Federal Tax Policy: Information on Selected Capital Facilities
Related to the Essential Governmental Function Test (13-SEP-06,
GAO-06-1082).
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.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-1082
ACCNO: A60827
TITLE: Federal Tax Policy: Information on Selected Capital
Facilities Related to the Essential Governmental Function Test
DATE: 09/13/2006
SUBJECT: Bonds (securities)
Convention facilities
Federal taxes
Hotels and motels
Housing programs
Indian affairs legislation
Indian lands
Local governments
Municipal bonds
Municipal governments
Parking facilities
Policy evaluation
Public housing
Recreation areas
Rental housing
State governments
Tax exempt status
Tax law
Transportation
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GAO-06-1082
* Results in Brief
* Background
* State and Local Governments Provide Substantial Financing fo
* Transportation Facilities Often Are Publicly Financed by a V
* Wide Prevalence of User Charges for Parking Suggest Customar
* Governments Provide Financing for a Wide Variety of Recreati
* Numerous Municipal Golf Courses Exist, Some with Lodging Fac
* Public Financing Is Provided to Numerous Convention Centers
* Different Sources Show Public Financing of Hotels and Relate
* State and Local Governments Support Gaming, but Extent of Pu
* Appendix I: Objective, Scope, and Methodology
* Rental Housing
* Road Infrastructure
* Parking Garages and Parking Lots
* Community Recreational Facilities
* Golf Courses
* Conference Centers
* Hotels and Tourist Accommodations
* State-owned Gaming Support Facilities
* Appendix II: GAO Contact and Staff Acknowledgments
* GAO Contact
* Acknowledgements
* Order by Mail or Phone
Contents
Letter 1
Results in Brief 4
Background 5
State and Local Governments Provide Substantial Financing for Housing 7
Transportation Facilities Often Are Publicly Financed by a Variety of
Methods 8
Wide Prevalence of User Charges for Parking Suggest Customary Provision by
State and Local Governments 10
Governments Provide Financing for a Wide Variety of Recreational
Facilities 13
Numerous Municipal Golf Courses Exist, Some with Lodging Facilities 16
Public Financing Is Provided to Numerous Convention Centers 19
Different Sources Show Public Financing of Hotels and Related Facilities
20
State and Local Governments Support Gaming, but Extent of Public Financing
Is Difficult to Estimate 22
Appendix I Objective, Scope, and Methodology 25
Appendix II GAO Contact and Staff Acknowledgments 32
Tables
Table 1: State and Local Government Housing-Related Borrowings and Number
of Issues 7
Table 2: State and Local Government Transportation-Related Borrowings and
Number of Issues 9
Table 3: Level of Parking User Charges in 171 Largest Metropolitan
Statistical Areas 11
Table 4: State and Local Government Public Facilities-Related Borrowings
and Number of Issues 13
Table 5: Regional Distribution of Municipal Golf Courses 16
Table 6: Selected Hotels and Related Facilities Financed with Tax-Exempt
Bonds 21
Figures
Figure 1: Levels of Parking User Charges across Largest MSAs 12
Figure 2: Levels of Parks and Recreation User Charges across Largest MSAs
15
Figure 3: Cumulative Number of Nonpark Municipal Resort Golf Facilities 17
Figure 4: Cumulative Number of Municipal Real Estate Development Golf
Facilities 18
Figure 5: Cumulative Number of Major New Bond Issues for Convention
Centers 20
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separately.
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 19871 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. 2
1Pub.L. 100-203 (1987).
2The 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.
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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o Golf facilities. In 2005 there were about 2,400 municipal golf
courses,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.
o 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).
o 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).
o 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.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.
3Municipal golf courses are courses owned by a tax-supported entity, such
as a city, county, state, or park district.
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. S: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. S: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.
4Bond 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.
No regulations have been issued yet addressing what is or what is not an
essential government function since the provision in 1987 was added.5
Congress in the legislative history to I.R.C. S: 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.
2000 2001 2002 2003 2004
Total $20.3 $22.6 $23.6 $26.3 $22.3
(1,293) (1,367) (1,245) (1,007) (998)
Single-family $13.7 $14.9 $13.0 $14.4 $14.1
(566) (542) (434) (362) (449)
Multifamily $6.6 $7.7 $10.6 $11.9 $8.2
(727) (825) (811) (645) (549)
Tax-exempt $5.2 $7.5 $8.1 $12.3 $8.0
(436) (509) (429) (449) (420)
Taxable $3.3 $3.4 $2.9 $3.5 $2.0
(332) (291) (232) (176) (135)
Alternative minimum tax $11.7 $11.7 $12.7 $10.5 $12.4
(525) (567) (584) (382) (443)
5On 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.
Source: Thomson Financial.
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.6 We were able
to provide some details on debt financing of transportation facilities.
6GAO, Transportation Infrastructure: Alternative Financing Mechanisms for
Surface Transportation, GAO-02-1126T (Washington, D.C.: Sept. 25, 2002).
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.
2000 2001 2002 2003 2004
Total $26.7 $32.2 $45.0 $40.4 $32.4
(469) (562) (557) (546) (461)
Airports $7.4 $12.4 $10.1 $10.3 $7.0
(123) (149) (128) (162) (129)
Seaports $1.2 $1.2 $1.1 $1.3 $0.9
(27) (39) (41) (37) (24)
Toll roads and highways $10.2 $8.6 $14.5 $15.2 $10.1
(222) (259) (241) (201) (171)
Bridges $1.5 $2.3 $4.1 $3.0 $1.4
(11) (7) (23) (17) (13)
Tunnels $0.3 $0.1 $0.8 $0.0 $0.0
(2) (1) (1) (0) (0)
Parking facilities $0.5 $0.6 $1.0 $0.5 $0.7
(36) (42) (55) (40) (47)
Mass transit $5.1 $6.7 $13.7 $9.7 $10.6
(43) (62) (67) (75) (65)
Other transportation $0.6 $0.2 $0.01 $0.3 $1.7
(5) (3) (1) (14) (12)
Tax-exempt $20.2 $23.2 $35.6 $32.1 $27.2
(361) (447) (435) (438) (361)
Taxable $0.3 $0.7 $0.9 $1.6 $1.3
(24) (33) (31) (36) (32)
Alternative minimum tax $6.3 $8.3 $8.4 $6.7 $4.0
(84) (82) (91) (72) (68)
Source: Thomson Financial
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) 171 MSAs MSA distribution
Greater than $25 million 11 6%
$25 million > x > $5 million 37 22%
$5 million > x > $1 million 57 33%
$1 million > x > $0 million 53 31%
No user charge revenue 13 8%
Total MSAs 171 100%
Source: U.S. Census Bureau, 2002 U.S. Census of Governments.
Figure 1: Levels of Parking User Charges across Largest MSAs
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.
2000 2001 2002 2003 2004
Total $9.3 $11.1 $15.5 $13.0 $9.4
(735) (749) (850) (686) (643)
Libraries and museums $1.0 $1.5 $1.2 $1.8 $1.7
(74) (101) (103) (99) (93)
Government offices $1.5 $1.7 $3.9 $2.6 $1.2
(131) (110) (155) (107) (43)
Fire stations $0.2 $0.3 $0.4 $0.2 $0.3
(120) (117) (150) (112) (104)
Jails and prisons $1.5 $1.4 $3.5 $2.7 $2.0
(69) (65) (87) (76) (116)
Police stations $0.2 $0.2 $0.3 $0.2 $0.2
(23) (25) (24) (21) (11)
Convention centers $2.0 $2.1 $3.3 $2.0 $1.2
(51) (56) (47) (43) (39)
Stadiums and arenas $1.2 $1.8 $0.8 $0.7 $0.5
(25) (31) (22) (21) (20)
Theaters $0.1 $0.1 $0.2 $0.3 $0.1
(2) (6) (5) (8) (8)
Parks, zoos, and beaches $0.8 $1.4 $1.0 $1.7 $1.1
(140) (154) (165) (129) (135)
Other recreation $1.0 $0.7 $0.9 $0.8 $1.0
(100) (84) (92) (70) (74)
Tax-exempt $8.7 $10.5 $15.2 $11.9 $8.8
(694) (721) (823) (647) (600)
Taxable $0.4 $0.5 $0.3 $1.0 $0.6
(36) (25) (26) (35) (42)
Alternative minimum tax $0.2 $0.1 $0.01 $0.01 $0.02
(5) (3) (1) (4) (1)
Source: Thomson Financial.
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
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
Number and type of municipal golf courses
Just
Real Resort/real golf/ Park
Region Resort estate estate other district Total
New England 0 0 0 99 1 100
Middle
Atlantic 0 0 0 191 17 208
East North
Central 3 13 0 457 6 479
West North
Central 2 11 1 374 1 389
South
Atlantic 10 12 0 244 9 275
East South
Central 4 2 0 122 36 164
West South
Central 2 5 0 254 11 272
Mountain 5 20 0 256 1 282
Pacific 8 6 0 243 0 257
Total 34 69 1 2240 82 2426
Source: GAO analysis of National Golf Foundation data.
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
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
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.7
7Since 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.
Figure 5: Cumulative Number of Major New Bond Issues for Convention
Centers
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.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.
8The 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.
Table 6: Selected Hotels and Related Facilities Financed with Tax-Exempt
Bonds
Location Financing details and related facilities
City of Bay City, Mich. 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.
Cambridge, Md. 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.
City of Denver, Colo. In 2003 the Denver Convention Center Hotel
Authority issued $354 million revenue bonds to
finance a hotel near the convention center.
City of Houston, Tex. 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.
City of Myrtle Beach, In 2001 the Myrtle Beach Convention Center Hotel
S.C. Corporation, a component unit of the city, issued
$64 million revenue bonds.
City of Omaha, Nebr. In 2002 the city issued $103 million tax-exempt
convention center hotel revenue bonds. The hotel
began operations in 2004.
City of Overland Park, In 2001 the Overland Park Development
Kans. Corporation, a component unit of the city, issued
$92 million in revenue bonds to finance the
construction of a convention center hotel.
City of Phoenix, Ariz. 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.
City of Sacramento, In 1999 the Sacramento Hotel Corporation, a
Calif. component unit of the city, issued $97 million in
revenue bonds to build a hotel to support the
city's convention center expansion.
Village of Schaumburg, In 2004 the village issued $239 million in
Ill. general obligation bonds to finance several
projects, including a convention center and
attached hotel.
County of Wayne, Mich. In 2001 the county issued $111 million airport
hotel revenue bonds to finance an airport hotel
and related improvements.
City of Vancouver, Wash. 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.
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.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.
9These 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.
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.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 http://www.gao.gov .
10GAO, 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.
If you or your staff have any questions about this report, please contact
me at (202) 512-9110 or [email protected] . 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,
Michael Brostek
Director, Tax Issues Strategic Issues
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.
Community Recreational Facilities
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.
Appendix II: GAO Contact and Staff Acknowledgments
GAO Contact
Michael Brostek (202) 512-9110 or [email protected]
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.
(450468)
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www.gao.gov/cgi-bin/getrpt? GAO-06-1082 .
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Highlights of GAO-06-1082 , a report to Ranking Minority Member, Committee
on Finance, U.S. Senate
September 2006
FEDERAL TAX POLICY
Information on Selected Capital Facilities Related to the Essential
Governmental Function Test
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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
*** End of document. ***