The Innovative DOT: Focus Area 1 – Revenue Sources

Posted by Content Coordinator on Tuesday, January 13th, 2015


Note: this post represents one section of Smart Growth America’s publication, The Innovative DOT: A handbook of policy and practice

NRDC - The Innovative DOT - Focus Area 1Focus Area 1: Revenue Sources

The era when fuel taxes alone could cover robust highway construction and maintenance programs is over. Even then, non-highway modes often struggled for support. Funding transportation out of general revenue is problematic, both be-cause it is subject to changing budget priorities and because it underprices transportation, creating excess demand. State departments of transportation (DOTs) need new sources of dedicated revenues, preferably tied to user fees in cases where excess demand—which is both economically and environmentally costly—can be curtailed through the market-style discipline that such fees impose. User fees may also appeal to stakeholders’ sense of fairness, making them more politically palatable than “subsidies” from general tax revenues.

In this section:

  • Identify Mechanisms for Funding Non-Roadway Transportation
  • Implement Value Capture
  • Establish a Next-Generation User Fee

Identify Mechanisms for Funding Non-Roadway Transportation The Opportunity

Transportation is about more than building and maintaining roads. The movement of people, goods, and services also requires substantial non-roadway facilities, including marine and river ports and waterways, airports, freight rail systems, passenger rail and public transportation systems, and bicycle and pedestrian facilities. These facilities require funding and financing sufficient to meet the expanding demands of a 21st century economy:

  • The U.S. DOT projects that, between 2001 and 2020, total freight moved through U.S. ports will increase by more than 50 percent, and the volume of international container traffic will more than double.
  • Total mainline air carrier and regional enplanements are forecast to increase from 731 million in 2011 to 1.23 billion in 2032, an average annual rate of 2.5 percent.
  • Demand for freight rail transportation is projected to nearly double by 2035—from 19.3 billion tons in 2007 to 37.2 billion tons in 2035.
  • During Fiscal Year 2011 (October 2010-September 2011), Amtrak carried 30.2 million passengers, the largest annual total in its history and the eighth annual ridership record in the last nine years.
  • From 1995 through 2010, public transportation ridership increased by 31 percent—a growth rate higher than the 17 percent increase in the U.S. population and higher than the 24 percent growth in the use of the nation’s highways over the same period.
  • The number of Americans using a bicycle as the primary means of getting to work grew 43 percent between 2000 and 2008. 

Partnering with other government agencies and the private sector to provide the optimal mix of transportation facilities, regardless of mode, in order to further the state’s economic and quality of life goals is central to the mission of state DOTs. Funding is a part of this responsibility.

Implement Value Capture The Opportunity

Transportation improvements add value to adjacent lands and play an important role in location choices made by employers, employees, and—more generally—the traveling public. While transportation improvements have traditionally been provided as a public good, ever-shrinking transportation budgets have made this an unsustainable arrangement. As traditional funding methods become less tenable, DOTs can develop policies that encourage investment by the specific businesses or neighborhoods that would benefit from improved transportation facilities.

New transportation improvements such as transit stations, roadway networks, or interchanges add value to nearby properties, but while anyone can use these new facilities, all users do not share equally in the added value they produce. In addition, the value dividend is not the same for all properties. Commercial property values tend to increase more dramatically than residential, and properties closer to a transportation facility increase in value more than those farther away.

Value capture offers an equitable means of recouping value from the private sector in proportion to the benefit received from transportation improvements. Applied correctly, value capture is narrow and targeted. It is generally not only palatable to, but often supported by, private property owners because they receive a direct and tangible benefit from their investment. Recapturing and reinvesting value back into the transportation system maintains and even enhances the value of local private land.

Entrepreneurial state DOTs and local agencies DOTs using value capture mechanisms have been able to increase their self-sufficiency, stabilize their budgets, and reduce their demands for traditional funding resources, making them available for other public investments.

What Is It?

There are a number of ways to capture the value of transportation infrastructure and services in order to encourage reinvestment. Value capture strategies can apply to specific properties, to localized districts, or to a general area.

Establish a Next-Generation User Fee

The Opportunity

In the past, state and local governments relied heavily on federal and state fuel taxes to fund transportation. However, in most states and at the federal level, fuel taxes are not indexed to inflation, so they lose value every year. In addition, as vehicle miles traveled trend downward, drivers adopt alternative fuel vehicles, and fuel economy continues to improve, gas tax revenues will decline further.

Responding to this looming revenue creation shortfall, many states are considering moving toward tolls and/or VMT charges to maintain roads and improve transportation infrastructure. A VMT fee, commonly known as a mileage-based user fee, or MBUF, is a distance-based tax levied on miles driven whose revenues can be used to fund transportation system costs. With an MBUF, vehicle operators—both personal and commercial—are charged a per-mile fee instead of, or in addition to, the gas tax. The following provides information on strategies to successfully move toward implementing this new type of user fee.

What Is It?

In many ways, MBUFs do a better job than fuel taxes at matching users’ road use to the tax they pay for road maintenance and construction. In other words, because mileage driven better reflects the wear and tear a vehicle imposes on a transportation system, charging by the mile more efficiently allocates the costs to road users. An MBUF has the potential to replace fuel tax as the primary source of funds for transportation systems. Estimates show that implementing a one-cent-per-mile fee nationally would raise $32.4 billion per year.33 Systems for billing such charges are under development, but collection systems for transponder-based tolling show that, for most motorists, this can be done automatically and at low cost.

Download full version (PDF): The innovative DOT: Focus Area 1 – Revenue Sources

About Smart Growth America
Smart Growth America advocates for people who want to live and work in great neighborhoods. We believe smart growth solutions support thriving businesses and jobs, provide more options for how people get around and make it more affordable to live near work and the grocery store. Our coalition works with communities to fight sprawl and save money. We are making America’s neighborhoods great together.

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