Challenges and Opportunities for Innovation in the Public Works ...

expenditures on revenues that normally would go to their general governmental fund (the
General Fund) and would, therefore, be used for the daily operation of government. The main
sources of General Fund revenues vary widely among different governments: state
governments generally rely on sales and/or income taxes, while most local governments
receive the bulk of their funds from property and other ad valorem taxes. Local and regional
utilities receive their main revenues from user fees, connection charges, and similar rate
mechanisms. In some cases, special districts have been established that raise revenues based on
special assessment property taxes or incremental taxes; these revenues are earmarked for
specific capital purposes. Impact fees and other developer exactions also may provide
significant own-source revenues. It must be remembered that own-source revenues, which are
increasingly required for infrastructure provision, are the same limited revenues that are
required to support the politically-sensitive operating budgets of governments.
Debt Financing for Infrastructure
It is clear that own-source financing available to state and local governments has not
been sufficient to meet the need for infrastructure capital. The debt-financed share of state and
local capital expenditure rose from 37% in 1981 to 55% in 1990. The dollar value of debt-financed
capital construction rose from just under $20 billion in 1981 to $60 billion in 1990. While these
numbers represent the total funding of state and local public capital, not just the infrastructure
portion defined above, they demonstrate the significant changes in revenue sources available for
infrastructure, and the resulting greater reliance on the municipal bond market.
That debt financing of infrastructure has increased dramatically is not surprising,
given the high levels of construction activity over the last decade. Total state and local public
construction rose from $54 billion in 1981 to $96 billion in 1990. Of that total, highway and street
construction increased from $17 billion to $30 billion, wastewater treatment system construction
rose from $6 to $10 billion, and water supply facility construction rose from $3 to $5 billion. 7
Comparable figures are not available for the other forms of public infrastructure, but there is no
reason to believe that the trend for those facilities has been any different. The debt-financed
share of these categories show similar increases: $5 billion in long-term bonds were issued for
transportation purposes in 1982, and $15 billion was issued for similar purposes in 1991. For
water supply and sewer system purposes, $4 billion in long-term debt was issued in 1982, while
$19 billion was issued in 1991.8
7 Value of New Construction Put in Place: May 1991.
8 The Bond Buyer, Tuesday, January 21, 1992.
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