Zhirong Jerry Zhao

Motivations, Obstacles, and Resources: The Adoption Of The General-Purpose Local Option Sales Tax in Georgia Counties

Local governments in Georgia have been authorized since the 1970s to levy a 1 percent general-purpose Local Option Sales Tax (LOST), which is earmarked for property tax relief. Using data during 1975 to 2002, this study examines the adoption of the LOST through a discrete-time event history analysis. The dependent variable is the probability that an eligible county will adopt it in a particular year. This probability is negatively related to the obstacles prohibiting the innovation and positively related to (1) the motivations to innovate and (2) the resources for overcoming the obstacles. The findings suggest that the motivations are higher in counties with higher property tax millage rates and the potential of sales tax exportation; the obstacles include high existing sales tax rates and severe tax competition; and the major resource for overcoming these obstacles is the adoption of the LOST in other Georgia counties.

Local Option Sales Taxes and Fiscal Disparity: The Case of Georgia Counties

While local option sales taxes (LOST) have become an important revenue source for local governments, there has been concern about the distribution of LOST revenues: the uneven distribution of sales tax bases may have introduced a new source of fiscal inequality and exacerbated existing fiscal disparity. Using Georgia county data (N=159, 1970-2000), this study examines whether and how LOST have affected local fiscal disparity. Our findings suggest that the effects of LOST on fiscal disparity vary with the approach to measure revenue-raising capacity; thus the issue of LOST distribution is sensitive to the underlying conceptualization of fiscal equity.

Is Management Performance a Factor in Municipal Bond Credit Ratings? The Case of Texas School Districts

Municipal bond ratings are an important determinant of interest costs that a bond issuer must pay. The three major bond rating firms profess that economic and management factors are considered in assigning a bond rating. The management component is of particular interest to public administrators because they can exert more direct control over management factors. Management factors have not been studied empirically in the literature because management performance is generally difficult to quantify. However, the public education sector has seen advances in performance measures and at the same time has increasingly relied on municipal bonds to finance construction. The ordered probit estimation provides support that management performance, as measured in the districts performance on standardized test scores and success in student college admission rates, does influence Texas school district bond credit ratings.

Special Assessments as a Value Capture Strategy for Public Transit Finance

Applying a benefit principle, value capture strategies enable the public sector to harness the value created through infrastructure improvements and to use the funds to pay for such improvements. This article focuses on special assessments by which property owners located within a designated geographic area, or “special assessment district (SAD),” pay for special benefits accruing to their properties that are close to certain infrastructure improvement. The authors review the history of special assessments, the extent of use, and the mechanisms for funding public transportation especially transits. The authors then evaluate the applicability of special assessments in funding public transits on the basis of four criteria: efficiency, equity, sustainability, and feasibility. Finally, the authors discuss suitable conditions for special assessments and provide legal, administrative, and technical recommendations for their use in transportation finance.

Motivations, Obstacles, and Resources: Determinants of Public-Private Partnership in State Toll Road Financing

Faced with significant infrastructure deficits, U.S. governments at all levels are increasingly considering the use of public-private partnership (PPP) to leverage private finance to support public infrastructure development. This study focuses on PPP tolling in highway development and seeks to explain the determinants for adopting this innovation, using data on toll road activities in the United States during 1985-2010. The results show that the probability of adopting PPP in highway tolling projects is significantly affected by traffic demands and fiscal pressures, liberal political ideology and administrative inertia, state wealth, state PPP legislation, and earlier experiences of PPP adoption in the state and elsewhere.

Management Capacity and State Municipal Bond Ratings Evidence With the GPP Grades

Most state governments issue general obligation (GO) bonds in the financial market to borrow money. Assigned by credit agencies, state GO bond ratings reflect states’ perceived credit quality and affect their borrowing costs. Despite many studies on the determinants of municipal bond ratings, little has been known about the association between state management capacity and bond ratings because management capacity is generally difficult to quantify. However, state governments’ performance grades assigned by the Government Performance Project (GPP) provide a great opportunity to study how people perceive and respond to state governments’ management capacity. This study finds that states with higher GPP grades tend to have higher state GO bond ratings, but the relationship may be nonlinear as people are more sensitive to the extremes of perceived performance. In particular, we observe a “performance premium” scenario in which S&P bond ratings grow at an increasing rate as state GPP grades improve.

Rural Taxation Reforms and Compulsory Education Finance in China

In recent decades, the responsibility for the financing of compulsory education in rural China has rested with townships and villages which, with limited tax authority and uneven revenue capacity, increasingly relied on a plethora of arbitrarily imposed fees for funding. To reduce farmers’ fiscal burdens, in 2000, the central government installed a series of rural taxation reforms. Correspondingly, the central government shifted the administrative responsibilities of rural compulsory education to the county level in 2001, and implemented a series of policies to make up for the loss of revenues to education. Using a provincial-level dataset from 1998 to 2006, we examined whether and how the rural taxation reforms affected the adequacy and equity of compulsory education finance in China, addressing related theoretical and policy implications from the perspective of intergovernmental fiscal relations.

Tax increment financing as a value capture strategy in funding transportation

Value capture strategies apply a benefit principle to public infrastructure investment by creating a mechanism to capture the value created by infrastructure improvements. This paper focuses on one value capture strategy, tax increment financing (TIF), which uses future increases in property taxes generated by infrastructure improvements to finance the initial costs of the development. This paper reviews the history of TIF, its extent of use, and its mechanisms. Then it evaluates the applicability of TIF as a revenue strategy based on four criteria: efficiency, equity, revenue sustainability, and feasibility. Finally, it provides recommendations on how to improve and expand the use of TIF.

Does Earmarked Revenue Provide Property Tax Relief? Long-Term Budgetary Effects of Georgia's Local Option Sales Tax

This study examines the long-term effects of the 1% General-purpose Local Option Sales Tax (LOST) on the level of property tax in Georgia counties with a pooled interrupted time-series analysis. The LOST has been earmarked for property tax relief in Georgia counties since 1976, but debates remain on whether the proceeds have been used as additional revenues. We find that the adoption of LOST brought short-term property tax relief but not long-term property tax reduction. The result suggests that long-term property tax relief would not be realized by earmarked revenue without careful policy design to safeguard fungibility.

Impact of Transportation Investment on Economic Growth in China

As China has experienced rapid economic growth and increased urbanization in recent decades, a crucial policy challenge for its government has been the development of urban transportation. Although conventional wisdom suggests that more infrastructure investment will stimulate economic development, empirical evidence is mixed. With the use of a panel data model (1999–2011 across Chinese provinces), transportation investment was found to have had significant impacts on economic growth, after which variables were controlled for that measured provincial openness, human capital, and government size. Transportation investment in one province not only promoted economic growth in that province but also had external effects on neighboring provinces. External effects were strong for highways, whereas internal effects were strong for urban roads. [In this analysis, highways in China meant controlled-access highways (freeways).] The results of the study can have policy implications for mechanisms used to fund transportation in China.