Home | State and Local Government Revenue Options (Continued)
State and Local Government Revenue Options (ConTinued)
Tolls and Public Private Ventures as a Supplement to Traditional Sources of Revenue
Tolls are currently collected on 4,600 miles of roads in 25 states. There are approximately 25 Interstate toll roads and 65 significant non-Interstate toll roads in operation. Toll-generated revenues equaled $7.75 billion in 2005. In 2005, that represented 5 percent of total highway revenues.
Over the past 10 years, the rate of toll road development, measured in centerline miles, has increased significantly. This is especially true in the creation of new roads. Thirty to forty percent of the approximately 150 miles per year of new expressways built in this period have been financed through tolling.
The pattern observed over the past 15 years is that toll-generated revenues nationally have been increasing, but at approximately the same rate as the overall increase in funding for highways by federal, state, and local governments. Since 1991, highway capital investment overall has nearly doubled. So even though tolling has increased, the percentage of revenues generated by tolls has remained at between 4 and 5 percent of the total.
Recently interest in tolling has been further sparked by two developments. First, public–private ventures, such as Chicago receiving $1.8 billion for a 99-year concession on its Skyway, and Indiana receiving $3.85 billion for a 75-year concession on the Indiana Tollway, have generated intense interest. These projects involve equity provided by foreign and American investors in return for a long-term return on investment provided through tolls.
The second development has been the growing popularity of HOT lanes, High Occupancy Toll lanes. This concept was pioneered in the variably priced demonstration project on Interstate 15 in San Diego, California in the 1990s when drivers of single-occupant vehicles were allowed to pay a toll and use an eight-mile stretch of an HOV lane. San Diego County now plans to expand this initial eight-mile segment to a hundred-mile system that will not only pay for the new lane capacity, but generate funding for transit as well. Several HOT lane projects have been built or are about to be built in Texas, Virginia, Minnesota, and elsewhere.
As an example of what some states are doing in the area of tolls, Florida has used tolling extensively to provide new urban and interurban highways, to improve capacity, and to maintain high-quality service on its existing toll roads. In recent years, the State has derived between 8.2 to 11.2 percent of annual highway revenue for all levels of government from tolling. Florida’s toll agencies have built two-thirds of all new lane-miles and nearly all new limited access highways in the State in the past 15 years.
Analysts who have specialized in the potential of tolling, believe that tolling’s market share of highway funding nationally could be increased from 5 percent to as much as 7 percent over the next 15 years if it receives strong policy support from Congress and state legislatures. They have observed that, if major growth states like Florida, California, and Texas, continue on their aggressive path of developing most new upper level centerline miles as toll roads, toll revenues could gradually contribute a greater share and increase toward the $10 billion level. Significant increases in toll funding longer term will depend on liberalization of tolling on the Interstate, and other states adopting a similar tolls-for-major-capacity-expansion-policy. Opposition from some trucking and automobile user groups remains a challenge, however.
AASHTO has taken the position that every state should be given all options possible in the areas of tolling and public–private ventures so those states can determine for themselves what is in the best interests of their citizens.
It has also embraced a bold goal of increasing toll-supported projects to 9 percent of the total nationally. What must be understood by the Commission, however, is that while the increased funding made possible through tolling will help states and local governments generate funds needed, it in no way offsets what will be required from the federal level.
Innovative Finance Tools Are Also Important
There are several financial tools which are vital to states, local governments, and transit authorities in making many projects feasible. That includes the many forms of tax exempt municipal bonds which states and local governments have used for decades. According to the Bond Buyer, municipal bond financing for highway, bridge, and transit projects increased from $17.6 billion in 2001 to $30.6 billion in 2005.
Over the past 12 years a number of additional tools have been made available which are also important and need to be retained. This includes Garvee Bonds for highways and grant anticipation notes for transit. It includes TIFIA loans, Private Activity Bonds, State Infrastructure Banks, and other tools. It is important that the federal government come to the table as partners willing to work with state and local governments to do as much as is possible to fund and finance needed projects.
Additional Financing Options for Transit
Increasing transit funding at the federal level will depend on the willingness of Congress to increase fuel taxes in order to increase revenues for the Transit Account of the Highway Trust Fund, and the willingness of Congress to continue to provide General Fund support for transit.
Approximately 80 percent of federal transit assistance is provided through the Transit Account of the Highway Trust Fund, and 20 percent from the General Fund.
At the state and local level, transit funding is provided from a wider range of sources including sales taxes, property taxes, and fare box revenues. AASHTO has proposed a national goal of doubling transit ridership over the next 20 years. To do so, transit ridership would have to increase at 3.5 percent annually. AASHTO recently joined forces with American Public Transit Association on a Transit Cooperative Research Program study to analyze what it would take to expand transit capacity at a rate that would make it possible to achieve this 3.5 percent growth rate. The answer was the need to increase capital investment by over 80 percent.
Just as state departments of transportation are turning to toll funding and public private partnerships to supplement what they can generate in tax-based financing, transit agencies are also turning to innovative solutions for help. Two of the most promising techniques are “transit joint development” (TJD) and “tax increment financing,” (TIF). Both depend on “real estate value capture,” in areas whose real estate values are enhanced by the construction of a transit station or new transit service. Both appear to hold great promise.
Transit Joint Development
Transit Joint Development has been described as “an arrangement between a public transit agency and a private organization that involves either private-sector payments to the public entity or private-sector sharing of capital costs in mutual recognition of the enhanced real estate development potential or market potential created by the siding of public transit facility.”
An example of a transit joint development which generates revenue for a transit agency is the Bethesda, Maryland Metro Center. An office-retail-hotel project that sits atop the Bethesda Metrorail station generates $1.6 million annually in air rights rent for the Washington Metropolitan Area Transit Authority (WMATA). Regional transit officials indicate that this sum will likely be eclipsed by the lease payments to be generated by the planned 32-acre office-retail-residential project at the White Flint station also located in Montgomery County, Maryland.
An example of a transit joint development project where the private sector partner made a cash contribution to offset project costs and will make on-going payments to the transit agency is the West Dublin/Pleasanton Station project owned by California’s Bay Area Rapid Transit District (BART). In this project the developer contributed $15 million toward station land costs. Private sector revenues to be generated at the station will be used to pay off $57 million in bonds taken out to fund the station.
In many of these projects the municipalities in which they occur change zoning to encourage development to take place adjacent to transit stations. An example of this took place in Mountain View, California. That city created a Transit Overlay Zone that allowed higher densities within 2,000 feet of the station. That made it possible for an 18-acre compact, mixed-use, walker-friendly neighborhood, called The Crossings, to replace a once-dying shopping mall.
Along New York’s Metro-North commuter rail line, new housing and retail shops have recently been built on parcels near stations in century-old communities like New Rochelle and Mamaroneck. The use of Redevelopment Agencies to assemble land and to issue tax exempt debt has made it possible for many transit joint development projects to succeed. Not only do these projects make transit improvements possible where they would otherwise have to wait, they also create housing and commercial development needed to revitalize communities.
Tax Increment Financing (TIF)
This is a technique used to create taxing districts which can pledge future tax revenues toward financing transit projects.Tax increment financing establishes a base-year tax level for a district. Any taxes generated above that base-year amount through increases in property values are earmarked for use within the same district for improvement projects or services.
Tax increment financing is used in some cases to fund a transit improvement itself. In other cases it is used to fund amenities which help assure the success of real estate in transit oriented developments.
The city of Cedar Rapids, Iowa, used TIF to help finance a Ground Transportation Center which includes an intermodal transit terminal, a 500-space parking garage, a 15-story private office building, a 96-unit elderly and handicapped housing project, and other amenities. TIF financing was used to pay off a $4.5 million bond which paid for the local share of the project.
In other cases, TIF-supported funds are used for infrastructure improvements that will make the area more attractive to private developers and businesses. For example, in Pleasant Hill, California, TIF was used by the redevelopment agency to place utilities under ground and install new water and drainage systems in the vicinity of the BART station. (Further information on these techniques can be found in the TCRP Research Results Digest, October 2002, Number 52; and TCRP Report 102,"Transit-Oriented Development in the United States," 2004.)
States are turning to innovative financing solutions for transit development, capturing real estate value that is created when transit stations are developed.
