i.2.1 Decision #1 – What is the right source of funding?

i.2.1 Decision #1 – What is the right source of funding?

When considering how to fund a capital project, the agency must consider whether the primary users of a capital asset should pay the cost of construction or improvement or whether other stakeholders should contribute. This raises the question of “taxpayer equity.” 

Figure i-1 illustrates how various types of projects align with possible sources of payment and benefits to taxpayers. The concept of equity comes from the balance between who pays for and who benefits from a project. The improvements at the bottom of the pyramid are generally viewed to be of broad use, providing broad benefit to users regardless of the level or frequency of use. It may be appropriate, depending upon the project, to assign the repayment obligation to “everyone.” By contrast, the improvements at the top of the pyramid are much narrower in their use and it is both easier and more logical to have the primary users that directly benefit from the improvements pay for their costs.

Another important consideration in deciding who pays is timing. For a facility with an extended useful life, such as a school building, the agency must decide how to allocate the repayment obligation over time. Assigning some repayment obligation to future generations creates what is known as “intergenerational equity.” 

The public agency must decide, within the scope of its authority, who should pay for capital projects to produce taxpayer equity and intergenerational equity.