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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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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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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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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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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.
