Objectives and Structure of the LecturesPrinciples of TaxationCharacteristics of TaxesTypes of TaxesUses of Tax RevenuesThe Transportation Finance System in the USThe Federal-Aid Highway SystemRoad User Charges and the Trust FundMunicipal BondsProject Finance 1 Objectives Taxation Characteristics Types Transportation Project Finance – 1 Uses US System Public Finance: Taxes and Bonds NHS Trust Fund Bonds Jon Bottom Steer Davies Gleave 6 November 2008 1 / 37Outline Objectives and Structure of the Lectures Principles of Taxation Characteristics of Taxes Types of Taxes Uses of Tax Revenues The Transportation Finance System in the US The Federal-Aid Highway System Road User Charges and the Trust Fund Municipal Bonds Project Finance 1 Objectives Taxation Characteristics Types Uses US System NHS Trust Fund Bonds 2 / 37Outline Objectives and Structure of the Lectures Principles of Taxation Characteristics of Taxes Types of Taxes Uses of Tax Revenues The Transportation Finance System in the US The Federal-Aid Highway System Road User Charges and the Trust Fund Municipal Bonds Project Finance 1 Objectives Taxation Characteristics Types Uses US System NHS Trust Fund Bonds 3 / 37Money Isn’t Everything But... � It sure helps implement, maintain and operate transportation facilities and services � The availability of finance practically and legally constrains what can be done � There are different ways of leveraging available financial resources, with different impacts Project Finance 1 Objectives Taxation Characteristics Types Uses US System NHS Trust Fund Bonds 4 / 37My Objectives for This Lecture and the Next � Familiarize you with the main ideas, principal methods and current issues � Talk about general principles, but also get into some real-world details � Use the US as an example, but not too much I hope � Focus on roads Project Finance 1 Objectives Taxation Characteristics Types Uses US System NHS Trust Fund Bonds 5 / 37Today: Public Transportation Financing In this lecture I will cover: � Principles of taxation, applied to transportation � The transportation finance system in the US � Road user charges and the Trust Fund � Municipal bonds Project Finance 1 Objectives Taxation Characteristics Types Uses US System NHS Trust Fund Bonds 6 / 37Next Time: Public-Private Partnerships In the next lecture I will cover � What are PPPs � Reasons for public sector to pursue PPPs � Reasons for private sector to pursue PPPs � Policy issues � PPP implementation details Project Finance 1 Objectives Taxation Characteristics Types Uses US System NHS Trust Fund Bonds 7 / 37Why You Should Know About This Stuff � Transportation financing issues are more acute than at any time in the past 50 years � Current financing approaches are broken � Lots of new approaches being discussed and tried � High level of interest by government, planning and engineering firms, Wall Street, etc. � Familiarity with financing issues and approaches is a good qual to have when looking for a job Project Finance 1 Objectives Taxation Characteristics Types Uses US System NHS Trust Fund Bonds 8 / 37Outline Objectives and Structure of the Lectures Principles of Taxation Characteristics of Taxes Types of Taxes Uses of Tax Revenues The Transportation Finance System in the US The Federal-Aid Highway System Road User Charges and the Trust Fund Municipal Bonds Project Finance 1 Objectives Taxation Characteristics Types Uses US System NHS Trust Fund Bonds 9 / 37Purposes of Taxation The "Four R’s" Revenue Raise money for government use Redistribution Transfer wealth from one segment of society to another Repricing Change market prices to reflect externalities or promote policies Representation Engage citizens in government Project Finance 1 Objectives Taxation Characteristics Types Uses US System NHS Trust Fund Bonds 10 / 37Tax System Attributes – 1 Efficiency How much does a tax distort the efficient allocation of resources by society? � (Pareto) efficient allocation: can’t make someone better off without making someone else worse off � In a perfect market, efficient allocation maximizes sum of consumer + producer surplus ("welfare") � Tax impact on welfare can be measured via deadweight loss Project Finance 1 Objectives Taxation Characteristics Types Uses US System NHS Trust Fund Bonds 11 / 37Tax System Attributes – 2 Equity How fair do we consider the tax to be, in terms of its impacts on different groups? (Groups = individuals/HHs or businesses; social, modal or industry interests; geographic areas) � Market equity: bring prices in line with costs imposed and/or benefits received � Opportunity equity: treat different groups equally � Outcome equity: redistribute resources to produce equal outcomes � Horizontal equity: groups with similar ability to pay taxes should pay similar amounts � Vertical equity: groups with greater ability to pay taxes should pay more Project Finance 1 Objectives Taxation Characteristics Types Uses US System NHS Trust Fund Bonds 12 / 37Tax System Attributes – 3 Administration cost How easy is it for government to collect the tax? High cost results in lower net revenue generation for the tax � Large/small number of taxpayers � Difficult/easy verification of compliance Compliance cost How easy is it for taxpayer to calculate tax and pay it? Project Finance 1 Objectives Taxation Characteristics Types Uses US System NHS Trust Fund Bonds 13 / 37Direct Taxes Levied directly on the person or entity that is the object of the tax Poll tax Personal income tax Corporate income tax Generally based on net income (difference between gross income and various expenses and write-offs such as depreciation) Estate or inheritance tax, etc. Project Finance 1 Objectives Taxation Characteristics Types Uses US System NHS Trust Fund Bonds 14 / 37Indirect Tax Levied on a good or service rather than a person or entity Sales or value added tax Based on the transacted value of a good, service or asset Excise tax Based on the transacted quantity of a good, service or asset User charge Based on the use of and benefit from a specific facility or service Toll Tax or fee charged to use a specific road, bridge, tunnel, etc. All of these indirect tax types have been used for transportation finance Project Finance 1 Objectives Taxation Characteristics Types Uses US