Non-Road Pricing Revenue: Sources and Tools
Local Non-Road Pricing Revenue
Local non-road sources of revenue have been playing an increasingly important role in funding transportation improvements. They represented about 38 percent of all funds spent on highway improvements in 2007. Traditional sources of local revenue include property taxes and use of the general fund. A variety of other taxes and fees, including the expanded use of the local option sales tax, land value capture strategies and other revenue sources such as advertisements and fares, are used to varying degrees by many municipalities.
The AASHTO Center for Excellence in Project Finance provides more detailed information on many of these local revenue sources.
Local Option Taxes and Fees
A variety of local funding options involving taxes or fees are often options that are either authorized at the state level or approved by voters and levied at the county or municipal level. The local option taxes and fees discussed below include: local option fuel taxes, local option sales taxes, vehicle registration fees, income/payroll/employer taxes, local severance taxes, and hotel taxes.
- Local Option Sales Taxes - Local option sales taxes have become increasingly popular to support transportation investment, especially for transit projects. These sales taxes are typically levied at the local level, although some exist at the state level, and devote a percentage of a local sales tax to transportation purposes generally or to a prescribed program of projects with a defined expenditure plan.
Examples:
View more information at the AASHTO Center for Excellence in Project Finance
- Vehicle Registration Fees - Many states authorize local governments to levy local vehicle registration fees that can be used for local transportation needs.
View more information at the AASHTO Center for Excellence in Project Finance
- Income/Payroll/Employer Taxes - A few states provide authority to local governments to levy income, payroll, or employer taxes specifically dedicated to transportation.
Examples:
View more information at the AASHTO Center for Excellence in Project Finance
- Property Taxes - Dedicated property taxes are generally used for local road and street capital and maintenance needs, although some states have authorized dedicated property taxes for transit.
Value Capture Revenues
Transportation networks and urban land value are closely linked. A transportation improvement increases accessibility to desirable destinations, such as jobs or schools. Locations with higher accessibility tend to command higher prices for land. Landowners and developers benefit from this increased value. Using value capture mechanisms, a part of this created land value can be captured in the form of revenue. The revenue generated can help finance the transportation improvement, or it can go toward further transportation investment, spurring a new round of increased accessibility and land value. Among the menu of options for implementing value capture, the following mechanisms are most widespread in the United States: special assessments, tax increment financing, development impact fees, developer contributions, joint development. Note: Nomenclature of these strategies may vary in permutation, as other strategies may be dissimilar in terminology but similar in practice or implementation to one listed here.
- Special assessments - a tax assessed on parcels identified as receiving a direct and unique benefit as a result of the public improvement. The tax levied typically represents some fraction of the estimated benefit per development unit. The use of special assessments (also known as benefit assessments or special taxes) is the most prominent form of value capture in the United States.
Examples:
- Tax Increment Financing - A special provision in state law that allows the diversion of the property tax increment derived from the increase in property value over a base year to a fund used to pay off capital bonds for public improvements within a tax increment financing (TIF) district. Tax increment financing levies taxes on the future increment in property value within a development (or redevelopment) project to finance development-related costs, including infrastructure improvements. TIF districts can be expanded beyond the site of an improvement to encompass a small district. The strategy is commonly used by local governments to promote housing, economic development, and redevelopment in established neighborhoods. Although TIF has not been used extensively to fund transportation infrastructure, some state laws specifically authorize the use of TIF for transport purposes.
Examples:
- Development Impact Fees - Development impact fees (DIFs) are one-time charges levied on new development. They are charged primarily to new development to help recover growth-related public service costs, but differ in that impact fees can be levied for off-site services such as local roads, schools, or parks. Development impact fees are typically determined through a formulaic process, rather than through negotiations as done for developer contributions. Transport related DIFs are used by numerous public entities throughout the United States.
Examples:
- Developer Contributions - The promise of capturing value from transport investments also extends to private developers and investors. Under the right conditions, the gains that result from a public improvement can be used to attract private equity capital to the project. Developer contributions can take the form of up-front contributions or as periodic contributions paid over the duration of a project.
Examples:
- Joint Development - Joint development is a form of TOD (transit oriented development) that is project specific and takes place on or adjacent to transit-agency land. Joint development projects involve the direct participation of a public entity, often a transit agency, in revenue streams and sometimes ownership.1 The public agency typically takes on direct financial risk for a commercial development as part of a joint development agreement. The most common joint development arrangements are air-rights development, ground leases, station interface or connection-fee programs, cost sharing arrangements, and incentive agreements
Examples:
Other Local Non-Road Pricing Revenues
Other local non-road sources of funding for transportation improvement projects include fares, advertising, naming rights, shared resources, concessions, and transportation utility fees.
- Fares - Fares are a user charge for public transit exclusively collected at the local level. As a revenue source, they are primarily used to fund the ongoing operations and maintenance of the transit system. To leverage future collections of transit fares, revenue bonds are often issued as a finance mechanism against farebox receipts.
View more information at the AASHTO Center for Excellence in Project Finance
- Advertising - Advertising revenue can be derived by selling space on transportation facility assets; for example, inside transit vehicles, at transit stations or bus stops, or on billboards along highways. Most transit agencies currently have advertising programs that generate revenue for their systems. The revenue from transit advertising as a percent of the operating budget is small, but the total dollars are significant. The four largest transit agencies in the U.S., not including New York, average $6.1 million a year.
Further discussion of advertising is available through the following Transportation Research Board and Transportation Cooperative Research Program Reports:
Examples:
- Naming Rights - Revenue from naming rights is derived from selling to the private sector the right to name a transportation resource such as a toll road or transit station.
Examples:
View more information at the AASHTO Center for Excellence in Project Finance
- Shared Resources - Shared resources are private donations of telecommunications technology (principally fiber optic communications), and sometimes cash, granted in exchange for access to public rights-of-way. The use of shared resources is an invaluable tool for states seeking to build a technological backbone for intelligent transportation systems (ITS). In addition to obtaining increased access to telecommunications technology, states can credit the value of the private donations toward their matching share of project costs associated with the deployment of ITS projects utilizing the donated technologies.
View more information at the AASHTO Center for Excellence in Project Finance
- Concessions - Transportation system assets provide many opportunities for leasing real estate to private sector businesses that operate concessions.
Example:
View more information at the AASHTO Center for Excellence in Project Finance
- Transportation Utility Fees - Transportation utility fees (TUF) treat transportation networks like a utility, similar to other local services such as water and wastewater treatment that are financed primarily from user charges. TUF rates can be set using a number of different bases that are more closely related to transportation demand than the property tax, including fees that apply per unit of housing or per parking space, fees based on square footage or gross floor area, and fees that vary with the trip generation rate for a given property type. This strategy has faced legal challenges in the United States, most often on the grounds that it represents a tax, thus triggering referendum requirements in some local jurisdictions.
Example:
1. Transit Cooperative Research Program,
Transit-Oriented Development in the United States: Experiences, Challenges, and Prospects, Report 102[Washington, D.C.: Transportation Research Board, 2004], 8.
