Introduction
Sources of funding and finance strategies are critical to the success of any capital project. These factors are critical for every project to continue ahead, from finding the most significant sources of finance to constructing the most efficient repayment plan. This paper will offer an overview of funding sources and financing methods, as well as examine the funding source and financing mechanism that would be selected for the capital project mentioned in the CFO memo 4. It will also include context, process specifics, and source and process rationale.
Definitions
The ways through which a person or organization might raise funds are referred to as funding sources and financing mechanisms. Funding sources are particular sources of money that may be accessed, such as capital investment or bank loans. The means and tools to access these sources, such as venture capital or credit lines, are financing mechanisms (Chen & Bartle, 2017). Financing sources and processes offer the funds required to establish or manage a company, acquire cars or property, or finance a project.
Funding Source and Financing Mechanism Adopted
Local option taxes and impact fees are two mechanisms that municipalities utilize to support specific projects or services. Local choice taxes are public and authorized by local people, providing better accountability (Chen & Bartle, 2017). Impact fees are levied on new constructions to pay the expenses of constructing infrastructure and delivering services in the region. Both of these mechanisms may be an appealing source of revenue for local governments, enabling them to fund projects without relying on public funds.
Funding Source
Local Option Taxes
Local governments impose local option taxes to support particular projects or services. Local option taxes are often authorized by local voters, lending them a democratic component that makes them an appealing source of revenue. This sort of tax is often transparent and democratically accepted, which means that the general public knows what taxes are imposed, who collects the taxes, and how the money is utilized. As a result, it provides better responsiveness and control over how money is spent.
Justification
Local choice taxes are also earmarked for projects that align with local goals. This guarantees that funds are spent on initiatives that benefit the local community rather than programs that may be less useful to the local populace (Chen & Bartle, 2017). Local option taxes are also a very consistent and predictable source of income. This is because they often rely on existing levies, such as property taxes, making administration more straightforward. It makes them more appealing to prospective investors since they know the funds are being gathered and spent appropriately.
Impact Charges
Local governments impose impact fees on new projects to offset the expenses of delivering infrastructure and services to the region. They are designed to align payments with the advantages that new development may bring to the community. The latter ensures that the developers pay their fair share of the costs associated with the new construction. Impact fees do not need voter approval, making them appealing for project finance.
Justification
The significant advantage of impact fees is that they help finance new development. Local governments may collect revenue for infrastructure and services by imposing fees on new constructions. This benefits both the developers and the local community since the developers may construct their projects, and the local population can profit from the new development. Another advantage of impact fees is that they match payments with benefits. This guarantees that developers pay their fair share of the expenses involved with the new development and that the local populace benefits from it. Furthermore, since impact fees do not need voter approval, they are an appealing choice for project funding. Local governments can finance projects swiftly and effectively without waiting for voter approval.
Financing Mechanism and Justification
An alternate bond and debt financing instrument would be the optimum financing strategy for the capital project in Atlanta, GA. This method of financing is helpful since it permits the issuance of bonds to create the capital required to complete the project. Typically, the bonds are offered to investors who will earn interest payments during the bond’s life. This sort of financing may supply the finances required for the project without using debt obligations or other types of borrowing (Chen & Bartle, 2017). Moreover, this method of financing allows for the issuance of tax-exempt bonds, which may assist the county in lowering the project cost. Additionally, this financing allows for issuing bonds with longer maturities, which may give greater repayment flexibility. Likewise, alternate bonds and debt financing techniques assist in cutting total project costs, which can benefit the county.
Conclusion
Ultimately, financial sources and financing processes are critical components of every capital project. Local Option Taxes and Impact Fees were selected as the funding source and financing method for the project mentioned in CFO note 4 since they are transparent and democratically accepted, match payments with benefits, and do not need voter approval. The financing mechanism selected was an alternative bond and debt financing instrument that may provide the required funding for the project without depending on the issuance of debt obligations or other kinds of borrowing. The county stands to benefit from this financing option since it has the potential to reduce the project’s overall price tag.
Reference
Chen, C., & Bartle, R. J. (2017). Infrastructure financing: A guide for local government managers. Public Administration Faculty Publications 77. Web.