Financing Options

Options For Funding Transportation Programs

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TDM Encyclopedia

Victoria Transport Policy Institute

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Updated 23 July 2008

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This chapter describes various ways to fund transportation programs and evaluates the degree to which they support TDM objectives.

Description

To be successful, transportation programs and projects require adequate funding. There are many possible funding sources, some of which also support transportation planning objectives, including efforts to reduce traffic and parking congestion problems, encourage more accessible land use patterns, or achieve equity objectives. Because they are new, TDM programs often require new funding sources. For example, a reliable new funding source may be needed to create a Transportation Management Association or implement Nonmotorized Transportation Plans. Below are examples of funding options:

· Parking Pricing. Some jurisdictions and campuses dedicate public parking revenues to transportation programs.

· Special Parking Taxes. Some jurisdictions impose special taxes on commercial parking transactions or on parking facilities (Litman, 2006).

· Road Pricing. Some communities use road tolls and congestion fees to fund transportation programs, including roadway facilities, transit improvements and TDM programs.

· Fuel Tax Increases and Surcharges. Some jurisdictions dedicate a portion of fuel tax revenues to special transportation programs (such as dedicating 1% of fuel tax revenues to nonmotorized facilities), or impose an optional, additional fuel tax for local transportation programs.

· Carbon Taxes. These are special taxes based on fossil fuel carbon content, and therefore a tax on carbon dioxide emissions.

· Dedicated local or regional sales taxes. This may require a public referendum.

· Transportation Impact Fees. These are fees paid by developers based on the transportation costs imposed by their projects. For example, a developer may be required to pay for roadway improvements, public parking facilities (called in lieu fees), to help fund a Transportation Management Association, to pay for walking and cycling improvement, or to fund other programs that mitigate local traffic impacts.

· Special Property Taxes. Some jurisdictions impose special property taxes in areas served by transportation programs and services, sometimes called a Local Improvement District or Land Value Capture (Smith and Gihring, 2003; Wetzel, 2006).

· Vehicle impact mitigation fees. This is a fee on each vehicle registered in the region to pay for programs and projects that serve motorists and mitigate the negative impacts caused by vehicle traffic.

· Business or Employee Assessments. Some Transportation Management Associations and Commute Trip Reduction programs are funded by a special assessment on businesses in an area, based on floor area, revenues or number of employees.

· Grants, such as foundation or government grants to help fund programs and facilities, such as school transportation safety education, and transit stations.

· Special Funding For Transportation Problem Solving. Various federal, state, provincial and private funds may be available for transportation programs that address specific problems. For example, TDM programs may qualify for U.S. federal Congestion Mitigation and Air Quality (CMAQ) funding, and Canadian sustainable infrastructure grants. Other funding programs support energy conservation and emission reduction activities, nonmotorized facilities (public trails and streetscapes) and encouragement projects, school trip pedestrian safety, Smart Growth and urban redevelopment activities, mobility services for transportation disadvantaged people (low income, people with disabilities, children, elderly people, etc.), and various other planning objectives that TDM strategies often support.

The best funding options reflect these attributes:

· Stable and predictable.

· Considered Equitable.

· Supports TDM objectives (reduces peak-period vehicle travel, encourages shifts to more efficient modes, supports Smart Growth, etc.).

· Relatively easy to administrate.

Fees and taxes support TDM objectives if they are based on the amount of automobile travel that occurs, particularly variable fees that are higher for peak periods and locations, and lower for off-peak. This type of Pricing encourages motorists to reduce their peak-period driving, reducing traffic and parking congestion problems.

Table 1 How Well Different Fees Support TDM Objectives

Rank	General Category	Examples
Best	Time- and location-specific road and parking pricing	Variable Road Pricing, Parking Pricing (higher rates for peak periods and locations, lower rates for off-peak)
Second Best	Mileage-pricing	Weight-Distance Fees, Mileage-based Emission Fees
Third Best	Fuel charges	Fuel Tax Increases and Surcharges
Fourth Best	Fixed vehicle fees	Motor vehicle fees, vehicle purchase taxes
Worst	Not charged specifically to motorists	General sales taxes, general property taxes, business taxes, employee fees and taxes.

This table compares the degree to which various transport funding options support TDM objectives. Fees that are higher under urban-peak conditions are best. General taxes and fees are worst.

In other words, if there is agreement that some new source of revenue is needed, it makes sense to structure the funding system to support other strategic planning objectives, such as encouraging more efficient travel patterns and land use development. If property taxes are used to fund transportation services, they can be structured to support Smart Growth land use planning objectives, for example, by having fees that reflect the higher cost of providing public services in dispersed locations (Smart Growth Planning Reforms), and by providing property tax discounts for households that do not own an automobile.

Some people may consider it unfair to charge motorists for programs that benefit users of other modes, such as Transit Improvements and Walking and Cycling Encouragement Programs, but this criticism is generally inappropriate since motorists benefit from reduced congestion and increased safety when other travelers shift to alternative modes, and because motor vehicle use imposes various External Costs. Such funding can therefore be considered part of traffic impact mitigation and compensation.

Public Versus Private Ownership

There is sometimes a choice between public or private ownership of transportation facilities and services, which affect their funding and other planning factors. Public owned facilities and services tend to rely on tax funding, while privately owned facilities and services tends to rely more on user fees, but there are many variations; private facilities and services often receive public resources in the form of free or underpriced land, direct financial subsidies, and tax exemptions, while public facilities and services can have user fees.

There are advantages and disadvantages to both public and private ownership and operation of transportation infrastructure and services (Gomez-Ibanez and Meyer, 1994). Public ownership often allows cheaper financing through public bonds, and tends to increase public accountability and integration with other planning decisions, leading to facilities and services that better support overall community objectives. Privatization (private ownership) and contracting of services can allow more focused planning decisions (public facilities and services are often expected to address broader community goals, which adds costs and constraints), and may avoid restrictive planning and labor rules. Proponents of privatization argue that it increases service efficiency, but experience indicates mixed results (Morris, 2006). For example, public transit service privatization often reduces costs per transit vehicle-mile or passenger-mile, providing fiscal savings to governments, but this often result from reduced service quality which leads to reduced ridership, increasing other economic costs such as traffic congestion and road and parking facility costs (Grayling, 2001; Scholl, 2006). Private highways funded by tolls frequently require public subsidy and restrictions on competition (GAO, 2004), and toll rates have sometimes increased faster than originally promised in order to provide sufficient return on investment (for example, tolls increased substantially after Highway 407 in Ontario was sold to a private firm). In the past, many toll road planners exaggerated demand and potential revenues, resulting in financial failure, which has made toll road financing difficult (Vassallo and Sánchez-Soliño (2007).

Effective privatization and contracting therefore require that public agencies retain control over key planning decisions, and that service quality be a primary performance feature. For example, if transit services are privatized or contracted out to private firms, it is important that such services be integrated and comprehensive, rather than allowing private service providers to only provide services where it is most profitable. It is helpful to arrange bidding so private service providers compete on service quality and ridership goals, not simply on minimum cost.

Best Practices

Below are recommendations for effective implementation of new transportation taxes, based on interviews with various parking officials:

· The tax base should be broad and well defined. A broad tax base spreads the financial burden and does not give certain groups a competitive advantage. It is considered most equitable if it applies to publicly-owned as well as private agencies and facilities.

· Exemptions must be well defined and understood by all affected parties. For example, if a parking tax does not apply to churches and hospitals, these must be carefully defined.

· Enforcement must be effective, practical and given sufficient priority.

· Taxes and fees should be structured for efficient compliance and auditing.

· Work with stakeholders to develop efficient and fair regulations, administrative procedures and enforcement policies.

· Carefully assess the travel and economic impacts of a tax. Establish an evaluation program, with before-and-after analysis, to determine the impacts a tax has on local business activity, vehicle traffic, etc.

Examples and Case Studies

London Congestion Pricing (www.vtpi.org/london.pdf)

Since 17 February 2003 the city of London has charged a £5 daily fee for driving private vehicles in an eight square mile central area during weekdays as a way to reduce traffic congestion and raise revenues for transport improvements. An automated system checks vehicles entering the charging zone against a database of motorists who have paid the fee. Despite considerable controversy the program was implemented without major problems, and has substantially reduced traffic congestion, improved bus and taxi service, and is generating revenues. Vehicle traffic speeds have increased, bus transit service has improved, while accidents and air pollution have declined in the city center. Public acceptance has grown and there is now support to expand the program to other parts of London. In 2004 Mayor Livingstone was reelected, largely due to the success of the congestion pricing program. This is the first congestion pricing program in a major European city, and its success suggests that congestion pricing may become more politically feasible elsewhere.

Parking Levies (www.vtpi.org/parking_tax.pdf)

Three Australian cities have levies on non-residential urban parking, intended to encourage use of alternative modes and fund transport facilities and services:

· In Sydney, a Parking Space Levy of AU$800 annual per stall is currently applied to parking in the central business district (CBD), and AU$400 per stall at other business districts. The levy applies to all privately owned, non-residential, off-street parking. It is prorated for parking facilities that are only used occasionally, such as church parking lots; property owners must maintain daily records indicating how often such space is used. The levy raises more than AU$40 million annually, which is dedicated to transportation projects and cannot be used for operating expenses.

· In Perth, parking suppliers within the CBD and surrounding area must pay a Parking Licence Fee, which has different rates for short-term and long-term use facilities (DPI, 2002). Owners only pay for the number of parking spaces that are actually in use, and may shift a space from one category to another (from “in use” to “out of use”) and pay a prorated amount if appropriate for part of a year. When first introduced in 1999, the levy was set at $AU70 per space, and has been raised to AU$155 for short-stay parking and AU$180 for commuter-orientated parking. Businesses with five parking stalls or less are exempted from the charge. The levy raises about AU$8.2 million annually.

· In Melbourne, a Long Stay Car Park Levy will be charged to designated long-stay and permanently leased parking spaces in CBD commercial car parks. The levy is intended to encourage car park owners to convert long-stay spaces into short-stay spaces, creating more parking options for shoppers and visitors. Planners estimate that the levy will apply to about 48,000 of 70,000 total CBC off-street parking spaces.

Perth and Sydney have similar tax collection procedures. The state government’s revenue collection agency sends a parking license application to all non-residential property owners within the designated area. Property owners are required to return the completed application indicating all parking spaces on their property, including land used for motor vehicle parking even if parking spaces are not marked out. In Sydney, for example, where an unmarked area is used for parking, the number of spaces is determined by dividing the total area, by 25.2 square meters, which takes into account parking spaces and access lanes. Owners are sent an annual assessment based on this application. In Perth, the parking license holder is responsible for ensuring that the number of vehicles parked anywhere within the boundary of their property is within the number licensed. The licensing and payment of the levy for on-street parking is the responsibility of local government which meets this requirement from the revenue generated from their on-street parking operations. Table 2 compares features of Sydney and Perth levies.

Table 2 Parking Levy Comparison (Enoch, 2001 and other sources)

	Sydney	Perth	Melbourne
Name	Parking Space Levy	Parking Licence Fee	Long Stay Car Park Levy
First Implemented	1992	1999	2006
Annual Levy	Central CBC: $800 Other business districts: $400	Short stay: $155 Long stay/commuter: $180	$400 annually in 2006 $800 annually in 2007
Annual revenues generated	AU$40 million	AU$8.2 million	$19 million first year $39 million second year
Use of revenues	Transport facilities	Downtown transit services	CBD transport improvements
Exceptions
On-street	Exempt	Not exempt	Exempt
Residential use	Exempt	Exempt	Exempt
Casual Parking (part time use)	Pro-rated by use	No reduction	Exempt
Publicly-owned parking facilities	Exempt	Not exempt	Exempt
Potential parking spaces, not currently used	Not exempt	Exempt	Exempt
Small businesses (5 parking stalls or less)	Not exempt	Exempt
Disabled persons parking	Exempt	Exempt	Exempt
Loading zones – including taxi and bus bays	Exempt	Exempt	Exempt
Community service/ emergency service spaces	Exempt	Exempt	Exempt
Spaces for service vehicles (e.g., repairs)	Exempt	Exempt	Exempt
Car sales and service spaces	Exempt.	Exempt	Exempt

This table compares the per-space parking levies in Sydney, Perth and Melbourne Australia.

Perth officials consulted extensively with stakeholders prior to the levy’s introduction. As a result, there was an approximately 98% compliance rate the first year. When first applied in 1999, there were about 58,000 stalls, of which about 4,000 were exempt on usage grounds and 2,000 because they are owned by small businesses. This was about 10% fewer than recorded in a 1998 survey, indicating that the levy reduced downtown parking supply. Most of the eliminated spaces were situated near the edge of the levy area and remote from the areas of high parking demand (Enoch, 2001). Some businesses decommissioned spaces to meet the five stalls or less exemption, and some long-stay parking was converted to short-stay use, increasing parking availability and turnover.

Vancouver, British Columbia (www.translink.bc.ca/ParkingTax/default.asp)

TransLink, the Vancouver, British Columbia regional transportation authority which builds and operates roads, transit facilities, bicycle facilities and other transport services, implemented a Parking Site Tax in 2006. The initial rate is $1.02 annually per square meter of non-residential parking facility, which is typically $25-$40 per space. Assessment, collection and enforcement of the tax will utilize the existing property tax framework, operated by BC Assessment, a provincial agency. The agency developed an inventory of non-residential parking facilities in the region using aerial photos, digital mapping, municipal records and site visits. Exemptions include:

· On-street parking facilities.

· Most buildings exempt from general property taxes (schools, churches, synagogues, etc.).

· The portion of parking facilities used for vehicle retail and rental business inventory storage, impounded vehicles, trailers of tractor-trailer units, vehicle servicing and fueling.

· Parking facilities owned by TransLink (including Park & Ride lots).

· Ferry loading queuing areas.

· Campgrounds.

Stormwater Fees

Stormwater fees are special charges applied to impervious surfaces (pavement and buildings) to fund stormwater management systems (drain systems, treatment facilities, etc.). Such fees range from about $5 to $20 per 1,000 square feet, or about $1-7 annually per off-street parking space, as indicated in the table below.

Table 3 Stormwater Fees (PCW, 2002)

Jurisdiction	Fee	Per 1000 Sq. ft. (Annual)	Per Parking Space (Annual)
Chaple Hill, NC	$39 annual 2,000 sq. ft.	$19.50	$6.50
City of Oviedo Stormwater Utility, FL	$4.00 per month per ERU	$15.00	$5.00
Columbia Country Stormwater Utility, GA	$1.75 monthly per 2,000 sq. ft.	$10.50	$3.50
Kitsap County, WA	$47.50 per 4,200 sq. ft.	$11.30	$4.00
Raleigh, NC	$4 monthly per 2,260 sq. ft.	$18.46	$6.00
Spokane Country Stormwater Utility, WA	$10 annual fee per ERU.	$3.13	$1.00
Wilmington, NC	$4.75 monthly per 2,500 sq. ft.	$22.80