Public Works Revenue Potential In the Wake of Tax Reform

Like the hurricanes of 2004 and 2005, the recent tidal wave of tax reforms in the state of Florida have wreaked havoc on local government budgets and have forced municipal administrators to scramble and identify other potential revenue sources. Failure to identify additional revenue sources will force local governments to make very hard choices with regards to existing programs and services, including decreasing service levels or in the worst case scenarios, eliminating programs, positions, and services altogether. In the political arena of government funding, public works almost always takes a backseat to police and fire services and often finds itself going toe to toe with parks and recreation activities for the remaining dollars. To that end, the need to identify potential revenue sources in the wake of sweeping tax reform becomes critical for Public Works departments tasked with constructing, maintaining and repairing critical infrastructure and providing associated programs and services.

Just as public works responsibilities, including but not limited to, emergency management, landscaping, grounds, facilities, fleet, stormwater, roads, parks, water distribution and wastewater collection, and engineering may vary from city to city, potential revenue sources also vary, especially with regards to the impact on residents.  It is important that Public Works directors be cognizant of the political climate in their respective municipalities so as not to spend a lot of time pursuing revenue sources that their political machine is not ready to support.  With that said, potential revenue sources could come from a variety of internal and external sources, including grants, user fees, franchise/licensing fees, bonds/loans, and special assessments/special taxing districts.

            Grants are one of the best ways to acquire funding with minimal direct impact on municipal residents.  Grants can be competitive, as with Florida Recreation Development Assistance Program (FRDAP) grants or non-competitive as with most Community Development Block Grants (CDBG).  It should be noted that most competitive grants require some kind of local match in the form of cash matches or in-kind service matches.  Obviously, in-kind services provide the greatest opportunity to minimize the impact of match requirements on a municipality’s tax base. 

            Most grants available for public works activities are not normally geared towards routine maintenance and repair activities but rather towards capital infrastructure improvements. Generally, such grants cycle annually.   Various grant programs within the state of Florida related to public works activities include, but are not limited to:

GRANT                                                                      SOURCE

Transportation Enhancement Program          Florida Department of Transportation (FDOT)

Florida Highway Beautification Council                         FDOT

Safe Routes to School Program                                     FDOT

TMDL Water Quality Restoration Grant         Florida Depart. of Environ. Protection (FDEP)

Florida Recreation Development Assistance Program (FRDAP) FDEP

Florida Coastal Management Program                               FDEP

Small Community Wastewater Facilities Grant Program   FDEP

 Section 319 Grant Funding                                            FDEP
(Nonpoint Source Management)                                    

Small County Consolidating Solid Waste Grant                FDEP 

Urban and Community Forestry Grant Program Florida Department of Agriculture & Consumer Services (Division of Forestry)

Hazard Mitigation Grant Program Federal Emergency Management Agency (FEMA)

Small Community Wastewater Facilities Grant Program FDEP

Section 319 Grant Funding (Nonpoint Source Management) FDEP

Small County Consolidating Solid Waste Grant FDEP

Urban and Community Forestry Grant Program Florida Department of Agriculture & Consumer Services (Division of Forestry)

Hazard Mitigation Grant Program Federal Emergency Management Agency (FEMA)

Pre-Disaster Mitigation Grant Program Federal Emergency Management Agency (FEMA)

User fees as a source of revenue is not a new concept, as governments have been using them for years to reasonably cover the cost of operations. A State of Wisconsin Best Practices Report prepared in 2004 identified some 500 different user fees (not all public works related) charged by local governments to cover the costs of operations (http://www.legis.state.wi.us/lab/reports/04-0UserFeesFull.pdf). To that end, Public Works administrators may want to consider evaluating existing user fees for sufficiency and exploring the possibility of new user fees where practical and palatable. Some commonly implemented user fees include, but are not limited to, tolls, parking meters, parking permits, utility fees, sport field and pavilion rentals, trash transfer station fees, right-of-way permit fees, inspection fees, development impact fees, tree removal/relocation permits, storm water fees, etc.

Franchise fees are another form of user fee commonly charged to utilities (i.e., telephone, cable, gas, electric, etc.) and garbage haulers for the right to use the public right-of-way for conducting business. Unfortunately, these fees are usually passed through to the consumers that utilize the product. Regardless, distressed Public Works departments that have responsibility for maintaining the rights-of-way should be evaluating existing franchise fees for sufficiency while exploring the possibility of implementing new franchise fees. As one considers potential revenue sources, one might consider that while Florida Statutes (FS 403.7046) prevent municipalities from controlling the flow of commercially generated and source-separated recovered materials, some cities have considered enacting a licensing fee for those companies engaged in the collection of such recovered materials. Another potential source of revenue is through bonds and/or loans. A municipal bond is an interest-bearing debt obligation issued by a state or local municipality, which may support general government needs or fund a public works project amongst other things. The two most common bonds include General Obligation Bonds (GO) and Revenue Bonds and they differ as follows:

General Obligation (GO) Bonds – Though municipalities generally designate specific projects for these funds, GO bonds do not have to be tied to a particular community project. The issuer of the GO bond is obligated to make interest and principal payments on time, which makes them one of the least risky municipal investments because they are backed by the full faith and credit of the issuing government and its taxing power. GO bonds are considered very low risk and thus offer the lowest yields.

Revenue Bonds – Are backed only by the revenue that is expected to be generated by the facility being built and secured only by a specified revenue source such as highway tolls or airport fees. They are considered somewhat riskier than general obligation bonds and thus usually offer higher yields. Other types of bonds that one might consider include private activity bonds, commercial paper, special tax bonds, and industrial revenue bonds. It should be noted that GO Bonds are sometimes used in the political arena so that the politicians can defer the blame for not funding a project or group of projects to the voting population. After all, GO Bonds require approval of the voters and failure to approve is generally considered by the political body as “the will of the people.” Low interest loans are another potential funding source that might be considered and researched by Public Works administrators. For example, the Florida Department of Environmental Protection offers two low interest loan programs: the Drinking Water State Revolving Fund Program and the Water Pollution Control State Revolving Fund Program. These State Revolving Fund (SRF) loan programs can be used as follows:

Drinking Water SRF – loan funds can be used for planning, designing, and constructing public water facilities.

Water Pollution Control SRF - will fund the planning, design, and construction of wastewater collection, transmission, treatment, disposal, and reuse facilities. It is important to note that this loan will not fund stormwater facilities or fund operation and maintenance costs. Special Assessments and Special Taxing Districts also provide an opportunity for potential revenue in addition to property taxes. One should be aware, though, that special assessments are not highly regarded in the political arena unless all other options have failed or certain unforeseen emergency response and recovery actions become necessary. On the other hand, special taxing districts may or may not be favorable depending on the services being provided and the desire of the residents to have a high level of service. The one thing that they both have in common is that they are generally applied to specific subdivisions or sections within municipal boundaries that receive a benefit or service that is not necessarily provided to other subdivisions or sections within the same municipality or the benefit or service is supplied by another entity. For example, a city might be responsible for road maintenance in one subdivision but a homeowners association might be responsible in another, though both lie within the same municipal boundaries.

Special Taxing Districts can be utilized for a wide variety of public works activities related to roadwork, streetlights, canal and lake maintenance, drainage and right-of-way maintenance to name a few. If tax reform is straining general fund dollars, then it might be prudent to research the possibility of creating special taxing districts.

Regardless of whether one seeks these or any other potential revenue sources, it is important to ensure that you are running an effective and efficient operation and are able to back it up. There is a strong belief in the general population that government has been inefficient, fiscally irresponsible, and mired in costly bureaucracy. Very few consider the fact that much of the increased tax revenues associated with Florida’s real estate boom were put towards capital improvements including, but not limited to, new parks, community facilities, landscape improvements and new roads, all of which have greatly improved the quality of life in South Florida. Most importantly, all of these require long-term maintenance and repair activities to sustain them.

We as public works professionals understand the concept of, “you can pay now or pay ten times the cost later”, this is not likely an important concept to politicians trying to make a name for themselves now. To that end, as Public Works professionals in the wake of sweeping tax reform, the need to identify potential revenue sources could be critical to the long-term cost effective survivability of infrastructure we are tasked to maintain and repair.