The greatest challege in a real property tax system is appraisal and assessment.  The property must be appraised to determine market value; it must be reappraised periodically; the appropriate assessment ratio (percentage) must be applied.  Then, the tax reate is applied to assessed value.  This process is technically challenging and politically sensitive

The other challege is the collection of the tax.

1 mill = 1/10 of a percent

18 mills = 1.8%

160,000 x .018 = $2,880

Formula grants

Discretionary grants

Block grants

• Ability to pay
• Benefit received- is it worth establishing a new tax or raising existing taxes.
• Collection efficiency- cost of collecting the tax should be minimal compared to the revenue generated.
• Social and economic goals- social security tax for example ensures a minimum level of income for elderly citizens
• Tax expenditures- exceptions to tax laws and regulations are called tax expenditures because they "cost" the public in terms of lost revenue.
• Dedicated tax- a dedicated tax is leveied for a specific purpose and the proceeds are deposited into an account restricted to that purpose.

Income taxes are the major source of revenue for the national government an dmost states.  Levied on both individuals and corporations.

Sales taxes and property taxes are the two main sources of revenue for local governments. 

• Broad based taxes
• Graduated tax rates, exemptions and deductions are applied to enhance horizontal and vertical equity
• Usually progressive tax
• Payroll taxes such as social security and medicare are not classified as income taxes, however within a broad range of income they are proportion to income thus considering it a regressive tax.

• Less costly to administer than other taxes.
• Compliance levels tend to be high
• Income taxes respond to general economic conditions such as inflation and recessions

• Most familiar form of a wealth tax
• Greatest challenge to the real property tax system is the appraisal and subsequent assessment of property values
• Rates usually expressed in mills (1/10 of a cent or 1/1000 of a dollar)

• Similar to real property however personal property is mobile or can be transferred between locations.
• Business  pay personal property tax on such items as furniture, tools and farm equipment however some smaller tools may be exempt.

• Many assests are subject to an intangibles tax.
• Include assets such as stocks and bonds, savings accounts and trademarks.
• Tend to be highly controversial

• Estate taxes and inheritance taxes are taxes on wealth.
• One of the oldest forms of taxaction. 
• Federal government only levies the estate tax
• Some states levy both.

Consumption taxes are an important source of revenue to most states and many local governments.  While consumption taxes are regressive, some argue they provide a degree of "fairness."  

Examples include sales, use, excise and value added taxes.

• Most common consumption tax
• General sales taxes are deposited into the general fund while dedicated sales taxes such as gasoline may be deposited into a special fund.
• Certain items such as food consumed off the premise and childrens clothes are often excluded to mitigate the regressive nature of sales taxes
• May be imposed by governments at any level, though a local government cannot impose sales tax unles authorized to do so by the state.

• Charged on goods purchased from out-of-state and used within the state.
• Substitute sales tax
• Disadvantage is the reliance of voluntary compliance, especially for individual taxpayers.

• Applied to the consumption of a particular type of good, or to participation in a certain type of activity.
• Usually paid when purchases are made and may be included in the price (gasoline)
• Sometimes imposed on occupations, licenses and for enjoyment of certain privilages.
• May be paid in conjuction with building permits, dump fees and even parking spaces
• Advantage is that they link taxation to specific services and often used to fund specific things. Gasoline to highway funds.

• Can be classified as formula grants or discretionary grants.
• Can only be used for activities in a specific category of purpose.

• Amount based on a formula contained in law or regulation.  (Factors include: Population, per capita income, degree of substandard housing.)
• Many education grants are formula grants.
• Amount received based on eligibility requirements satisfied.

• Transfer funds to be used for a specific purpose
• Awards are up to the discretion of the entity providing the funds
• Competitive
• Awards based on subjectivity, amount of funding and quality of proposals.

• Transfer funds for broadly defined purposes
• A single block grant may provide funds for several related activities
• Contain comparatively few requirements for how money is spent offering maximum flexibility to the state and local govts.

• Usually associated with revenue sharing between state and local governments.
• Most instances, shared revenue funs are provided with few constraints so that local entities have maximum flexibility.
• Often provided per a formula, such as population per county or miles of road per county.

• Accountability- Comply with terms, end receipients are eligable receipients
• Proper control and management of transactions
• May expect recipient to comply with certain cross-cutting requirements.  This refers to broad goals of the grantor that are not directly related to the purpose of the grant.
• For example recipients may be required to uphold certain civil rights and environmental protection objections.

• License fees- often associated with business activity
• User fees- charged imposed on specific beneficiary of a good or service.  Used to fully or partially recover costs and expand services without raising taxes.
• Donations- Voluntary contributions that confer no rights or benefits to the giver
  
• Lotteries and Gambling
• Investments- See Investments Flashcard

• Most common purpose for state and local levels is to fund capital improvements
• May also be used to provide interim financing in anticipation of future receipts.  Tax anticipation notes (TANs), Revenue Anticipation notes (RANs) or Grant Anticipation nots (GANs)
• Issue new debt that allows them to pay off existing debt at more favorable interest rates.
• Advanced refunding- New debt proceeds are used to buy securites that are placed in escrow.  The interest is used to pay of old debt.
• U.S. Constitution allows the govt to use debt to fund current operating expenses.

All governments are limited as to the amount of debt they can incur.  For state and local govts the debt limit is establised in the constitution or in statutes.  

Covenants are legal requirements pertaining to a specific bond issue.  Typically define the maturity date and revenue stream that will be used to repay the debt, the interest rate and repayment schedule.

Equity- Repayment of debt should be borne by those benefiting from the project.

Effectiveness- The debt issue should provide sufficent funds for the project.

Efficiency- Loaned funds should be obtained at the lowest cost possible relative to the risk.

• Secured by the full revenue base of the issuer.  "Full faith and credit"
• Are more likely to be subject to debt limits
• Used to fund projects that benefit all citizens served by the government.
• Lower interest rates than revenue bonds
• Generally require voter approval

• Secured by a specific source of financing, such as revenue from the project being funded or a dedicated tax.
• Usually higher interest rates

• Term bond- is a large block of bonds maturing in a single year, usually many years after issuance.  Usually associated with a sinking fund.
• Serial Bond- features maturities every year, annually or semi-annually.
• Warrants- Governments may use warrants to pay off debt.  It is is an order by authorized executive official that directs the treasury to pay a specific sum to the bearer.  Similar to a check.

Generally short term but play a supporting role in long term financial management.

Short-term notes may be used as a financial management tool in anticipation of other revenue.  (BAN and RAN)

Lower interest rates than bonds

• Like long-term leases, certificates of participation are an alternative to traditional bond financing.
• Participants are investors who purchase the right to participate in the income stream.  
• Typically financed through a financial institution and the lease payments are to the institution which provides the investors a share of the payments.
• Asset may transfer to the govt when the lease term ends.

• Covenant or details of the individual issue
• Debt management issues
• Economic base
• Financial Performance
• Administrative issues