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42 considered an integral element of a multimodal network that Each dimension is described in somewhat greater detail is essential to maintain and enhance mobility, forestall below, based on recent work done by Cambridge Systematics, increases in congestion now and in the future, and support Inc., for NCHRP Project 24(49), "Future Financing Options local and regional economic growth and vitality. The to Meet Highway and Transit Needs," and published as NCHRP stronger this notion is in the community, the more positive Web-Only Document 102.75 local community and/or political leaders may be with respect to consideration of new and innovative sources of revenue to Revenue Yield support transit enhancement and expansion. In either case, understanding, developing, and advocating a clear, shared Revenue yield is the single most important criterion in vision of the role of transit now and in the future is critical pursuing revenue sources for public transportation. Rev- to the successful pursuit of the most appropriate and effec- enue yield measures whether the funding source can pro- tive local and regional revenues needed to make the vision a vide a significant level of revenue given the expenditures reality. required. Revenue yield should be both adequate and stable. "Adequacy" refers to present and future revenue in compar- ison with needs for current and projected expenditures. In 4.3 Basic Advantages and addition to being adequate, resources under evaluation Disadvantages of Local and should be highly predictable in generating revenue. "Stabil- Regional Funding Sources ity" refers to whether there are uncertain revenue fluctua- Funding sources used to support public transportation tions that can impact an agency's ability to manage resources. have a wide range of characteristics. These characteristics-- Enactment of taxes and fees for any public investment is dif- along with local, regional, and state taxing, funding, and ficult at best. If the effort is to be made, it should be focused budgetary policies and philosophies--determine the useful- directly on achieving adequate, predictable, and reliable rev- ness of a particular source in a specific area or region. How- enue yields. ever, in determining what sources may be appropriate in a given setting, it is important to understand and assess the Cost Efficiency basic advantages and disadvantages of particular sources. Cost efficiency refers to maximizing benefits in relation to Table 4.2 highlights generally perceived advantages and dis- use of resources. Related considerations include "administra- advantages of specific funding sources regardless of differences tive cost" considerations in collecting the tax or fee; "compli- in local policies and philosophies. Because of their widespread ance costs" passed on to taxpayers; and the potential for, and use as state, regional, and/or local revenue sources, the general scale of, evasion and enforcement. advantages and disadvantages of motor fuel taxes and "sin" taxes have been included in Table 4.2. Equity 4.4 Criteria for Evaluating Equity generally refers to the fairness of the tax burden Potential Local and Regional among different economic groups. Theoretically, a tax bur- Funding Sources den should be commensurate with one's ability to pay or with the benefits received. User taxes, such as ones used to fund Potential transportation funding sources are typically eval- transportation, are somewhat less likely to have issues of eq- uated across several basic dimensions using the criteria de- uity with regard to income level. Equity concerns about the scribed below: fairness of relative user fee payments by various types of ve- hicles have been a major source of debate and conflict in · Revenue yield, adequacy, and stability; highway taxation. A specific highway-industry set of "high- · Cost efficiency, including administrative cost to agencies, way cost allocation" procedures for attributing highway costs compliance costs to taxpayers, and evasion levels; among vehicle types has grown up around the issue of equity · Equity with regard to cost burden and benefits accrued in highway user fees. across income groups, different vehicle classes, and juris- dictions; · Economic efficiency, with particular emphasis on efficiency 75 Cambridge Systematics, Inc., Mercator Advisors, LLC, Pisarski, A. E., and in pricing; Wachs, M. NCHRP Web-Only Document 102: Future Financing Options to · Political and popular acceptability; and Meet Highway and Transit Needs. Transportation Research Board of the Na- · Technical feasibility. tional Academies, Washington, D.C., December 2006.
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43 Table 4.2. General advantages and disadvantages of traditional local and regional public transportation funding sources. Traditional Mechanisms Advantages Disadvantages General Revenues Transit has benefits that are spread Subject to annual broadly across community and appropriation/budgeting process. across users and non-users. Typically requires no legislative Used to fund other local public action. services, which may have priority over transit. Sales Taxes Broad tax base; generally produces Revenues variable with changes in General sales taxes high revenue yields for a low the economy, negative as well as marginal tax rate. positive. Keeps pace with inflation. Considered somewhat regressive; If already in place, very low cost for burden is higher on poorer adjusting rates. households although benefits of transit may be greater. Moderately equitable in that individuals of comparable means Possible complications in the pay roughly the same amount of geographic limits of taxation and tax. services delivered (users can be from outside the taxing All transportation system users jurisdiction). pay, including commuters/visitors. Must have state legislative authority Transit is linked to economic in place for local enactment. health. Typically require voter approval for local enactment. Motor-vehicle- Strong historic growth in yield Significant potential for decline related sales taxes from increases in ownership and with economic downturns. use. Often difficult to divert from More progressive than general sales general funds. taxes. Revenues may decline in future with shifts away from petroleum- based vehicles. Property Taxes All households and businesses must Variable political and public pay. acceptability. Generally a broad tax base. Moderately regressive; e.g., some Revenues are generally not households could be property-rich impacted dramatically with but income-poor (e.g., retirees). changes in the economy. Revenue growth may be limited by Indexed for inflation (but only in tax limitation statutes in some areas. property values). Susceptible to potential yield Relevant to and allowed for transit swings from periodic speculation investment as a basic public and housing cycles. service. Ease of administration and low evasion. Low compliance cost. Contract/Purchase- Allows pricing to be tailored to Negotiated rates may or may not of-Service Revenues service levels and their cover fully allocated costs. contingencies. Terms typically reviewed/revised on a regular schedule. (continued on next page)
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44 Table 4.2. (Continued). Traditional Mechanisms Advantages Disadvantages Lease Revenue Maximizes return/revenue to Marginal opportunity/yield except assets. to largest systems. Periodically responsible for Requires market and lease response to markets. transaction capacity. Integrates transit with other community interests. Vehicle Fees (Title, registration, Revenues are generally not Flat fees are regressive. Potential tags, and inspection) impacted by changes in the for inequities among vehicle classes. economy. Not indexed for inflation. Allow for revenue collection from Limited base; Only households that varied vehicle classes, differential own vehicles pay. value (i.e., a form of personal property tax) or vehicles using Relation to transit is often not alternative fuels, etc., without acknowledged, e.g., drivers may establishing new collection benefit from transit improvements mechanisms. that reduce congestion. Already in place; little added Typically require legislative action administrative cost for revenue to change or increase rates, increases. structure. Variable fees Revenues adjust to inflation. Ad valorem fees are more progressive. Advertising Increasing range of techniques and Low yield. Revenues technologies available to expand reach, impact. Can be brokered through private agents. Concession Revenues Revenue can be optimized by Low yield, not traditionally a major charging a premium based on revenue generating tool. location. Can be adjusted to reflect market conditions. Common Business, Activity, and Related Sources Employer/Payroll Ensures that commuters and Commuters have no say within the Taxes businesses contribute to and local government that imposes the support transit. tax. Ease of compliance and May provide incentive for administration. businesses to locate outside the Responsive to inflation. taxing jurisdiction. Car Rental Fees Easy to gain public support; most People paying the tax have no say residents not subject to the tax. within the local government imposing the tax. Revenues may be impacted by economic changes. Narrow tax base. Responsive to inflation if fee placed on value. Vehicle Lease Fees Responsive to inflation if fee placed Narrow tax base. on value. If not ad valorem taxes, not Assures collection with regard to responsive to inflation. leased vehicles. Only households that lease vehicles pay.
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45 Table 4.2. (Continued). Traditional Mechanisms Advantages Disadvantages Parking Fees Ensures that commuters Narrow tax base. contribute/support transit services that benefit them. Highly progressive. Realty Transfer New property owners pay a share Narrow tax base. Taxes/Mortgage of transit costs provided in the area. Considered moderately regressive. Recording Taxes Highly related to economic activity. Susceptible to potential yield Responsive to inflation. swings from periodic speculation and housing cycles. Corporate Franchise Ensures that employers May provide incentive for Taxes contribute/support transit services businesses to locate outside the that benefit them. taxing jurisdiction. Progressive in comparison to other options. Oil company More public acceptability since the franchise taxes tax is imposed on petroleum Taxes usually passed on to companies customers Disadvantages similar to those for motor fuel taxes based on value. Same attributes as for motor fuel tax based on value Long line taxes (Franchise tax on Related to economic activity. Likely small yield. transportation/ transmission) Room/Occupancy Politically attractive; only visitors People paying tax have no direct Taxes pay the tax. say in the local government that imposes the tax. Generally based on value; inflation sensitive. Business License Fees Assures that businesses bare a Low yield unless set at very high portion of transit costs. rates. May induce businesses to locate elsewhere. Utility Taxes/Fees All households pay. Revenues from some utilities are impacted by energy conservation Has proven to be a useful policies. alternative funding source in areas where scale of the economy and sales taxes may not provide a broad tax base to support transit Income Taxes All households pay (except those Revenues may be affected during with very low incomes). economic recession due to potential Individual and increases in unemployment. corporate Progressive, directly related to income status. May be difficult to capture nonresident revenues. Broad tax base. Indexed for inflation. Donations No governmental actions Not a stable revenue source. necessary. Extremely low yields. (continued on next page)
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46 Table 4.2. (Continued). Traditional Mechanisms Advantages Disadvantages Other Business Taxes Direct relationship to transit and Low public acceptability; subject to ease of access; new development legal challenges. Impact pays for needed transportation fees/beneficiary improvements to support increased charges demand. Higher revenue yield in high- growth areas. Motor Fuel Taxes Ease of collection/administration. Have been shown to be inadequate Low compliance cost and low by themselves to meet future needs. evasion. Moderately regressive, although Directly related to transportation low-income buy less gasoline. system usage. Yield negatively impacted by Can be multimodal in dedicated continued focus on per gallon taxes, use. future improvements in fuel efficiency, introduction of Steady growth rate over time. alternative fuels. No decline in fuel sales expected Geographic issue; fuel can easily be over two decades. purchased outside taxing Lend themselves to indexing to jurisdictions. avoid declines due to inflation Use for transit sometimes effects. considered a "diversion" when benefits of transit to overall travel are not acknowledged. Revenues are constitutionally or statutorily dedicated to highways in many states. Fixed rate Same as above. Same as above. Without indexing, real yield declines over time. Adjustable rate Same as for fixed rate. Same for all types. Responds to fuel price changes. Responsive to inflation. Sales Tax on Fuels Same as for fixed rate. Same for all types. Responds to fuel price changes. Responsive to inflation. "Sin" Taxes Fees collected from those who Narrow tax base. voluntarily engage in gambling. Cigarette taxes Lottery fees are strongly regressive. Visitors as well as locals contribute. Alcohol taxes Gambling may cause social and personal problems. Lottery revenues/gambling taxes Sources: Cambridge Systematics, Inc., Mercator Advisors, Pisarski, A. E., and Wachs, M., NCHRP Web-Only Document 102: Future Financing Options to Meet Highway and Transit Needs. Transportation Research Board of the National Academies, Washington, DC, December 2006. Goldman, T., Corbett, S., and Wachs, M., Local Option Transportation Taxes in the United States, (Part One: Issues and Trends). UCB-ITS-RR-2001-3. Institute of Transportation Studies, University of California, Berkeley, CA, March 2001, pp. 2124. Price Waterhouse LLP, Multisystems, Inc., and Muncle & Associates, Inc. TCRP Report 31: Funding Strategies for Public Transportation--Volume 2: Casebook. Transportation Research Board, National Research Council, Washington, DC, 1998.