Federal Tax Policy
Information on Selected Capital Facilities Related to the Essential Governmental Function Test
Gao ID: GAO-06-1082 September 13, 2006
Unlike state and local governments, Indian tribal governments are in general restricted to using tax-exempt bonds for activities that are an "essential government function," where "essential government function" does not include functions not customarily performed by state and local governments. This restriction has been difficult to enforce by the Internal Revenue Service (IRS) and increased the tax compliance burden on Indian tribal governments. GAO was asked for information on the number of facilities that state and local governments finance, construct, and operate in eight categories: (1) Rental housing, (2) Road infrastructure, (3) Parking garages and lots, (4) Community recreational facilities, (5) Golf courses, (6) Conference centers, (7) Hotel and tourist accommodations, and (8) State-owned gaming support facilities. GAO did not find a comprehensive, reliable source of the number of facilities. Instead, GAO searched and found a variety of public and private sources that had limited information on the amounts of financing provided by state and local governments in related categories.
Data sources showed state and local governments (municipalities) provided a wide range of financial support in the following types of facilities: (1) Rental housing: From 2000 through 2004 municipalities borrowed, in 2004 dollars, a total of $46.4 billion in 3,557 bond issues for multi-family housing projects. Over the period these borrowings accounted for 33 to 45 percent of debt issued for housing projects. (2) Road transportation: From 2000 through 2004 municipalities borrowed, in 2004 dollars, a total of $61.4 billion in 1,091 issues for toll roads and highways. Over the period these borrowings accounted for 27 to 38 percent of debt issued for transportation facilities. (3) Parking facilities: From 2000 through 2004 municipalities borrowed, in 2004 dollars, a total of $3.5 billion in 220 issues for parking facilities. In addition, about 73 percent of the U.S. population lived in metropolitan statistical areas (MSA) that reported positive user charges for parking facilities. (4) Park and recreation facilities: From 2000 through 2004 municipalities borrowed, in 2004 dollars, a total of $60.9 billion in 3,085 tax-exempt issues to build public facilities, including $0.6 billion in 29 issues for theaters; $6.1 billion in 723 issues for parks, zoos and beaches; $5.3 billion in 119 issues for stadiums and arenas; and $4.6 billion in 420 issues in other recreation facilities. In addition, about 75 percent of the U.S. population lived in MSAs that reported positive user charges for park and recreation facilities. (5)Golf facilities: In 2005 there were about 2,400 municipal golf courses, about 15 percent of total golf courses in the United States. Municipal golf courses exist in all states. At least 120 golf courses in 29 states have been identified as financed, at least in part, with tax-exempt bonds. About 5 percent of municipal golf courses are connected to resorts or real estate developments. (6) Convention centers: Over 300 government owned convention centers have been identified by government finance experts. In addition, from 2000 through 2004 municipalities borrowed, in 2004 dollars, a total of $11.1 billion in 236 issues related to convention centers. (7) Hotels: GAO identified 12 hotel projects related to convention centers or airports that were financed with tax-exempt bonds in recent years and additional data sources identify 39 tax-exempt financed hotel projects. (8) Gaming support facilities: According to financial and gaming reports all but 2 states have some form of legal gaming, and 41 states and the District of Columbia providing state lotteries. In addition, tax-exempt financing has been used for capital projects related to the gaming industry.
GAO-06-1082, Federal Tax Policy: Information on Selected Capital Facilities Related to the Essential Governmental Function Test
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Facilities Related to the Essential Governmental Function Test' which
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Report to the Ranking Minority Member, Committee on Finance, U.S.
Senate:
United States Government Accountability Office:
GAO:
September 2006:
Federal Tax Policy:
Information on Selected Capital Facilities Related to the Essential
Governmental Function Test:
Federal Tax Policy:
GAO-06-1082:
GAO Highlights:
Highlights of GAO-06-1082, a report to Ranking Minority Member,
Committee on Finance, U.S. Senate
Why GAO Did This Study:
Unlike state and local governments, Indian tribal governments are in
general restricted to using tax-exempt bonds for activities that are an
’essential government function,“ where ’essential government function“
does not include functions not customarily performed by state and local
governments. This restriction has been difficult to enforce by the
Internal Revenue Service (IRS) and increased the tax compliance burden
on Indian tribal governments.
GAO was asked for information on the number of facilities that state
and local governments finance, construct, and operate in eight
categories: (1) Rental housing, (2) Road infrastructure, (3) Parking
garages and lots, (4) Community recreational facilities, (5) Golf
courses, (6) Conference centers, (7) Hotel and tourist accommodations,
and (8) State-owned gaming support facilities.
GAO did not find a comprehensive, reliable source of the number of
facilities. Instead, GAO searched and found a variety of public and
private sources that had limited information on the amounts of
financing provided by state and local governments in related
categories.
What GAO Found:
Data sources showed state and local governments (municipalities)
provided a wide range of financial support in the following types of
facilities.
* Rental housing. From 2000 through 2004 municipalities borrowed, in
2004 dollars, a total of $46.4 billion in 3,557 bond issues for multi-
family housing projects. Over the period these borrowings accounted for
33 to 45 percent of debt issued for housing projects.
* Road transportation. From 2000 through 2004 municipalities borrowed,
in 2004 dollars, a total of $61.4 billion in 1,091 issues for toll
roads and highways. Over the period these borrowings accounted for 27
to 38 percent of debt issued for transportation facilities.
* Parking facilities. From 2000 through 2004 municipalities borrowed,
in 2004 dollars, a total of $3.5 billion in 220 issues for parking
facilities. In addition, about 73 percent of the U.S. population lived
in metropolitan statistical areas (MSA) that reported positive user
charges for parking facilities.
* Park and recreation facilities. From 2000 through 2004 municipalities
borrowed, in 2004 dollars, a total of $60.9 billion in 3,085 tax-exempt
issues to build public facilities, including $0.6 billion in 29 issues
for theaters; $6.1 billion in 723 issues for parks, zoos and beaches;
$5.3 billion in 119 issues for stadiums and arenas; and $4.6 billion in
420 issues in other recreation facilities. In addition, about 75
percent of the U.S. population lived in MSAs that reported positive
user charges for park and recreation facilities.
* Golf facilities. In 2005 there were about 2,400 municipal golf
courses, about 15 percent of total golf courses in the United States.
Municipal golf courses exist in all states. At least 120 golf courses
in 29 states have been identified as financed, at least in part, with
tax-exempt bonds. About 5 percent of municipal golf courses are
connected to resorts or real estate developments.
* Convention centers. Over 300 government owned convention centers have
been identified by government finance experts. In addition, from 2000
through 2004 municipalities borrowed, in 2004 dollars, a total of $11.1
billion in 236 issues related to convention centers.
* Hotels. GAO identified 12 hotel projects related to convention
centers or airports that were financed with tax-exempt bonds in recent
years and additional data sources identify 39 tax-exempt financed hotel
projects.
* Gaming support facilities. According to financial and gaming reports
all but 2 states have some form of legal gaming, and 41 states and the
District of Columbia providing state lotteries. In addition, tax-exempt
financing has been used for capital projects related to the gaming
industry.
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[End of Section]
Contents:
Letter:
Results in Brief:
Background:
State and Local Governments Provide Substantial Financing for Housing:
Transportation Facilities Often Are Publicly Financed by a Variety of
Methods:
Wide Prevalence of User Charges for Parking Suggest Customary Provision
by State and Local Governments:
Governments Provide Financing for a Wide Variety of Recreational
Facilities:
Numerous Municipal Golf Courses Exist, Some with Lodging Facilities:
Public Financing Is Provided to Numerous Convention Centers:
Different Sources Show Public Financing of Hotels and Related
Facilities:
State and Local Governments Support Gaming, but Extent of Public
Financing Is Difficult to Estimate:
Appendix I: Objective, Scope, and Methodology:
Appendix II: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: State and Local Government Housing-Related Borrowings and
Number of Issues:
Table 2: State and Local Government Transportation-Related Borrowings
and Number of Issues:
Table 3: Level of Parking User Charges in 171 Largest Metropolitan
Statistical Areas:
Table 4: State and Local Government Public Facilities-Related
Borrowings and Number of Issues:
Table 5: Regional Distribution of Municipal Golf Courses:
Table 6: Selected Hotels and Related Facilities Financed with Tax-
Exempt Bonds:
Figures:
Figure 1: Levels of Parking User Charges across Largest MSAs:
Figure 2: Levels of Parks and Recreation User Charges across Largest
MSAs:
Figure 3: Cumulative Number of Nonpark Municipal Resort Golf
Facilities:
Figure 4: Cumulative Number of Municipal Real Estate Development Golf
Facilities:
Figure 5: Cumulative Number of Major New Bond Issues for Convention
Centers:
United States Government Accountability Office:
Washington, DC 20548:
September 13, 2006:
The Honorable Max Baucus:
Ranking Minority Member:
Committee on Finance:
United States Senate:
Dear Senator Baucus:
Congress supports public capital formation by allowing investors to
exclude from gross income for the purpose of federal taxes the interest
received on state and local government bonds. In 2005, this tax benefit
resulted in lower borrowing costs for about 55,000 active bond issuers
but it cost the federal government over $26 billion of forgone tax
revenue. The total value of outstanding tax-exempt bonds as of January
2004 was about $1.8 trillion, or 11 percent of the domestic bond
market.
In order to restrict the benefits of tax exemption to government
purposes, Congress has imposed limits on the amounts and types of
facilities that can be financed with tax-exempt bonds by state and
local governments. In addition, limitations are placed on the ability
of Indian tribal governments to use tax-exempt bonds. While state and
local governments can use tax-exempt bonds for a variety of public and
qualified private activities, the Internal Revenue Code (I.R.C)
restricts Indian tribal governments' use of tax-exempt bonds to
obligations that are part of an issue substantially all of which
proceeds are to be used in the exercise of an "essential government
function." The Revenue Act of 1987[Footnote 1] added a provision to the
I.R.C to exclude from the definition of an "essential government
function" any function that is not customarily performed by state and
local governments with general taxing powers.
This restriction has been difficult to enforce by the Internal Revenue
Service (IRS) and has contributed to the tax compliance burden on
Indian tribal governments.[Footnote 2]
In order to support efforts to reduce the enforcement and compliance
burdens, you asked us to provide information on the gross number of
facilities that state and local governments finance, construct, and
operate in the following eight categories:
1. Rental housing:
2. Road infrastructure:
3. Parking garages and parking lots:
4. Community recreational facilities:
5. Golf courses:
6. Conference centers:
7. Hotel and tourist accommodations:
8. State-owned gaming support facilities:
We did an extensive review of possible data sources and did not find
comprehensive, reliable sources of the number of facilities. As agreed
with your staff, we provide instead limited data on the number and
amount of financings of a broader set of similar categories, describe
tax-exempt financings by selected state and local governments of
certain facilities, and present other indicators of public support for
the types of facilities. The information we provide is limited because
state and local governments are not required to report specific numbers
of facilities financed with tax-exempt bonds or the funding details for
each facility. According to bond finance experts, states frequently
finance with a single bond several capital projects in broad categories
that could be similar to the eight types of facilities in your request.
Our data sources are Thomson Financial data contained in Bond Buyer
Yearbooks; the U.S. Census Bureau's (Census) 2002 Census of
Governments; selected financial reports of state and local governments;
a National Golf Foundation database; an American Gaming Association
study; and testimonies, studies and interviews of experts in taxation
and government finance. The links between the information we provide
and the eight facilities in the request are the following.
* Rental housing. We use Thomson Financial data to provide the number
of bond issues and amounts of borrowing for single-family and multi-
family categories, which could include nonrental housing projects.
* Road infrastructure. We use Thomson Financial data to provide the
number of bond issues and amounts of borrowing for toll roads and
highways and other transportation-related borrowings.
* Parking garages and parking lots. We provide (1) the number of bond
issues and amounts of borrowing for parking facilities using Thomson
Financial data, (2) user charges for parking facilities in large
metropolitan statistical areas (MSA) reported in the 2002 Census of
Governments, and (3) tax-exempt financing of selected parking
facilities disclosed in government financial reports.
* Community recreational facilities and conference centers. We provide
(1) the number of government-owned convention and civic centers that
have been identified by Akin Gump Strauss Hauer & Feld LLP and (2) the
number of bond issues and amounts of borrowing for convention centers
and other similar government facilities using Thomson Financial data.
* Golf courses. We provide information on approximately 2,400 municipal
golf courses listed in a National Golf Foundation database and tax-
exempt financing details of golf facilities disclosed in selected state
and local government financial reports.
* Hotels and tourist accommodations. We provide the number of hotels
financed with tax-exempt bonds identified by government finance experts
and details of tax-exempt financings of resort facilities disclosed in
selected state and local government financial reports.
* State-owned gaming support facilities. We provide a summary of gaming
operations in 48 states. Gaming details provided include lottery
operations disclosed in state financial reports, other forms of gaming
summarized in a national study of the American Gaming Association, and
gaming trends reported in academic studies on gaming.
* In addition to the above information sources, we interviewed experts
in the field of government finance from top law firms and investment
banks specializing in bond financing, officials of the Government
Finance Officers Association, a senior finance officer of a county
government, and officials of the Bond Market Association, and reviewed
studies in the field of taxation and government finance.
We determined that these data were reliable for the purpose of
providing limited information on the eight types of facilities.
Appendix I has a detailed description of the methodology, data sources,
and limitations. We conducted our work from February 2006 through
August 2006 in accordance with generally accepted government auditing
standards.
Results in Brief:
Data sources showed state and local government (municipalities)
provided a wide range of financial support in the following types of
facilities.
* Rental housing. From 2000 through 2004 municipalities borrowed, in
2004 dollars, a total of $46.4 billion in 3,557 bond issues for multi-
family housing projects. These types of housing projects are likely to
involve rental housing units for low-income households. Table 1, page
7, provides borrowing details by year for multi-family and single-
family projects.
* Road transportation. From 2000 through 2004 municipalities borrowed,
in 2004 dollars, a total of $61.4 billion in 1,094 issues for toll
roads and highways. Table 2, page 9, provides borrowing details for
different types of transportation projects.
* Parking facilities. From 2000 through 2004 municipalities borrowed,
in 2004 dollars, a total of $3.5 billion in 220 issues for parking
facilities (see table 2 for annual data). According to Census data,
about 73 percent of the U.S. population lived in metropolitan
statistical areas (MSA) that reported positive user charges for parking
facilities. Audited financial reports of selected municipalities showed
most provide tax-exempt financing for construction of parking
facilities.
* Park and recreation facilities. From 2000 through 2004 municipalities
borrowed, in 2004 dollars, a total of $60.9 billion in 3,085 tax-exempt
issues to build public facilities. This general category includes
several recreation-related facilities, including libraries and museums
($7.5 billion in 470 issues); convention centers ($11.1 billion in 236
issues); theaters ($0.6 billion in 29 issues); parks, zoos, and beaches
($6.1 billion in 723 issues); stadiums and arenas ($5.3 billion in 119
issues); and other recreation facilities ($4.6 billion in 420 issues).
Table 4, page 13, provides borrowing details by year. According to
Census data, about 75 percent of the U.S. population lived in (MSA)
that reported positive user charges for park and recreation facilities.
* Golf facilities. In 2005 there were about 2,400 municipal golf
courses,[Footnote 3] about 15 percent of total golf courses in the
United States. Municipal golf courses exist in all states. At least 120
golf courses in 29 states have been financed, at least in part, with
tax-exempt bonds. About 5 percent of municipal golf courses are
connected to resorts or real estate developments. Over the past 10
years an increasing number of golf courses have been built as part of
larger real estate developments. Some municipalities have issued tax-
exempt revenue bonds for the construction of resorts with golf courses,
lodging, and meeting facilities.
* Convention centers. Over 300 government-owned convention centers have
been identified by government finance experts. In addition, from 2000
through 2004 municipalities borrowed, in 2004 dollars, a total of $11.1
billion in 236 issues related to convention centers. The amounts
borrowed varied, ranging from $1.2 billion to $3.4 billion per year
(see table 4 for annual figures).
* Hotels. Government finance experts identified 39 hotel projects
associated with convention centers or airports that were financed by
tax-exempt bonds. Selected government financial reports we examined
disclosed 12 hotel projects that were financed with tax-exempt bonds in
recent years (see borrowing details in table 6 on page 21).
* Gaming-support facilities. According to government financial reports
and a national gaming report, all but 2 states have some form of legal
gaming. Forty-one states and the District of Columbia reported assets
and revenues related to lotteries. Their annual operating income ranged
from $2 million to $2 billion. According to selected government
financial reports, tax-exempt financing has been used for capital
projects in states with significant private gaming industries.
We are not making any recommendations in this report.
Background:
For federal tax purposes state and local government bonds are
classified as either "governmental bonds" or "private activity bonds."
In general, governmental bonds are used to build public capital
facilities and serve the general public interest. Governmental bonds
are tax-exempt and can be issued for a variety of public facilities and
projects. Tax exemption lowers municipalities' borrowing costs and
provides higher after-tax yields to investors. Private activity bonds,
on the other hand, provide financing to private businesses or
individuals and are either tax-exempt or taxable depending on two
tests.[Footnote 4] Tax exemption is granted to certain qualified
private activity bonds, such as those for certain housing projects and
activities, but the borrowed amounts are limited and the interest
earned by investors can be subject to alternative minimum tax.
In addition, bonds issued by state and local governments can be
structured as general obligation (G.O.) or revenue bonds. G.O. bonds,
also known as full faith and credit obligations, are secured by
revenues obtained from the issuer's general taxing powers, including
sales taxes, property taxes, and income taxes. Most G.O. bonds are used
to build public infrastructure, such as school buildings, jails, police
stations, and city halls, and are classified as governmental bonds for
tax purposes. In contrast, revenue bonds are issued to finance specific
projects or enterprises and investors get paid from the revenues
generated by the financed projects. Revenue bonds can be either private
activity bonds or governmental bonds for tax purposes.
In addition to the limitations and restrictions placed on the issuance
of tax-exempt bonds by state and local governments, there are
additional restrictions on tribal governments' issuance of tax-exempt
bonds. Specifically, I.R.C. §7871 (c) provides that tribal governments
may use tax-exempt bonds only if substantially all of the proceeds from
those bonds are used to exercise an essential government function. In
1987, I.R.C. §7871 (e) was added to the I.R.C. to provide that
"essential government function" shall not include any function not
customarily performed by state and local governments with general
taxing powers. With the exception of certain manufacturing activities,
tribal governments are not eligible for the tax benefits of qualified
private activity bonds.
No regulations have been issued yet addressing what is or what is not
an essential government function since the provision in 1987 was
added.[Footnote 5] Congress in the legislative history to I.R.C. §
7871(e) provided some examples, such as schools, roads, and government
buildings. This limited direction for tribes' use of tax-exempt bonds
does not fully address the types of activities that state and local
governments are financing, a principal criterion for determining an
essential government function.
State and Local Governments Provide Substantial Financing for Housing:
We were unable to determine the number of rental housing facilities
that were financed, constructed, or operated by state and local
governments. According to experts in state and local government
financing, affordable housing projects are commonly provided by state
and local governments to low-income individuals. We found the following
details on debt financing for multi-family housing.
From 2000 through 2004 municipalities borrowed, in 2004 dollars, a
total of $46.4 billion in 3,557 bond issues for multi-family housing
projects, according to Thomson Financial data. State and local
governments allocated from about 6 percent to 10 percent from 2000
through 2004 of total bond issuances for housing. Of the municipal
bonds issued over the period for housing, 33 percent to 45 percent went
to multi-family dwellings. The bond issuances totaled from $7.2 billion
to $12.2 billion in constant 2004 dollars. Table 1 shows nominal
amounts of borrowings by category--single family and multi-family
borrowings, and tax-exempt, taxable and amounts subject to alternative
minimum tax.
Table 1: State and Local Government Housing-Related Borrowings and
Number of Issues:
Dollars in billions. Numbers of issues sold in parentheses.
Total;
2000: $20.3; (1,293);
2001: $22.6; (1,367);
2002: $23.6; (1,245);
2003: $26.3; (1,007);
2004: $22.3; (998).
Single- family;
2000: $13.7; (566);
2001: $14.9; (542);
2002: $13.0; (434);
2003: $14.4; (362);
2004: $14.1; (449).
Multifamily;
2000: $6.6; (727);
2001: $7.7; (825);
2002: $10.6; (811);
2003: $11.9; (645);
2004: $8.2; (549).
Tax- exempt;
2000: $5.2; (436);
2001: $7.5; (509);
2002: $8.1; (429);
2003: $12.3; (449);
2004: $8.0; (420).
Taxable;
2000: $3.3; (332);
2001: $3.4; (291);
2002: $2.9; (232);
2003: $3.5; (176);
2004: $2.0; (135).
Alternative minimum tax;
2000: $11.7; (525);
2001: $11.7; (567);
2002: $12.7; (584);
2003: $10.5; (382);
2004: $12.4; (443).
Source: Thomson Financial.
[End of table]
The magnitude of bond issuances suggests significant state and local
government support for both single-family and rental housing in the
form of multifamily dwellings. As can be seen in table 1, tax-exempt
borrowings provided less than 50 percent of total borrowings for
housing. The I.R.C includes housing financing as a "qualified private
activity" subject to volume caps.
Transportation Facilities Often Are Publicly Financed by a Variety of
Methods:
We were unable to determine the number of road infrastructure
facilities that have been constructed, financed, or operated by state
and local governments. According to experts in state and local finance,
transportation and schools are the largest categories of capital
projects financed by state and local governments. We found the
following details on debt financings of road projects.
According to Thomson Financial data, from 2000 through 2004
municipalities borrowed, in 2004 dollars, a total of $61.4 billion in
1,094 issues for toll roads and highways. In 2002, debt financing
represented about 10 percent of total state funding for highways. In
addition to tax-exempt bonds, transportation facilities received
federal support in the form of highway credit programs and loans, and
highway tax revenues.[Footnote 6] We were able to provide some details
on debt financing of transportation facilities.
Thomson Financial data indicate that while state and local governments
allocated 9 percent to 13 percent of total bond issuances to
transportation facilities in the period from 2000 through 2004, between
27 and 38 percent of those issues went toward toll roads and highways.
These bonds averaged about $12 billion in constant 2004 dollars over
the period from 2000 to 2004. Table 2 shows the nominal amounts of
borrowings by category--air, sea, and road facilities, and tax-exempt,
taxable and amounts subject to alternative minimum tax. Categories in
bold are closest to the types of facilities that are the subject of
this report. However, some facilities of interest may have been bundled
within the other categories.
Table 2: State and Local Government Transportation-Related Borrowings
and Number of Issues:
Dollars in billions. Numbers of issues sold in parentheses.
Total;
2000: $26.7; (469);
2001: $32.2; (562);
2002: $45.0; (557);
2003: $40.4; (546);
2004: $32.4; (461).
Airports;
2000: $7.4; (123);
2001: $12.4; (149);
2002: $10.1; (128);
2003: $10.3; (162);
2004: $7.0; (129).
Seaports;
2000: $1.2; (27);
2001: $1.2; (39);
2002: $1.1; (41);
2003: $1.3; (37);
2004: $0.9; (24).
Toll roads and highways;
2000: $10.2; (222);
2001: $8.6; (259);
2002: $14.5; (241);
2003: $15.2; (201);
2004: $10.1; (171).
Bridges;
2000: $1.5; (11);
2001: $2.3; (7);
2002: $4.1; (23);
2003: $3.0; (17);
2004: $1.4; (13).
Tunnels;
2000: $0.3; (2);
2001: $0.1; (1);
2002: $0.8; (1);
2003: $0.0; (0);
2004: $0.0; (0).
Parking facilities;
2000: $0.5; (36);
2001: $0.6; (42);
2002: $1.0; (55);
2003: $0.5; (40);
2004: $0.7; (47).
Mass transit;
2000: $5.1; (43);
2001: $6.7; (62);
2002: $13.7; (67);
2003: $9.7; (75);
2004: $10.6; (65).
Other transportation;
2000: $0.6; (5);
2001: $0.2; (3);
2002: $0.01; (1);
2003: $0.3; (14);
2004: $1.7; (12).
Tax- exempt;
2000: $20.2; (361);
2001: $23.2; (447);
2002: $35.6; (435);
2003: $32.1; (438);
2004: $27.2; (361).
Taxable;
2000: $0.3; (24);
2001: $0.7; (33);
2002: $0.9; (31);
2003: $1.6; (36);
2004: $1.3; (32).
Alternative minimum tax;
2000: $6.3; (84);
2001: $8.3; (82);
2002: $8.4; (91);
2003: $6.7; (72);
2004: $4.0; (68).
Source: Thomson Financial.
[End of table]
Wide Prevalence of User Charges for Parking Suggest Customary Provision
by State and Local Governments:
We were unable to obtain the number of parking facilities constructed,
financed, or operated by state and local governments. According to
municipal finance experts parking facilities, like housing and
transportation facilities, are commonly financed with tax-exempt bonds
by state and local governments. We found the following details on debt
financing for parking facilities.
According to Thomson Financial data, from 2000 through 2004
municipalities borrowed, in 2004 dollars, a total of $3.5 billion in
220 issues for parking facilities. Details on debt financing for
parking facilities from Thomson Financial data are listed in the
previous section on transportation facilities and in table 2. Total
taxable and tax-exempt bond issuances for parking facilities ranged
from $0.5 billion to $1 billion in 2004 constant dollars, accounting
for on average 2 percent of total (taxable and tax-exempt)
transportation bond issues. The data for parking facilities bond issues
do not provide a breakdown between taxable and tax-exempt bond
issuances.
According to government finance experts, determining the use of tax-
exempt bonds to finance parking facilities can be difficult because a
variety of capital projects are often combined into one bond issuance.
In addition, state and local governments have relied on a combination
of tax-exempt and taxable financing to construct parking garages that
are meant to promote economic development in specific districts. For
example, the City of Virginia Beach built several parking garages in
two tax increment financing (TIF) districts wherein the incremental
real property taxes above a base level are used to pay the revenue
bonds issued to build the garages. As of December 2005, the city had
issued $34.9 million tax-exempt and $4.7 million taxable revenue bonds
to build parking garages in the TIF districts. In order to reduce the
construction risk to the city, a private developer built the garages
and the city's Development Authority purchased them as they were built.
User fees received by state and local governments for providing parking
services are a direct indicator of the extent of their involvement in
parking facilities in the form of on-street metered parking, off-street
parking garages, or both. According to 2002 Census of Governments data,
about 73 percent of the population of the United States lived in MSAs
that reported user charges on government-owned parking facilities.
Table 3 lists the largest 171 MSAs by their level of parking user
charges. Figure 1 shows the location of the largest 171 MSAs and their
level of parking user charges. These 171 MSAs accounted for about 75
percent of the population in the United States in 2002 and include all
MSAs with populations of 250,000 or more. Ninety-two percent of the
MSAs listed reported positive user charges, and 97 percent of the
population in the largest MSAs lived in MSAs that reported positive
user charges. The prevalence of user charges suggests that most of the
population is provided with some publicly supported parking by state
and local governments.
Table 3: Level of Parking User Charges in 171 Largest Metropolitan
Statistical Areas:
User charge revenue (x): Greater than $25 million;
171 MSAs: 11;
MSA distribution: 6%.
User charge revenue (x): $25 million > x > $5 million;
171 MSAs: 37;
MSA distribution: 22%.
User charge revenue (x): $5 million > x > $1 million;
171 MSAs: 57;
MSA distribution: 33%.
User charge revenue (x): $1 million > x > $0 million;
171 MSAs: 53;
MSA distribution: 31%.
User charge revenue (x): No user charge revenue;
171 MSAs: 13;
MSA distribution: 8%.
User charge revenue (x): Total MSAs;
171 MSAs: 171;
MSA distribution: 100%.
Source: U.S. Census Bureau, 2002 U.S. Census of Governments.
[End of table]
Figure 1: Levels of Parking User Charges across Largest MSAs:
[See PDF for image]
Source: GAO analysis of U.S. Census Bureau data; Copyright Corel Corp.
All rights reserved (map).
[End of figure]
We examined selected government comprehensive annual financial reports
in large MSAs, and found that some cities report their parking
operations in business-type proprietary funds that disclose operating
results and debt levels. For example, in 2005 the City of Miami Beach's
Parking Fund reported $30.5 million tax-exempt revenue bonds and $10.4
million in income from operating the city's 68 parking lots and
garages.
Governments Provide Financing for a Wide Variety of Recreational
Facilities:
We did not find readily available data that identify community
recreational facilities as a specific category and were unable to
determine the number of these facilities financed, constructed, or
operated by state and local governments. According to government
finance experts, state and local governments play a large role in the
financing and construction of a variety of recreational facilities.
However, it is difficult to identify the specific amount of financing
for these facilities because available information is presented in
overlapping categories and single bond issuances can be used for more
than one purpose. We found the following details on debt financing of
different types of recreational public facilities.
From 2000 through 2004 municipalities borrowed, in 2004 dollars, a
total of $60.9 billion in 3,085 tax-exempt issues to build public
facilities, according to Thomson Financial data. This general category
includes several recreation-related facilities, including libraries and
museums ($7.5 billion in 470 issues); convention centers ($11.1 billion
in 236 issues); theaters ($0.6 billion in 29 issues); parks, zoos, and
beaches ($6.1 billion in 723 issues); stadiums and arenas ($5.3 billion
in 119 issues); and other recreation facilities ($4.6 billion in 420
issues). Table 4 shows nominal amounts of borrowings by category--
convention centers; parks, zoos, and beaches; other recreation; and
other public facilities; and tax-exempt, taxable and amounts subject to
alternative minimum tax. From 2000 through 2004, state and local
governments devoted between 2 percent and 5 percent of total bond
issuances to public facilities. Of the municipal bonds issued over the
period for public facilities between 6 percent and 13 percent were
issued for facilities such as parks, zoos, and beaches, and between 5
percent and 11 percent were devoted to other recreational facilities.
These bonds totaled from $0.6 billion to $1.7 billion in constant 2004
dollars.
Table 4: State and Local Government Public Facilities-Related
Borrowings and Number of Issues:
Dollars in billions. Numbers of issues sold in parentheses.
Total;
2000: $9.3; (735);
2001: $11.1; (749);
2002: $15.5; (850);
2003: $13.0; (686);
2004: $9.4; (643).
Libraries and museums;
2000: $1.0; (74);
2001: $1.5; (101);
2002: $1.2; (103);
2003: $1.8; (99);
2004: $1.7; (93).
Government offices;
2000: $1.5; (131);
2001: $1.7; (110);
2002: $3.9; (155);
2003: $2.6; (107);
2004: $1.2; (43).
Fire stations;
2000: $0.2; (120);
2001: $0.3; (117);
2002: $0.4; (150);
2003: $0.2; (112);
2004: $0.3; (104).
Jails and prisons;
2000: $1.5; (69);
2001: $1.4; (65);
2002: $3.5; (87);
2003: $2.7; (76);
2004: $2.0; (116).
Police stations;
2000: $0.2; (23);
2001: $0.2; (25);
2002: $0.3; (24);
2003: $0.2; (21);
2004: $0.2; (11).
Convention centers;
2000: $2.0; (51);
2001: $2.1; (56);
2002: $3.3; (47);
2003: $2.0; (43);
2004: $1.2; (39).
Stadiums and arenas;
2000: $1.2; (25);
2001: $1.8; (31);
2002: $0.8; (22);
2003: $0.7; (21);
2004: $0.5; (20).
Theaters;
2000: $0.1; (2);
2001: $0.1; (6);
2002: $0.2; (5);
2003: $0.3; (8);
2004: $0.1; (8).
Parks, zoos, and beaches;
2000: $0.8; (140);
2001: $1.4; (154);
2002: $1.0; (165);
2003: $1.7; (129);
2004: $1.1; (135).
Other recreation;
2000: $1.0; (100);
2001: $0.7; (84);
2002: $0.9; (92);
2003: $0.8; (70);
2004: $1.0; (74).
Tax- exempt;
2000: $8.7; (694);
2001: $10.5; (721);
2002: $15.2; (823);
2003: $11.9; (647);
2004: $8.8; (600).
Taxable;
2000: $0.4; (36);
2001: $0.5; (25);
2002: $0.3; (26);
2003: $1.0; (35);
2004: $0.6; (42).
Alternative minimum tax;
2000: $0.2; (5);
2001: $0.1; (3);
2002: $0.01; (1);
2003: $0.01; (4);
2004: $0.02; (1).
Source: Thomson Financial.
[End of table]
Given that the recreational facilities category overlaps with some of
the other categories, such as golf courses and convention centers,
additional information relevant to recreational facilities is available
in other sections of this report.
Similar to parking facilities, we used the 2002 Census of Governments
to obtain an indirect indicator of the state and local governments'
support for community recreational facilities. However, this indicator
is less precise than the Census indicator for user parking charges
because Census defines park and recreational facilities to include many
community recreational facilities, including swimming pools, marinas,
golf courses, tennis courts, and museums. Also, determining the number
and amounts of tax-exempt financings related to community recreational
facilities was difficult because state and local governments can
include these facilities with other capital projects in a single
financing package.
According to the Census data, all of the largest 171 MSAs reported
positive user charges for parks and recreation. Thus, 75 percent of the
population has access to some form of publicly provided recreational
facility, as shown in figure 2.
Figure 2: Levels of Parks and Recreation User Charges across Largest
MSAs:
[See PDF for image]
Sources: GAO analysis of U.S. Census Bureau data; Copyright Corel Corp.
All rights reserved (map).
[End of figure]
Numerous Municipal Golf Courses Exist, Some with Lodging Facilities:
According to National Golf Foundation data, in 2005 there were about
16,000 public and private golf courses in the United States. Of those,
about 2,400 (15 percent) are municipal golf courses, that is, they are
owned by state and local governments. Municipal golf courses do not
include daily fee golf courses, about 9,000, that are not owned by a
tax-supported entity but provide at least limited public access. Table
5 shows the regional distribution of municipal golf courses. All states
have municipal golf courses.
Table 5: Regional Distribution of Municipal Golf Courses:
Region: New England;
Number and type of municipal golf courses: Resort: 0;
Number and type of municipal golf courses: Real estate: 0;
Number and type of municipal golf courses: Resort/real estate: 0;
Number and type of municipal golf courses: Just golf/ other: 99;
Number and type of municipal golf courses: Park district: 1;
Number and type of municipal golf courses: Total: 100.
Region: Middle Atlantic;
Number and type of municipal golf courses: Resort: 0;
Number and type of municipal golf courses: Real estate: 0;
Number and type of municipal golf courses: Resort/real estate: 0;
Number and type of municipal golf courses: Just golf/ other: 191;
Number and type of municipal golf courses: Park district: 17;
Number and type of municipal golf courses: Total: 208.
Region: East North Central;
Number and type of municipal golf courses: Resort: 3;
Number and type of municipal golf courses: Real estate: 13;
Number and type of municipal golf courses: Resort/real estate: 0;
Number and type of municipal golf courses: Just golf/ other: 457;
Number and type of municipal golf courses: Park district: 6;
Number and type of municipal golf courses: Total: 479.
Region: West North Central;
Number and type of municipal golf courses: Resort: 2;
Number and type of municipal golf courses: Real estate: 11;
Number and type of municipal golf courses: Resort/real estate: 1;
Number and type of municipal golf courses: Just golf/ other: 374;
Number and type of municipal golf courses: Park district: 1;
Number and type of municipal golf courses: Total: 389.
Region: South Atlantic;
Number and type of municipal golf courses: Resort: 10;
Number and type of municipal golf courses: Real estate: 12;
Number and type of municipal golf courses: Resort/real estate: 0;
Number and type of municipal golf courses: Just golf/ other: 244;
Number and type of municipal golf courses: Park district: 9;
Number and type of municipal golf courses: Total: 275.
Region: East South Central;
Number and type of municipal golf courses: Resort: 4;
Number and type of municipal golf courses: Real estate: 2;
Number and type of municipal golf courses: Resort/real estate: 0;
Number and type of municipal golf courses: Just golf/ other: 122;
Number and type of municipal golf courses: Park district: 36;
Number and type of municipal golf courses: Total: 164.
Region: West South Central;
Number and type of municipal golf courses: Resort: 2;
Number and type of municipal golf courses: Real estate: 5;
Number and type of municipal golf courses: Resort/real estate: 0;
Number and type of municipal golf courses: Just golf/ other: 254;
Number and type of municipal golf courses: Park district: 11;
Number and type of municipal golf courses: Total: 272.
Region: Mountain;
Number and type of municipal golf courses: Resort: 5;
Number and type of municipal golf courses: Real estate: 20;
Number and type of municipal golf courses: Resort/real estate: 0;
Number and type of municipal golf courses: Just golf/ other: 256;
Number and type of municipal golf courses: Park district: 1;
Number and type of municipal golf courses: Total: 282.
Region: Pacific;
Number and type of municipal golf courses: Resort: 8;
Number and type of municipal golf courses: Real estate: 6;
Number and type of municipal golf courses: Resort/real estate: 0;
Number and type of municipal golf courses: Just golf/ other: 243;
Number and type of municipal golf courses: Park district: 0;
Number and type of municipal golf courses: Total: 257.
Region: Total;
Number and type of municipal golf courses: Resort: 34;
Number and type of municipal golf courses: Real estate: 69;
Number and type of municipal golf courses: Resort/real estate: 1;
Number and type of municipal golf courses: Just golf/ other: 2240;
Number and type of municipal golf courses: Park district: 82;
Number and type of municipal golf courses: Total: 2426.
Source: GAO analysis of National Golf Foundation data.
[End of table]
Three percent, or about 80, municipal golf courses have been
constructed with different forms of lodging, ranging from cabins to
resort hotels with convention facilities. In some cases, municipal
resort golf courses have been built with resort hotels and facilities
and have been constructed both as stand-alone courses and as part of
park districts. These resort courses may vary significantly in
different ways, including lodging and dining facilities and course
design. Figure 3 shows the trend in nonpark municipal resort golf
facilities. Over many years there has been a consistent increase in the
number of nonpark municipal resort golf courses. In addition to the
nonpark resort golf courses, there were an additional 24 resort golf
courses inside park districts as of 2005.
Figure 3: Cumulative Number of Nonpark Municipal Resort Golf
Facilities:
[See PDF for image]
Source: GAO analysis of National Golf Foundation data.
[End of figure]
According the National Golf Foundation, there are also close to 70
municipal golf courses associated with real estate developments. These
courses, which are owned by municipalities, have been built together
with planning for private real estate abutting the course, or have been
purchased by the municipality from private real estate developments
that included golf courses. In some cases the private real estate
development was planned in order to cover part of the costs of building
the municipal course. Over the past 10 years an increasing number of
golf courses have been built as part of larger real estate
developments. Figure 4 shows the trend in municipal real estate
development golf courses.
Figure 4: Cumulative Number of Municipal Real Estate Development Golf
Facilities:
[See PDF for image]
Source: GAO analysis of National Golf Foundation data.
[End of figure]
We did not find the full extent of tax-exempt financing of municipal
golf courses. According to data provided by Akin Gump Strauss Hauer &
Feld LLP, a major law firm, at least 120 golf courses in 29 states have
been financed, at least in part, with tax-exempt bonds. We identified,
using National Golf Foundation data, over 25 of these tax-exempt
financed courses as associated with resort or real estate facilities.
According to these data many more of these courses have banquet
facilities and conference centers.
An illustration of the use tax-exempt bonds to build a municipal golf
course is provided by the 27-hole municipal golf course in the City of
North Charleston. In the late 1990s the city issued $11.1 million in
mortgage revenue bonds to build a municipal golf course and $4.6
million in general obligation bonds to finance the construction of
roads and infrastructure improvements in the surrounding area. In 2003
the city refunded the outstanding golf-related bonds by issuing $11.7
million in mortgage revenue bonds, for an estimated $1.6 million in
debt service savings. In 2005 the municipal golf course had a $1
million operating loss, but the city expects that the course's
situation in the center of a residential and commercial development
eventually will contribute over $200 million in taxable property value.
Daily fee courses, while not explicitly owned by state or local
governments could have been financed with municipal tax-exempt bonds.
For example, the Maryland Economic Development Corporation (MEDCO) has
issued about $176 million limited-obligation revenue bonds to build two
resorts that feature a hotel, a conference center, and a golf facility.
MEDCO owns the Hyatt Regency Chesapeake Bay Conference Center, with 400
hotel rooms, 35,000 square feet of meeting and banquet space, an 18-
hole championship golf course and 150-slip marina. MEDCO also owns the
Rocky Gap Golf Course and Hotel/Meeting Center, with an 18-hole Jack
Nicklaus signature golf course, a 243-acre lake, and a resort lodge.
Some municipal finance experts believe state and local governments can
also provide indirect support to private golf courses through lower
taxable property values. Private golf courses may be subject to
agricultural assessment rules, which provide a tax break on property
taxes, given that golf courses also provide an open space. They also
noted that there may be other cases where land apportioned off by state
and local governments near residential property is transferred to
private companies in order to build golf courses.
Public Financing Is Provided to Numerous Convention Centers:
Although the number of convention centers financed, constructed, or
operated by state and local governments is not known, we were provided
information on over 300 convention centers owned by state and local
governments by Akin Gump Strauss Hauer & Feld LLP. According to
government finance experts, most convention centers are financed with
tax-exempt bonds. We found the following details on debt financing of a
number of different types of recreational public facilities.
From 2000 through 2004 municipalities borrowed in 2004 dollars $11.1
billion in 236 issues for financing convention centers, according to
Thomson Financial data. (See table 4 for details of debt financing of
convention centers, in nominal amounts in billions.) The municipal
bonds issued for convention or civic centers totaled from $1.2 billion
to $3.4 billion in constant 2004 dollars. Figure 5 shows the cumulative
number of major new bond issues for convention centers over the past 8
years.[Footnote 7]
Figure 5: Cumulative Number of Major New Bond Issues for Convention
Centers:
[See PDF for image]
Source: Thomson Financial.
[End of figure]
According to some bond finance and convention industry experts,
convention centers have been mostly financed by city governments.
Experts we interviewed said that in order to promote urban economic
development, a growing number of cities have in recent years built
convention centers and also built hotels nearby in order to draw more
convention visitors to their communities. Even though convention
centers may operate at a financial loss, cities have financed them
expecting to generate additional spending in related businesses,
including restaurants and entertainment, and increased property values.
Different Sources Show Public Financing of Hotels and Related
Facilities:
According to lists we obtained from government finance experts, 39
hotels associated with convention centers or airports or golf courses
that have been financed with tax-exempt bonds have been
identified.[Footnote 8] These facilities may vary significantly in
different ways. As table 6 shows, the value of tax-exempt bond
financing for hotels totaled in the billions. According to selected
government financial reports we examined, 12 hotels have been financed
with tax-exempt bonds in recent years. Table 6 shows the location of
these hotels and bond financing details.
Table 6: Selected Hotels and Related Facilities Financed with Tax-
Exempt Bonds:
Location: City of Bay City, Mich;
Financing details and related facilities: In 2004 Wenonah Park
Properties, a nonprofit corporation of the city, financed a hotel and
conference center with about $15 million in tax-exempt revenue bonds
along with other financing sources.
Location: Cambridge, Md;
Financing details and related facilities: In 2005 MEDCO had $173
million in bonds and notes outstanding, issued to finance the
Chesapeake Bay Conference Center, a hotel with meeting and golf
facilities.
Location: City of Denver, Colo;
Financing details and related facilities: In 2003 the Denver Convention
Center Hotel Authority issued $354 million revenue bonds to finance a
hotel near the convention center.
Location: City of Houston, Tex;
Financing details and related facilities: In fiscal year 2001 the
city's Convention and Entertainment Facilities Department issued $626
million in bonds to finance a new convention center hotel and a parking
garage, expand the convention center, and refund existing debt. In
2003, the year of opening, the hotel reported $315 million in
outstanding bonds.
Location: City of Myrtle Beach, S.C;
Financing details and related facilities: In 2001 the Myrtle Beach
Convention Center Hotel Corporation, a component unit of the city,
issued $64 million revenue bonds.
Location: City of Omaha, Nebr;
Financing details and related facilities: In 2002 the city issued $103
million tax-exempt convention center hotel revenue bonds. The hotel
began operations in 2004.
Location: City of Overland Park, Kans;
Financing details and related facilities: In 2001 the Overland Park
Development Corporation, a component unit of the city, issued $92
million in revenue bonds to finance the construction of a convention
center hotel.
Location: City of Phoenix, Ariz;
Financing details and related facilities: In 2005 the Downtown Phoenix
Hotel Corporation, a nonprofit corporation of the city, issued $320
million in tax-exempt revenue bonds and $29 million in taxable revenue
bonds to finance a downtown hotel near the city's convention center.
Location: City of Sacramento, Calif;
Financing details and related facilities: In 1999 the Sacramento Hotel
Corporation, a component unit of the city, issued $97 million in
revenue bonds to build a hotel to support the city's convention center
expansion.
Location: Village of Schaumburg, Ill;
Financing details and related facilities: In 2004 the village issued
$239 million in general obligation bonds to finance several projects,
including a convention center and attached hotel.
Location: County of Wayne, Mich;
Financing details and related facilities: In 2001 the county issued
$111 million airport hotel revenue bonds to finance an airport hotel
and related improvements.
Location: City of Vancouver, Wash;
Financing details and related facilities: In 2003 the City of
Vancouver's Downtown Redevelopment Authority, a component unit of the
city, issued $68 million revenue bonds to finance a conference center
and hotel capital project.
Source: GAO analysis of financial reports of municipalities and
documents from Orrick, Herrington, and Sutcliffe LLP; HVS
International; Akin Gump Strauss Hauer & Feld LLP; and Piper Jaffray.
[End of table]
State and Local Governments Support Gaming, but Extent of Public
Financing Is Difficult to Estimate:
We were unable to determine the number of state-owned gaming support
facilities. According to government finance experts, it is common for
states to issue large bond issuances for different capital projects.
However, data are not available to determine the extent, if any, that
these bonds have included facilities for public gaming activities and
infrastructure projects that benefit private gaming enterprises.
Facilities associated with lotteries are sometimes provided in some
government buildings and in convenience stores with lottery ticket
terminals. We found the following information on the prevalence of
gaming throughout the states.
According to states' financial reports and gaming studies all but 2
states--Hawaii and Utah--have some form of legal gaming. Forty-one
states and the District of Columbia reported assets and revenues
related to lotteries. Some municipalities have provided tax-exempt and
taxable financing to build transportation infrastructure in localities
that depend on private gaming enterprises to generate employment and
gaming revenues to finance basic government functions.
The prevalence of lotteries is one indicator of state and local
governments' support of gaming facilities. Forty-one states and the
District of Columbia have lottery systems, with annual operating
incomes ranging from $2 million to $2 billion and net assets from
lotteries from -$12 million to $290 million. Similar to other
facilities, the number of state-owned gaming facilities that have been
financed with tax-exempt bonds is difficult to estimate because a
single bond issue may finance several capital projects, including
lotteries' offices and equipment.
In lieu of or in addition to a state-sponsored lottery, some states
allow for legalized private gaming, such as casinos. According to the
American Gaming Association, in 2004 16 states had legal operational
casinos and some states allowed gambling in the form of pari-mutuel
activities, such as horse or greyhound racing, and gaming
machines.[Footnote 9] Seven of these states have also introduced
variations in gambling activities, such as racetrack casinos or
"racings," which usually consist of slot machines associated with
racetracks. Seven states have video lottery terminals (VLT), which are
similar to slot machines.
State and local governments can issue tax-exempt bonds to finance the
infrastructure that directly benefits private casinos or gaming
facilities. We found three examples of tax-exempt financing related to
gaming facilities. New Jersey's Casino Reinvestment Development
Authority (CRDA) relies on tax-exempt borrowings, casino parking fees,
and investments to finance eligible projects. In 2004 CRDA issued $93
million in tax-exempt hotel room fee revenue bonds to finance Atlantic
City casino expansion projects and provide funds to the New Jersey
Sports and Exhibition Authority for horse racing purse enhancements.
Another example of tax-exempt financing that benefits private casinos
is the monorail in Las Vegas. The monorail was financed with a
combination of tax-exempt and equity funds and provides seven stations
- MGM Grand, Bally's/Paris, Flamingo, Harrah's/Imperial Palace, Las
Vegas Convention Center, Las Vegas Hilton, and the Sahara.[Footnote 10]
In 2005, California's Del Mar Race Track Authority sold about $50
million in tax-exempt bonds to refund existing debt and improve
facilities at the horseracing track. In addition to concessions and
racetrack revenues, the bonds will also be backed by satellite-wagering
receipts.
As agreed with your office, unless you publicly release its contents
earlier, we plan no further distribution of this report until 30 days
from its date. At that time, we will send copies to interested
congressional committees, the Secretary of the Treasury, the
Commissioner of the Internal Revenue Service, and other interested
parties. We will also make copies available to others upon request. The
report will also be available at no charge on the GAO Web site at
[Hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-9110 or brostekm@gao.gov. Contact points for
our Office of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made major contributions
to this report are listed in appendix II.
Sincerely yours,
Signed by:
Michael Brostek:
Director, Tax Issues Strategic Issues:
[End of section]
Appendix I: Objective, Scope, and Methodology:
The objective of this report was to provide information on state and
local governments' financing, construction, and operation of the
following eight types of facilities:
1. Rental housing:
2. Road infrastructure:
3. Parking garages and parking lots:
4. Community recreational facilities:
5. Golf courses:
6. Conference centers:
7. Hotel and tourist accommodations:
8. State-owned gaming support facilities:
We performed an extensive review of possible data sources and did not
find a comprehensive, reliable source of data for the above facilities.
We provide instead limited data on the number and amount of financings
of broader categories of facilities, describe tax-exempt financings of
selected state and local governments, and provide other available
indicators of public support. The following provides detailed
descriptions of the data sources, limitations of the data sources we
used, and the links between the information and the eight facilities in
the original request.
Rental Housing:
We used a recognized source for bond information, Thomson Financial
data contained in the Bond Buyer Yearbooks to provide details on the
bond issuances for single-and multifamily housing according to the
category provided in the yearbooks as a related category to rental
housing. This data source provides 2000-2004 aggregate values and the
number of bonds issued. However, there are a number of limitations to
these data. The category for multi-family housing could contain more
than just rental housing, although bond experts have suggested that is
unlikely. Because municipalities can issue large combined bond
issuances some bond issues related to housing or rental housing could
be contained in other categories, thus the information provided relies
on the categorization of bond issues in the categories listed. The
breakdown of bond issuances did not allow us to determine the amount of
multifamily housing issuances that were tax-exempt, only the amount of
total housing issuances that are tax-exempt for the years covered.
This data source only provides information on a particular method of
housing finance and therefore does not provide information on the total
government rental housing expenditures; the number of rental housing
units constructed, financed, or owned by state and local governments;
or other forms of government financing for rental housing. However, the
magnitude of debt financing on multifamily housing is suggestive of
government provision of rental housing. Furthermore, we do not address
the ultimate purpose of the housing projects financed by state and
local governments, although bond experts stated these were almost
always designed to provide affordable housing to lower-income
individuals.
Road Infrastructure:
As with the rental housing category we used Thomson Financial data
contained in the Bond Buyer Yearbooks to provide details on the bond
issuances for a variety of transportation categories, including toll
roads and highways, bridges, and tunnels, according to the category
provided in the yearbooks as a related category to road infrastructure.
This data source provides 2000-2004 aggregate values and the number of
bonds issued. However, there are a number of limitations to these data.
Because municipalities can issue large combined bond issuances some
bond issues related to road infrastructure, such as capital, could be
contained in other categories--for example, economic development--and
thus the information provided relies on the categorization of bond
issues. The breakdown of bond issuances did not allow us to determine
the amount of toll road and highway issuances that were tax-exempt,
only the amount of total transportation issuances that are tax-exempt
for the years covered.
This data source only provides information on a particular method of
transportation finance and therefore does not provide information on
total government transportation expenditures; the number of
transportation facilities constructed, financed, or owned by state and
local governments; or other forms of government financing for
transportation. Particularly with transportation finance, state and
local governments rely on other financing methods, including general
funds and tolls. Furthermore, we do not address the ultimate purpose of
the transportation projects financed by state and local governments or
where they are constructed.
Parking Garages and Parking Lots:
We used three main sources to provide information addressing state and
local governments' construction, operation, and financing of parking
garages and parking lots. We use Thomson Financial data on bond
issuances, the U.S. Census Bureau's (Census) 2002 U.S. Census of
Governments user charges, and selected comprehensive annual financial
reports to provide some case studies.
We used Thomson Financial data, contained in the Bond Buyer Yearbooks,
to provide details on the bond issuances for parking facilities
according to the category provided in the yearbooks as a related
category to parking garages and lots. This data source provides 2000-
2004 aggregate values and the number of bonds issued. However, there
are a number of limitations to these data. Because municipalities can
issue large combined bond issuances some bond issues related to parking
garages and lots could be contained in other categories, such as
economic development, thus the information provided relies on the
categorization of bond issues. The breakdown of bond issuances did not
allow us to determine the amount of parking facilities issuances that
were tax-exempt, only the amount of total transportation issuances that
are tax-exempt for the years covered.
This data source only provides information on a particular method of
parking facilities financing and therefore does not provide information
on total government parking expenditures; the number of parking
facilities constructed, financed, or owned by state and local
governments; or other forms of government financing for parking.
Furthermore, we do not address the ultimate purpose or location of the
parking facilities financed by bond issuances.
We used the 2002 Census of Governments to provide user charges for
parking facilities for the top 171 metropolitan statistical areas
(MSA). There are some limitations to the use of these charges. User
charges received by municipalities for parking do not provide any
information on the number of existing facilities or the number of
parking facilities constructed or financed by state and local
governments. Since the data rely on user charges this source may not be
representative of total parking provide nationally, as it would not
include free public parking. We also do not provide total public
expenditures on parking facilities.
There are also some limitations in the definition of the parking
facilities category. The Census category defines parking as the
"provision, construction, maintenance, and operation of local
government public parking facilities operated on a commercial basis."
These facilities include parking meters, on-street parking, and parking
lots, but exclude parking facilities for the exclusive use of
government employees and parking areas connected to specific types of
facilities, such as those for a public sports stadium, which are
reported with the function of the facility involved, such as parks and
recreation. The user charges, therefore, represent revenue from on-
street and off-street parking meters and charges and rentals from
locally owned parking lots or public garages.
Lastly, we used the selected state and local government financial
reports of cities and counties located in large MSAs that contained
detailed information to provide specific examples of parking facilities
that have been financed by state or local governments. As these are
examples they cannot be generalized to state and local financing,
construction, and operation of parking facilities.
Community Recreational Facilities:
We used the 2002 Census of Governments to provide user charges for
parks and recreation facilities for the largest 171 MSAs. Community
recreation facilities easily overlap into a numerous other categories,
and we did not identify any data that specifically focused on this
category.
There are some limitations with the use of user charges. User charges
received by municipalities for parks and recreation do not provide any
information on the number of existing facilities or the number of parks
and recreational facilities constructed or financed by state and local
governments. Since the data rely on user charges this source may not be
representative of the total park and recreational facilities provided
nationally, as it would not include free facilities. We also do not
provide total public expenditures on parking facilities.
There are also some limitations in the definition of the park and
recreational facilities category. The census category defines park and
recreational facilities as the "provision and support of recreational
and cultural-scientific facilities maintained for the benefit of
residents and visitors." This category includes a variety of
facilities, such as golf courses, public beaches, swimming pools,
parks, camping areas, recreational piers and marinas, but excludes any
recreational facilities operated as part of a school system and marinas
for commerce. It would also include support of private facilities;
galleries, museums, zoos, and botanical gardens; auditoriums, stadiums,
recreational centers, convention centers, and exhibition halls;
community music and drama facilities; and celebrations, including those
in public support of cultural activities. User charges represent
revenue of facilities operated by a government; auxiliary facilities in
public recreation areas (refreshment stands, gift shops, etc.); lease
or use fees from stadiums, auditoriums, and community and convention
centers; and rentals from concessions at such facilities.
Golf Courses:
We used data from the National Golf Foundation to provide details on
the number and form of municipal golf courses in the United States. As
verification, we interviewed those who maintain the database about
their methodology for building and maintaining the database. A
foundation representative considered the database to be largely
comprehensive, as the foundation has measures in place to ensure its
list includes all golf courses, and did not express any concerns
regarding the reliability of the data.
This data source did limit the type of information we could provide.
Data were not available on the public financing of golf courses, via
tax-exempt bonds or other methods, or on any aid provided by state and
local governments to privately owned public golf courses. While the
database may be largely comprehensive, at any one time it may not
include every single golf course in the United States. Since
municipalities can engage in a variety of joint public and private golf
courses establishments, the data may not be representative of the total
number of golf courses constructed or originally financed by state and
local governments.
We also used data on high-end golf courses provided by Akin Gump
Strauss Hauer & Feld LLP to provide estimates of the number of golf
courses financed with tax-exempt bonds. As verification, we interviewed
the official providing the data about the methodology for determining
the tax-exempt financing and golf course listings.
Conference Centers:
We used two sources of data to provide information on the financing and
ownership of convention centers: bond issuance data and data on the
number of government-owned convention centers.
We used Thomson Financial data contained in the Bond Buyer Yearbooks to
provide details on the bond issuances for a variety of public facility
categories, including convention centers; parks, zoos, and beaches; and
other recreation, according to the categories provided in the yearbooks
as related to conference centers. This data source provides 2000-2004
aggregate values and the number of bonds issued. However, there are a
number of limitations to these data. Because municipalities can issue
large combined bond issuances some bond issues related to convention
centers, could be contained in other categories, such as economic
development, thus the information provided relies on the categorization
of bond issues into the categories. The breakdown of bond issuances did
not allow us to determine the amount of convention center issuances
that were tax-exempt, only the amount of total transportation issuances
that are tax-exempt for the years covered.
This data source only provides information on a particular method of
public facilities financing and therefore does not provide information
on total government public facilities, and thus convention center,
expenditures; the number of public facilities constructed, financed, or
owned by state and local governments; or other forms of government
financing for public facilities. Furthermore, we do not address the
ultimate purpose of the public facilities projects financed by state
and local governments or where they are constructed. However, bond
experts have stated that state and local governments finance convention
centers to attract outside revenue and stimulate economic development
through tourism.
We also relied on a list of government-owned convention centers
provided by Akin Gump Strauss Hauer & Feld LLP. We use this list as an
estimation of the number of government owned convention or civic
centers. As verification, we interviewed the responsible contact about
the methodology and obtained financing data on selected observations
using comprehensive annual financial reports (CAFR).
Hotels and Tourist Accommodations:
We used four separate data sources to provide a combined listing of the
number of hotels financed by tax-exempt bonds that have been identified
by experts in the field of government finance. The individual lists
came from Orrick, Herrington & Sutcliffe LLP; HVS International; Piper
Jaffray; and Akin Gump Strauss Hauer & Feld LLP. Each of these data
sources provided a listing of hotels financed with tax-exempt bonds
along with estimates of the amount of financing. Because these lists
were produced at different times and multiple bonds can be issued for
single projects, the estimates of facilities from these lists may not
represent all facilities financed with tax-exempt bonds or include all
the bond issuances prior or since the date the data source. As
verification, we conducted interviews to assess the methodologies for
determining the lists and provide a list of hotels and their financing
structure, which we determined from looking at selected government
financial reports. The combined estimate from the lists may also not
represent every hotel that has been financed in part or whole by state
and local governments, but rather provide the number of identified
hotels financed with tax-exempt bonds.
State-owned Gaming Support Facilities:
We used three sources of data to provide limited information on state
and local governments' support of gaming facilities: state lottery
data, survey data on private casino gaming, and specific examples of
government aid in connection with private gaming.
We used financial data on lotteries from state CAFRs to provide the
number of states with lotteries and the capital assets for those
lotteries. We use the level of capital assets for state lotteries as an
indication of the financing of state-owned gaming facilities. However,
there are a number of limitations to these data. The asset data do not
provide information on other state-owned gaming facilities. Because
government facilities may have multiple uses the asset figures may not
represent the actual portion of assets devoted to lottery use. These
data may also not include all forms of state-owned gaming facility
assets, such as state gaming terminals.
We used information from the American Gaming Association's 2005 Survey
of the States to provide contextual information on the number of states
with legalized gaming. As verification we reviewed data from the source
listed in the survey for selected states. The survey data also provide
the number of states with publicly run video lottery terminals (VLT) at
racetrack casinos. This data source does not provide any information on
state and local expenditures related to either the public VLTs or
private gaming facilities or the number of state-owned gaming support
facilities.
We used gaming articles identified through the literature searches on
the Internet and in finance and bond journals and testimony from bond
finance experts including officials from the Government Finance
Officers Association, and the Bond Market Association, to elaborate on
examples of states' financing of projects directly related to or aiding
private gaming. As these data provide examples they cannot be
generalized to total state and local aid to private gaming.
We conducted our work from February 2006 through August 2006 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: GAO Contact and Staff Acknowledgments:
GAO Contact:
Michael Brostek (202) 512-9110 or brostekm@gao.gov:
Acknowledgements:
In addition to the contact named above, Jose Oyola, Assistant Director;
Robert Dinkelmeyer; Jennifer Gravelle; Cheryl Peterson; and Walter
Vance made key contributions to this report.
FOOTNOTES
[1] Pub.L. 100-203 (1987).
[2] The Tribal Government Tax-Exempt Bond Parity Act of 2006, S. 3567,
109th Cong. (2006) would place tribal governments on a more equal
footing with state and local governments in terms of their ability to
issue tax-exempt bonds to fund certain governmental programs.
[3] Municipal golf courses are courses owned by a tax-supported entity,
such as a city, county, state, or park district.
[4] Bond issues are taxable private activity bonds if (1) more than 10
percent of the proceeds of the issued bond are to be used for any
private business use and (2) if the payment on the principal of, or the
interest on, more than 10 percent of the proceeds of such issue is
(under the terms of such issue or and underlying arrangement) directly
or indirectly secured by any interest in property used or to be used
for a private business use, or payments in respect to such property or
if the payment is to be derived from payments (whether or not to the
issuer) in respect of property, or borrowed money, used or to be used
for a private business.
[5] On August 9, 2006, IRS published an advanced notice of proposed
rule making regarding the definition of essential government function,
and solicited comments by November 7, 2006. 71 Fed. Reg. 45474.
[6] GAO, Transportation Infrastructure: Alternative Financing
Mechanisms for Surface Transportation, GAO-02-1126T (Washington, D.C.:
Sept. 25, 2002).
[7] Since new bonds could be issued for the same convention center, the
cumulative number of issuances does not show the cumulative number of
convention centers financed by state and local governments.
[8] The data sources on hotels provided by government finance experts
overlapped and thus the data do not necessarily yield a comprehensive
list of all the publicly financed hotels.
[9] These included stand alone casinos and casinos at racetracks.
According to the American Gaming Association there are four more states
that have legal racetrack casinos that are not operational.
[10] GAO, Highways and Transit: Private Sector Sponsorship of and
Investment in Major Projects Has Been Limited, GAO-04-419 (Washington,
D.C.: Mar. 25, 2004) describes financing of the Las Vegas monorail
project.
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