State and Local Funding for Rail Transit Projects
Federal funding is almost always supplemented with state and local funding for rail transit projects. Most federal funding programs require that some percentage of the project come from local sources, or otherwise cap the percentage that will be covered by federal sources.
Local government entities may simply raise funds for transit projects through allocating (or raising) existing taxes, such as a jurisdiction’s sales tax. Still, this method of fundraising is increasingly politically difficult, given the re-rise of ‘no new tax’ zealots. There are also often checks on implementing new taxes for public transit projects, such as approval being required from the state legislature and/or a required voter referendum on the tax; the latter hampered SORTA's efforts to implement the regional MetroMoves plan in 2002. Still, where political and voter consensus exists, this is a clear and low-risk way to cover the capital costs of new infrastructure (Transportation for America 2012, 44). Other common sources of capital from taxes for new public transit infrastructure also include fees associated with vehicle ownership, such as: registration and assessment fees, tolls, fuel, and parking fees (Transportation for America 2012, 44-46). Income set aside from these source is often structured as a long-term bond; the different bond types are delineated below.
Issuing bonds is one of the most traditional ways to finance expensive new infrastructure at the local level. Bonds allow governments to create projects that could not be paid for within an annual operating budget, they also allow investors a set rate of return on their investments (high or low, depending on the risk of default) as a government entity slowly repays the bond over many years.
Local government entities may simply raise funds for transit projects through allocating (or raising) existing taxes, such as a jurisdiction’s sales tax. Still, this method of fundraising is increasingly politically difficult, given the re-rise of ‘no new tax’ zealots. There are also often checks on implementing new taxes for public transit projects, such as approval being required from the state legislature and/or a required voter referendum on the tax; the latter hampered SORTA's efforts to implement the regional MetroMoves plan in 2002. Still, where political and voter consensus exists, this is a clear and low-risk way to cover the capital costs of new infrastructure (Transportation for America 2012, 44). Other common sources of capital from taxes for new public transit infrastructure also include fees associated with vehicle ownership, such as: registration and assessment fees, tolls, fuel, and parking fees (Transportation for America 2012, 44-46). Income set aside from these source is often structured as a long-term bond; the different bond types are delineated below.
Issuing bonds is one of the most traditional ways to finance expensive new infrastructure at the local level. Bonds allow governments to create projects that could not be paid for within an annual operating budget, they also allow investors a set rate of return on their investments (high or low, depending on the risk of default) as a government entity slowly repays the bond over many years.
There are several different types of bonds. General obligation bonds draw from a government entity’s general operating budget and are therefore generally considered very low risk (Transportation for America 2012, 24). In essence, a government is obligated to use its full powers of taxation in order to meet bond payments. The only way this type of bond would be unable to be repaid is if the government entity were to default.
Another type of bond is known as a revenue bond. Revenue bonds draw their repayment funding from a specific source of government tax revenue, often this takes the form of a tax on sales of specific goods and services. For example, about 27% of the cost of Portland’s streetcar system was covered by issuing bonds which were backed by revenues from the city’s parking system (Golem and Smith-Heimer 2010, 17-18). Similarly, Tampa used a simple added tax on gas to cover about one-quarter of its admittedly ill-fated streetcar project (Carroll n.d.). This type of bond is considered somewhat riskier than general obligation bonds, since the pledge for repayment comes from a very specific source (Transportation for America 2012, 25).
Another of the most common mechanisms for procuring funding for infrastructure is tax increment financing (TIF) or tax increment bond, a method of funding in which future gains in property values in relation to the improvement (in our case, improvements in transportation) are borrowed against prior to the actual implementation of the improvement. In our application, TIF zones and financing can be utilized based on the fact that residential and commercial developments have a higher market value if they have easy access to transportation than if they do not. Harnessing these gains in value is known as ‘value capture’ (Transportation for America 2012, 37-38). Still, this type of funding comes with its risks, the foremost being that private development may materialize slowly or not in the amounts anticipated; as local streetcar opponents assert (Mokadi et al. 2013). It is key that governments attempting to utilize this type of funding work closely with other local leaders and developers to minimize this risk.
Another option for funding local infrastructure projects is through State Infrastructure Banks (SIBs). SIBs draw funding from the Federal Highway Administration and taxes at the state level (for example, a tax on gas is common) (Transportation for America 2012, 31). Funding from SIBs to local government entities generally comes in the form of low-interest loans to government entities, that are often competitive with the costs of bonds (Transportation for America 2012, 32). Unfortunately, most SIB funding tends to support highway projects (see the chart below). Also not all states have SIBs and the onus of funding for public transportation has generally fallen to the federal and local levels.
Another type of bond is known as a revenue bond. Revenue bonds draw their repayment funding from a specific source of government tax revenue, often this takes the form of a tax on sales of specific goods and services. For example, about 27% of the cost of Portland’s streetcar system was covered by issuing bonds which were backed by revenues from the city’s parking system (Golem and Smith-Heimer 2010, 17-18). Similarly, Tampa used a simple added tax on gas to cover about one-quarter of its admittedly ill-fated streetcar project (Carroll n.d.). This type of bond is considered somewhat riskier than general obligation bonds, since the pledge for repayment comes from a very specific source (Transportation for America 2012, 25).
Another of the most common mechanisms for procuring funding for infrastructure is tax increment financing (TIF) or tax increment bond, a method of funding in which future gains in property values in relation to the improvement (in our case, improvements in transportation) are borrowed against prior to the actual implementation of the improvement. In our application, TIF zones and financing can be utilized based on the fact that residential and commercial developments have a higher market value if they have easy access to transportation than if they do not. Harnessing these gains in value is known as ‘value capture’ (Transportation for America 2012, 37-38). Still, this type of funding comes with its risks, the foremost being that private development may materialize slowly or not in the amounts anticipated; as local streetcar opponents assert (Mokadi et al. 2013). It is key that governments attempting to utilize this type of funding work closely with other local leaders and developers to minimize this risk.
Another option for funding local infrastructure projects is through State Infrastructure Banks (SIBs). SIBs draw funding from the Federal Highway Administration and taxes at the state level (for example, a tax on gas is common) (Transportation for America 2012, 31). Funding from SIBs to local government entities generally comes in the form of low-interest loans to government entities, that are often competitive with the costs of bonds (Transportation for America 2012, 32). Unfortunately, most SIB funding tends to support highway projects (see the chart below). Also not all states have SIBs and the onus of funding for public transportation has generally fallen to the federal and local levels.
Local funding can also come from creative redistricting for tax financing. For example: about half of Seattle’s streetcar infrastructure was paid for via a Local Improvement District tax which only affected about 750 property owners, only twelve of which opposed the tax (Howland Jr. 2006). This is generically known as a Special Assessment District (Transportation for America 2012, 38-39). The risk of backfire here is high, since this form of zoning is essentially an added tax, and it’s up to local government officials to market the idea to affected property owners as a win-win proposition for both local officials and the property owners in question.
It’s also not uncommon for cities to simply sell land to cover a portion of their streetcar projects. Cincinnati did this to cover portions of their projects’ costs (City of Cincinnati n.d.).
It’s also not uncommon for cities to simply sell land to cover a portion of their streetcar projects. Cincinnati did this to cover portions of their projects’ costs (City of Cincinnati n.d.).