as rating accuracy metrics. Appendix 4 examines the performance of the infrastructure universe over the past ten years, i.e., 2007-2016.

Special Issue: Reforming State and Local Tax Systems

Source: Public Finance Review, Volume: 45, Number: 4, July 2017
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From the introduction:
State tax reform is fundamentally different than federal tax reform. States are continually modifying their taxes to meet revenue challenges and to cope with the changing structure of the national and regional economy. Most state tax reforms are modest affairs and not major rewrites of the tax codes. Reforms must consider the existing institutional structure of the state, state economic policies, and current state politics. Nonetheless, there are some common themes in reforms across the states, including an expansion of the sales tax base to include services and a broadening of the base for income taxation.

Articles include:
What Drives State Tax Reforms?
James Alm, Trey Dronyk-Trosper, Steven M. Sheffrin

State tax reform is fundamentally different than federal tax reform. States are continually modifying their taxes to meet revenue challenges and to cope with the changing structure of the national and regional economy. Most state tax reforms are modest affairs and not major rewrites of the tax codes. Reforms must consider the existing institutional structure of the state, state economic policies, and current state politics. Nonetheless, there are some common themes in reforms across the states, including an expansion of the sales tax base to include services and a broadening of the base for income taxation.

Personal Income Tax Revenue Growth and Volatility: Lessons and Insights from Utah Tax Reform

Gary C. Cornia, R. Bruce Johnson, Ray D. Nelson

In order to reduce the volatility of the personal income tax in Utah, review and reform efforts recommended a simple flat tax that disallowed all deductions or exemptions. Among the reasons for the recommended flat tax was the argument that it would result in a more stable year-over-year tax revenue stream. This was especially important for education financing. The tax system that was finally adopted retained exemptions and deductions through a tax credit. Using a series of simulations based on twenty-one years of tax returns, we establish that by retaining exemptions and deductions, tax reform efforts failed to appreciably reduce the volatility of personal income tax revenues. These simulations also show that the initially proposed flat income tax with no exemptions or deductions would have decreased volatility at the cost of reducing the growth rate. This study contributes insights, caveats, methodology, and potential alternatives for future individual income tax reforms by focusing on the growth and volatility of three different tax systems.

Reducing Property Taxes on Homeowners: An Analysis Using Computable General Equilibrium and Microsimulation Models
Andrew Feltenstein, Mark Rider, David L. Sjoquist, John V. Winters

We consider a proposal that reduces by half the taxes on homesteaded properties and replaces the lost revenue by increasing the base and rate of the state sales tax. We develop a computable general equilibrium (CGE) model and a microsimulation model (MSM) to analyze the economic and welfare effects of such a proposal if adopted in Georgia. The results from the CGE model suggest that the proposed reforms have a substantial negative effect in percentage terms on Georgia’s economy. The MSM suggests that such a policy has no effect on the distribution of consumption by income class but increases the percentage of owner-occupied housing relative to rental housing by 20 percent in the aggregate.

Does Perception of Gas Tax Paid Influence Support for Funding Highway Improvements?
Ronald C. Fisher, Robert W. Wassmer

The issue for this research is whether perception of the rate and amount of fuel taxes paid by an individual influences his or her support for funding highway improvements from any source of revenue. A survey of likely California and Michigan voters demonstrates that they often overestimate the rate of their state’s gasoline excise tax and the subsequent amount they are likely to pay for this tax in a month. Regression analyses show that voter misperceptions concerning the magnitude of state fuel taxes affect their views regarding an increase in funding to support highway investment proposals. A reasonable policy implication is that the adoption of proposals to generate additional funds for highway investment is more likely if accompanied by a campaign identifying the existing rate of the state’s gasoline excise tax and the relatively small amount of this tax paid by the state’s typical driver.

State Export Promotion and Firm-level Employment
Andrew J. Cassey, Spencer Cohen

Most US states have export promotion programs, but it is unknown if these programs create long-term employment, which is often the policy’s stated goal. We merge administrative export promotion and employment data from Washington State to test the effect of firm-level export promotion on firm-level employment using the differences-in-differences estimator. We believe we are the first to have US state data at this level of detail. We find firm participation in an export assistance program increases firm-level employment fleetingly, but not in subsequent periods. Thus, we do not find a statistically significant impact to long-term employment from program participation.

Protecting the Vulnerable or Ripe for Reform? State Income Tax Breaks for the Elderly—Then and Now
Ben Brewer, Karen Smith Conway, Jonathan C. Rork

State governments have a long history of providing income tax relief to their elderly constituents. Our research investigates the current distributional and revenue effects of these tax breaks, as well as the economic status of the elderly, and explores how these measures have changed since 1990. Using data from the 1990 Integrated Public Use Microdata Series and the 2013 American Community Survey, combined with the TAXSIM calculator, we calculate current state income tax liabilities and revenues and simulate the effects of removing all age-related tax breaks. Our analyses reveal that the economic well-being of the elderly has grown substantially relative to the nonelderly and that state tax breaks primarily benefit the middle- and upper-income elderly. Revenue costs of these tax breaks have also grown substantially, and their modest and mixed effects on income equality, measured by changes in the Gini, cast doubt on equity as a justification.

The Water Infrastructure Finance and Innovation Act of 2014: Structure and Effects

Source: Sridhar Vedachalam, R. Richard Geddes, Journal – American Water Works Association, Volume 109 Number 4, April 2017

From the abstract:
Many US municipalities confront serious challenges due to aging water and wastewater infrastructure. Many systems require immediate repairs, upgrades, and replacement, but available funding is scarce. Readily available low-interest financing is of great help to such municipalities. The Water Infrastructure Finance and Innovation Act (WIFIA) approved by Congress in 2014 was a step in that direction. WIFIA is a five-year pilot program focused on supporting large-scale projects that may be under-served by existing state revolving funds (SRFs). The authors examine the structure and implementation of WIFIA and its impact on existing financing mechanisms. The cost of debt service in four representative communities in New York was compared under WIFIA, SRFs, and tax-exempt municipal bonds. Although WIFIA financing offered the lowest debt service cost, savings from WIFIA depended on the spread between US Treasury rates and borrowing rates of the SRF-administering agency.

2017 Bridge Report

Source: Eileen Houlihan, American Road & Transportation Builders Association (ARTBA), 2017

From the press release:
– List includes: Brooklyn & Throgs Neck (N.Y.), Yankee Doodle (Conn.), Memorial (Va.-DC) and Greensboro (N.C.) Bridges.
– 1,900 structurally deficient bridges are on the Interstate Highway System.
– Average age of a structurally deficient bridge is 67 years old, compared to 39 years for non-deficient bridges.
– 41% of U.S. bridges (250,406) are over 40 years old and have not had major reconstruction work.
– Website features listing of deficient bridges by state and congressional district.

Infrastructure Financing: A Guide for Local Government Managers

Source: Can Chen, John R. Bartle, ICMA and the Government Finance Officers Association (GFOA), 2017

From the summary:
Local governments play a key role in funding, operating, and maintaining local roads, bridges, airports, transit facilities, drinking water, sewer systems, and other types of infrastructure. Yet, as is widely publicized, these jurisdictions face a serious infrastructure deficit. While municipal bonds continue to be the key options for how local infrastructure is financed, local governments are exploring new ways to finance needed expansion, upgrades, and repairs.

According to a new white paper, “Infrastructure Financing: A Guide for Local Government Managers,” issued by ICMA and the Government Finance Officers Association (GFOA), alternative financing sources, properly selected and managed, can complement traditional sources to meet infrastructure needs. Tapping these sources not only leverages new resources, but also can make it possible to complete certain projects more quickly.

Across the United States, local governments face a serious infrastructure deficit and are exploring new ways to finance needed expansions, upgrades, and repairs. Despite the fact that eroding infrastructure is seen as one of the most urgent issues facing the country, in 2012, infrastructure funding was at its lowest percentage of total local government expenditures in more than 50 years.

Prepared by Drs. Can Chen of Florida International University and John R. Bartle of the University of Nebraska at Omaha, the white paper explores how local governments are addressing the challenge of bridging infrastructure financing gaps. In this context, they:
– Describe the full range of infrastructure financing methods currently in use.
– Document emerging methods in local infrastructure financing.
– Illustrate cases where local governments have explored alternative methods of infrastructure financing.
– Offer recommendations for local government managers who are considering the use of alternative infrastructure financing options.

Drinking Water State Revolving Fund (DWSRF): Program Overview and Issues

Source: Mary Tiemann, Congressional Research Service (CRS), CRS Report, RS22037, November 8, 2016

The Safe Drinking Water Act (SDWA) is the federal authority for regulating contaminants in public water supplies. It includes the Drinking Water State Revolving Fund (DWSRF) program, established in 1996 to help public water systems finance infrastructure projects needed to comply with federal drinking water regulations and to meet the SDWA’s health objectives. Under this program, states receive annual capitalization grants to provide financial assistance (primarily subsidized loans) to public water systems for drinking water projects and other specified activities. Between FY1997 and FY2015, Congress had appropriated approximately $20 billion, and more than 12,400 projects had received assistance through the program.

The latest Environmental Protection Agency (EPA) survey of capital improvement needs indicates that public water systems need to invest $384.2 billion on infrastructure improvements over 20 years to ensure the provision of safe tap water. EPA reports that, although all of the identified projects promote the public health objectives of the SDWA, just $42.0 billion (10.9%) of reported needs are attributable to SDWA compliance. A study by the American Water Works Association projects that restoring aging infrastructure and expanding water systems to keep up with population growth would require a nationwide investment of at least $1 trillion through 2035……

Infrastructure Finance and Debt to Support Surface Transportation Investment

Source: William J. Mallett, Grant A. Driessen, Congressional Research Service, CRS Report, R43308, November 17, 2016

…..The federal government’s largest source of support for surface transportation infrastructure is the Highway Trust Fund (HTF), which is funded principally by taxes on gasoline and diesel fuel. Funds from the HTF are distributed to state governments and local transit agencies for projects meeting federal standards. State governments, local governments, and transit agencies must also contribute their own resources because grants from the HTF do not meet states’ entire surface transportation capital needs. The federal government supports additional infrastructure spending by providing a tax exclusion for owners of municipal bonds, or “munis,” issued by state and local governments. The federal government also supports project finance through loan programs, such as the Transportation Infrastructure Finance and Innovation Act (TIFIA) program and the Railroad Rehabilitation and Improvement Financing (RRIF) program, which can help leverage private investment via public-private partnerships (P3s), and through federally authorized state infrastructure banks (SIBs).

All of these financing mechanisms impact the federal budget, although none are as costly as federal grant funding. With less federal support, financing places a greater burden on state and local governments to identify revenue sources to repay loans or to provide a return to private investors. In many cases, non federal revenue to finance a project is provided by a highway or bridge toll, but it could be a pledge of future sales tax or real estate tax revenue.

There are many legislative options that Congress might consider in modifying the federal role in surface transportation financing. This report considers five:
1. Creation of a new type of bond offering federal tax credits to investors in infrastructure.
2. Changes to the TIFIA and RRIF programs.
3. Greater encouragement for P3s.
4. Creation of a national infrastructure bank to provide low-cost, long-term loans for infrastructure on flexible terms.
5. Enhancement of SIBs that already exist in many states, possibly with dedicated federal funding……

The National Infrastructure Reserve Bank

Source: Stephen M. Hubbard, Public Works Management & Policy, Published online before print November 10, 2016
(subscription required)

From the abstract:
This article examines the implementation of a novel national infrastructure bank (NIB) which coins or “makes” U.S. currency to provide capital for infrastructure loans. This approach eliminates bond expense while reducing long-term life cycle costs caused by deferred maintenance and construction inflation. It also addresses the three main issues that have blocked prior NIB proposals by providing a near zero-cost source of capital, reducing the total size of government employment, and isolating funding from national politics while reducing costs by US$75 to US$220 billion and creating up to three million or more jobs annually.