Future Financing Options to Meet Highway and Transit Needs (2006)

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NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-1 7.0 Implementation Plan and Strategies „ 7.1 Implementation Plan for Highway and Transit Funding Initiatives Over the past decade or more, important lessons have emerged from around the country on the steps that are necessary to successfully propose and enact new or enhanced revenue measures in support of national, state, local, and regional highway and transit programs. Most funding initiatives come about either through legislative actions or through ballot initiatives and referenda. In the first instance, a legislative body makes the decision on a new or enhanced funding source. In the second case, a ballot measure must be passed to provide for the new or enhanced revenue source. In some special circumstances, highway toll facilities may also come about as a result of public or private project development actions that have previously been enabled by legislation. Either legislation or initiatives and referenda require the same types of steps in order to achieve success in implementation of new or enhanced revenue sources. 1. Develop a consensus on the scope of current and future transportation needs and on the importance of acting to address them; 2. Develop a specific plan and program of investments for which additional funding is needed and demonstrate what benefits are expected from the proposed investments; 3. Identify clearly established roles, responsibilities and procedures for executing the plan and implementing the proposed improvements; 4. Describe the revenue sources in detail, and provide the rationales for their use; 5. Design and carry out a public education and advocacy plan and campaign; 6. Develop sustained leadership and demonstrable, sustained support; and 7. Plan for and lay out a clear and reasonable timetable. Some say that revenues will never be raised to support highways and public transporta- tion needs. This viewpoint is demonstrably false, because there have been an enormous

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-2 . number of successes in these initiatives in recent years. In fact, studies of funding refer- enda show a very strong and increasing majority of funding issues being approved by voters. Legislatures may be behind the public will in terms of their decisions on whether to enhance funding for critically needed transportation programs. However, state legis- latures and local legislative bodies have also taken very positive actions in many states, regions, and local areas to enhance revenues as well as to allow local option taxes and to provide for public private partnerships. In addition, over the long run, the Federal government has consistently taken actions to increase Federal funding during all reauthorizations of the Federal aid highway and tran- sit programs. Most of the past Federal funding enhancements have also involved increases or adjustments to Federal taxes and fees. The period since 1993 when the last adjustment was made to Federal taxes and fees is an anomaly in terms of the history of Federal actions, rather than a new reality. Federal spending on transportation as well as on other programs has been increasing. The accounts of the Federal highway trust fund have now been spent down, instead of being allowed to accumulate revenues that were not spent promptly on highway and transit needs. Revenues must be adjusted periodi- cally to account for the actual reality of programs. The recent successes on ballot measures are worth highlighting, because ballot measures may come closest to measuring the willingness of the public to pay more for improve- ments to highways and public transportation. The percentage of successes on transporta- tion ballot measures have increased very rapidly in recent years, indicating that if the proper steps are followed, revenue enhancements can and will be implemented, The Center for Transportation Excellence (CFTE) has recently summarized the results of ballot measures from 2000 through 2005 in its report Transportation Finance at the Ballot Box (2006). CFTE has also summarized the results of transportation-related ballot measures in 2006 on its web site,1 and ARTBA released a report on the results of ballot measures from the November 2006 elections.2 Increased Success in Transportation Ballot Measures The case studies below demonstrate an overall trend in the use of voter-approved ballot measures to generate local and state funding for transportation. The Center for Transportation Excellence’s (CFTE) report Transportation Finance at the Ballot Box supports this finding on the electoral trends associated with ballot measure campaigns. Of the 202 transportation measures in 33 states from 2000 through 2005, more than 130 of these were successful. For comparison, during this same period, only 34 percent of all general ballot 1 Center for Transportation Excellence, 2006 Transit Ballot Measures. Available at: http:// www.cfte.org/success/2006ballotmeasures.asp. 2 American Road and Transportation Builders Association, Special Ballot Initiatives Report, November 2006. Available at: http://www.artba.org/economics_research/transportation_elections/.

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-3 measures were approved.3 This success for transportation has translated to over $70 bil- lion in approved funding. In 2006, a total of 47 transportation-related ballot measures were presented to voters, 30 of which were included in the November 2006 elections. Twenty-nine of the 47 ballot measures were approved in 2006. ARTBA indicated in its report that the ballot measures approved in November will add over $2.1 billion annually for transportation investments. The increase for transportation-related ballot measures can be attributed to citizen demand as well as the requirement for local communities to come up with matching funds in order to access Federal funding. Figure 7.1 shows states that had ballot measures for transportation in the years 2000 to 2006, based on the analysis by CFTE. Figure 7.1 States with Transportation Ballot Measures 2000-2005 Source: CFTE. 3 Center for Transportation Excellence, Transportation Finance at the Ballot Box: Voters Support Increased Investment and Choice, 2006.

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-4 . Types and Structure of Ballot Measures Ballot measures are generally divided into two broad categories: initiatives and referenda. Initiatives are authorized by 24 states, and require a citizen-led petition process. Refer- enda are proposals referred to voters by elected or appointed bodies for final approval are the most commonly used type of ballot measure.4 While 76 percent of the transportation- related ballot measures are associated with generating additional revenues, there are also measures that have asked voters to create a transit authority, to amend the constitution, or to advise on a future project. The types of measures are shown in Figure 7.2. Figure 7.2 Percentage of Ballots by Type of Measure District/Authority Creation 2% Finance 76% District Inclusion/ Exclusion 2% Advisory 8% Reassurance 1% Constitutional Amendment 1% Other/Multiple 10% Source: CFTE. Successful Ballot Measures Related to Finance Analysis of the multitude of ballot measures by the CFTE between 2000 and 2005 reveal that the most common revenue source mechanisms on ballot measures were sales taxes, property taxes, and bonds. Other tools, such as fees from gasoline taxes, rental cars, and tolls are also utilized. The success rates for the various measure types are shown in Figure 7.3. 4 Ibid.

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-5 Figure 7.3 Success Rate by Type of Measure Source: CFTE. Percentage 120 100 80 60 40 20 0 New Sales Tax New Property Tax Bonds Other Type of Finance Measure Sales Tax Extension Property Tax Extension Sales Tax Increase Property Tax Increase Dedicated Revenue Approximately 40 percent of all measures with a finance component incorporated a sales tax, either through a new levy, increasing existing rates, or renewing an expiring tax. With a success rate of 54 percent, sales taxes also provided the largest amount of trans- portation funding between 2000 and 2005 and are typically a dedicated one-quarter or one-half-cent levy. In 2006, 22 ballot measures at the local level proposed either new or the extension of existing sales taxes; four of these ballot measures were defeated. Property taxes accounted for 17 percent of all ballot measures with a success rate of 80 percent. Voters from Michigan and Oregon voted for new or increased property taxes for trans- portation in 2006. From 2000 to 2005, no ballot measure increasing an existing property tax for transportation has been defeated; in 2006, a property tax measure was defeated in Salem, Oregon. For measures with both sales and property taxes, 43 percent dealt with increasing the rate, 13 percent called for a new levy, and 13 percent for an extension of an existing tax. Bonds accounted for 16 percent of ballot measures with a success rate of over 65 percent.5 The recent successes in ballot measures provide evidence that properly organized cam- paigns can result in implementation of enhanced revenues. Case study examples below also illustrate successes at the legislative level. In virtually every case where new revenues have been approved for highways and transit, the steps described below have been taken, usually through conscious, well thought out and energetically executed campaigns. Each is described briefly below. 5 Ibid.

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-6 . Steps in Successful Legislative and Ballot Initiatives for Revenue Enhancements 1. Develop a consensus on the scope of current and future transportation needs and on the importance of acting to address them. Needs and funding cannot be separated, because the perception of a need is the most powerful motivator for funding decisions. The perception of needs must include not only a perception of the benefits of acting, but also an understanding of the costs of not acting. In order to trigger broad-based support for new revenues for transportation investment, a consensus has to be established that there are, indeed, problems that have broad and unacceptable consequences for citizens, business and industry if the problems are not attended to. Typically, a wide-ranging dialogue is needed on the scope and nature of the transporta- tion challenges and on the consequences of not acting, i.e., a coordinated effort is needed, as described in the later steps, to educate various stakeholders and community leaders through a comprehensive public education campaign. 2. Develop a specific plan and program of investments for which additional funding is needed and demonstrate what benefits are expected from the proposed investments. Legislators, community leaders, and voters must be confident in what specific investments are proposed, what benefits are expected and the rationales for each element of the plan. Experience has shown that legislators or voters are reluctant to support new revenue ini- tiatives unless they include: • Mixes of improvement types, e.g., highway, transit, nonmotorized; • Specific improvements and projects; • Breadth of improvement locations, e.g., resources directed to local as well as regional priorities and problems; • Clear rationales, including expected benefits as well as the consequences of failing to act; and • Sound arguments and documentation to deflect issues that critics may raise for the proposed plan and program. 3. Identify clearly established roles, responsibilities, and procedures for executing the plan and implementing the proposed improvements. Intergovernmental roles and relationships must be clearly spelled out regarding how investment decisions are to be made, who and what organization(s) are responsible for

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-7 execution of the plan and program and how agencies and organizations are to partner for the plan and program to succeed. There must be no ambiguity, and the legislators and community leaders and citizens must have trust in the agencies and processes to be used in committing the new resources. In addition, actions must be taken – legislative, regulatory and administrative – to assure that the respective agencies and organizations have adequate authority to collect, expend, encumber revenues, incur debt, contract and undertake other activities necessary to fully execute the plan and program. State legislative actions may be necessary as well as legis- lative actions by local jurisdictions. Memorandums of Understanding (MOU) and other formal mechanisms may be necessary to assure clear lines of authority and effective pro- cedures are in place. 4. Describe the revenue sources in detail, and provide the rationales for their use. There are always a wide range of alternative revenue sources for consideration in increasing transportation investment. Selecting the most appropriate sources(s) requires a thorough evaluation of those alternatives across a number of key criteria, and an under- standing among stakeholders, citizens and community and political leaders of the ration- ales for pursuing particular sources. Among the most important criteria in evaluating alternative revenue sources are: • Revenue yield, adequacy, and stability; • Cost-efficiency (includes administrative cost to agencies, compliance costs to tax- payers, and evasion levels); • Equity with regard to burden across different income groups and equity of revenues and costs attributed to different vehicle classes; • Economic efficiency, with particularly emphasis on efficiency in pricing; • Political acceptability; and • Technical feasibility.6 Revenue Yield, Adequacy, and Stability For the purposes of evaluation, revenue yield means that the source can provide such a level of revenues that it is very significant in supporting the overall transportation pro- gram. Adequacy involves the judgment that current motor fuel taxes and alternative sources should be evaluated with respect to present and future revenues in comparison to 6 Future Financing Options to Meet Highway and Transit Needs. Interim report by National Cooperative Highway Research Program, Transportation Research Board, and National Research Council, May 2006. These criteria are described in more detail in Appendix A.

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-8 . needs for current and projected expenditures. Such a comparison will determine the ade- quacy of each revenue source in meeting needs, and will differentiate superior sources from those that are merely average or even inferior. Stability refers to whether there are uncertain revenue fluctuations that can impact an agency’s ability to manage resources. Cost-Efficiency, Including Administrative and Compliance Costs and Evasion Efficiency refers to the maximizing of benefits in relation to the use of resources (cost of collecting the tax, to both the taxpayers and the government). This implies that adminis- trative costs to agencies and compliance costs to taxpayers incurred by alternative revenue structures should be kept to a minimum. Administrative cost refers to the actual costs incurred by an agency collecting and processing revenue sources. Compliance cost refers to the cost actually incurred by the taxpayer that is additional to the dollar payment made. In addition, incentives and opportunities for tax evasion should be minimized as much as possible. Equity Equity is employed as a criterion to assess fairness of tax burden among different eco- nomic groups. Theoretically, a tax burden should be commensurate with one’s “ability to pay.” User taxes, such as ones used to fund transportation, are somewhat less likely to have issues of equity with regard to income level. Equity concerns in terms of the general taxation issues within our society have usually revolved around the relative payments by those with different levels of income. Economic Efficiency This criterion refers to the analysis of marginal cost, or the cost to society of one additional trip made, and whether the price paid for that trip is commensurate with the cost to society. The concept is most familiar in the congestion pricing context, now sometimes referred to as value pricing. Economic efficiency criteria have not been applied in the real world of highway travel, primarily because traditional ways of pricing travel are very familiar and considered to be more fair than auctioning off scarce roadway space. Political Acceptability Political acceptability is on one hand a combination, or “roll-up,” criterion of all others, and, on the other hand, a stand-alone threshold in the decision process to employ alterna- tive revenue schemes. Principally, a revenue source is acceptable when it is politically palatable on the key, or most salient, criteria. That implies that the revenue source is ade- quate, fair, simple, effective, efficient, and easy to administer. Technical Feasibility Technical advancements, including geographic information systems (GIS), global posi- tioning systems (GPS), and electronic transfer mechanisms, have reduced the cost of administration and compliance in a broad array of areas, including the field of finance and taxation generally and transportation-related taxation specifically. Advances in technology

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-9 also can pose difficulties for the traditional method of funding highways by collecting taxes on motor fuels at a fueling station. Advances in fuel economy, for instance, including engine technology and lighter materials, can reduce motor vehicle fuel use per mile. 5. Design and carry out a public education and advocacy plan and campaign. As suggested in step one, above, the act of raising new revenues for transportation investment (or any other worthy public purpose) involves the equivalent of a political campaign since it is likely that formal public approval will be required at some point either through referenda or through the legislative or administrative actions of elected officials. As with any campaign, both sustained leadership and adequate funding is needed. Typi- cally, such campaigns rely on regular polling to test public response as problems, plans, rationales and revenue alternatives are presented and discussed. In addition, a full range of communications strategies and products are needed to assure that the public education process is comprehensive and continuous. In successful cases of regional funding initiatives in Houston, San Diego, St. Louis, and Seattle, public education and advocacy efforts have shared several common characteristics that will need to be considered in any effort to bring new transportation revenues to bear. Among the most important of these are: • Sustained involvement of effective leaders with an emphasis on the participation by individuals from outside the ranks of elected officials; • Sustained support from key elected officials at all levels; • Formal involvement of stakeholders and citizens representing the broadest array of interests and organizations; • Creation of formal coalitions or organizations to coordinate, direct, and channel resources and advocacy activities; • Financial support from nongovernmental sources involving several hundreds of thou- sands of dollars to underwrite a sustained, multiyear campaign; • Participation of experienced public relations and legal professionals to advise and con- duct elements of the campaign; • Extensive and continuous monitoring of public opinion to help shape the investment program, identify the sources of funds, and build the institutional structure to be used; and • Preparation of a wide range of activities and products for use in presenting issues and proposals to the public, including both electronic and print media strategies, a range of public education materials, and spokespersons and materials needed to make regular presentations to the public and various interest groups.

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-10 . 6. Develop sustained leadership and demonstrable, sustained support. Every campaign requires enlightened, sustained, and active leadership from individuals and organizations that are recognized as community leaders. Typically, this means champions for the initiative recruited from business and industry as well as politics. It also means, as mentioned above, constant, up to date understanding of public and popular sentiment around the issues involved and the proposals being considered and advocated. Leadership plays a key role in arriving at final plan and funding proposals, advocating those proposals actively in the community, and responding to criticisms that are inevita- bly raised when new public revenue-raising initiatives or specific projects are proposed. 7. Plan for and lay out a clear and reasonable timetable. Transportation revenue initiatives typically take many months to plan, detail, promote, and enact. A typical timetable may involve two years or more, depending on the scope of the issues involved, the knowledge of community leaders and the electorate, and historic levels of “friction” that exist in the political arena over matters of public service priorities, revenue-raising and bipartisanship in consensus building and decision-making. It is also not uncommon for the initial new transportation revenue-raising initiative to fail on the first attempt at public approval. While the proportion of transportation revenue initiatives approved in recent years has risen, there are always examples of initiatives turned down at the polls, largely because one or more of the steps noted above has not been carried out effectively. „ 7.2 Case Studies of Successful Initiatives The case studies which are included here illustrate initiatives which achieved success by following an implementation strategy that was sufficient to result in a new or enhanced revenue source or sources. The case studies span a broad range of efforts for highway funding, for public transportation funding, and for multimodal funding. They illustrate actions that were successful through new legislation, through initiatives or referenda, or through administrative actions. Ohio Case In 2002, the Ohio state legislature approved a 6-cent increase to the State’s motor fuel tax, to take effect in 2-cent increments over the following three years (2003-2005). This adjusted Ohio’s motor fuel tax rate from 22 cents per gallon to 28 cents per gallon. The increase was enabled because of a coordinated effort by Ohio DOT to improve its internal efficiency. The DOT was then able to leverage its credibility for good management to

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-11 present a strong case for an increase in the motor fuel tax to be spent on major capital improvements. The process started in January 1995, when Ohio DOT introduced VISION 2000, a long- range restructuring plan designed to improve the cost-effectiveness and quality of the department’s services and to make the department more responsive to customer needs. Over the following years, the department decentralized most decision-making to the dis- trict level and consolidated operations by function, decreasing the number of Ohio DOT divisions from 16 to seven. With the reorganization, the number of employees was also reduced from 7,788 to 6,032. By 1999, these changes had generated enough savings that Ohio DOT was able to maintain its highways and bridges and to reallocate $46.4 million from operating costs to new construction. This showed the public and the legislature that Ohio DOT had done what it could to increase funding out of efficiency improvements. However, because of rising prices and increasing vehicle miles of travel in the State, the department still did not have sufficient funding to embark on major, new, corridor-level capacity improvements. In 2000, Ohio DOT decided to seek an increase in Ohio’s motor fuel tax rate to fund new capacity improvements. In late 2001, the department convinced the Ohio state legislature to add a section establishing a Motor Fuel Tax Task Force to a comprehensive appropria- tions bill. The task force was instructed to report back to the legislature and the governor by the end of 2002 on the need for and feasibility of increasing the State’s motor fuel taxes. The bipartisan task force consisted of six legislators representing both parties and houses; the directors of the state transportation, revenue, and public safety departments; munici- pal groups; professional associations; and members of the public. The task force estimated the shortfall for maintaining and improving Ohio’s roads and bridges to be in excess of $400 million per year. Recognizing the critical importance of the transportation network to Ohio’s economy, the task force recommended a 6-cent increase in the motor fuel tax, to be “implemented over the course of a few years to lessen the impact on consumers,” that would generate approximately $270 million per year in addi- tional tax revenue. The task force also called for an increase in vehicle license, registra- tion, and title fees to support the Ohio State Highway Patrol. They recommended that the motor fuel tax revenues that had gone to the Patrol be reallocated to county engineers and local municipalities, effectively sharing half of the motor fuel tax increase with the coun- ties and local governments. The task force’s recommendations were reviewed by the Ohio state legislature and gained the backing of Governor Taft, the State Contractors Association, local governments, and many of the State’s chambers of commerce. The tax measure was passed by a 2-to-1 vote; significant opposition never surfaced in either house of the legislature. The key factors in the Ohio state legislature’s willingness to accept the tax increase – despite an ongoing recession and political pressure to reduce taxes generally – were the perception that Ohio DOT was operating as leanly and efficiently as possible; an acknowledgment that Ohio DOT had made a clear and compelling technical case for major, corridor-level, infrastructure improvements; and a consensus that the tax increase

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-12 . would benefit the programs of county and local governments as well as the programs of the Ohio DOT. The Ohio case demonstrates that it is politically feasible to increase the motor fuel tax, but also establishes the importance of building a prior reputation for prudent management and good stewardship, building a broad constituency, and targeting the proposed increased revenues on needed and publicly visible improvements. Denver Case The Denver FasTracks program is funded, in part, from a sales tax increase from 0.6 percent to 1.0 percent approved by voters in November 2004. The 58 to 42 percent vote of approval reversed two earlier defeats, including a 1997 58 to 42 percent defeat of a “Guide the Ride” initiative, a similar plan that was not clearly defined and not effectively promoted. The FasTracks campaign was begun a year and a half ahead of the target referendum date and was carried out with the assistance of a well-known, locally based political consulting firm. The challenges to be overcome in pursuing the FasTracks program revolved around poor organization and lack of support from key elements of the regional community, including the RTD Board itself, key elected officials and major media outlets as well as poor campaign organization. Several strategies, both mainstream and unique, were used in advancing FasTracks: • A wide-ranging set of proposed projects and improvements. • A long lead-time in pursuit of voter support. • Use of professional campaign management combined with the use of only volunteers to gather signatures. • Extensive polling. • An aggressive, $3.5 million TV and radio campaign, with direct mail and outdoor advertising, funded largely by the business community. • A sustained public education campaign begun even earlier by the Transit Alliance, an existing coalition in support of transit that targeted local events and operates a speaker’s bureau.

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-13 • An extensive, broad-based coalition of supporting organizations involved in field activities (157 businesses, 26 local governments, 74 local elected officials). Ultimately, over 500 businesses and community organizations and all 31 regional mayors pro- vided support to the plan. • Significant analysis and promotion of the benefits of the FasTracks program as well as rapid response to issues raised by critics. In addition, the FasTracks initiative was helped immeasurably by the steadily growing success of the RTD and effective management of an expanding variety of transit services and delivery strategies in the region. Missouri Case The use of local option sales taxes has become an integral part of the transportation funding structure in Missouri. Voter-approved sales taxes are used throughout the State to support road and to a lesser extent transit investments. Locally generated tax revenues tend be levied in support of projects that have a direct, local, economic development bene- fits, whereas state and Federal funds are generally earmarked towards system preserva- tion, safety, and planning. Though Missouri is only one of many states that allow local municipalities to establish local option taxes, the State is notable because of the large amount of revenue that local taxes have generated – $96 per person – and because rural areas of the State have tended to win voter approval for new local option sales taxes as easily as urban areas have. Over the past three decades, Missouri has gradually expanded the legal authority for local governments to finance transportation projects and services with dedicated sales taxes. In 1971, Kansas City was given the option of adopting a sales tax for transit capital and operations. This ability was extended to other cities and counties in the State in the mid- 1980s, and the permissible uses of the taxes were expanded to include a broad range of capital improvements. In the 1990s, these powers were extended to special district gov- ernments, including county transit authorities and transportation development districts. In all cases, new taxes must be approved by the voters. Table 7.1 describes local option sales tax measures on Missouri ballots in 2005. Three of the five were approved by the voters. Due to the distributed and dynamic nature of locally assessed taxes, little information is available about the total revenue raised statewide through local option sale taxes. How- ever, a recent sample of 30 percent of the transportation tax-assessing authorities in the State, including towns, cities, counties and transportation development districts, found that their local option sales taxes generated a total of $124 million per year. This signifi- cant sum has helped these municipalities improve their road network, build bridges, con- struct and maintain light rail lines, and participate in economic development initiatives.

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-14 . Table 7.1 2005 Ballot Measures for Missouri’s Local Option Sales Tax City/County Type of Sales Tax Result Comments Poplar Bluff Sales Tax Increase (0.5%) Approved (68%) 0.5% increase to provide local matching funds for upgrades to U.S. 67. The tax will expire after 30 years. City of Moberly Transportation Tax Extension (0.5%) Approved (72%) Extended 0.5% transportation tax for another 10 years. The tax was last extended in 1995. City of Washington New Transportation Sales Tax (0.5%) Approved (54%) New 0.5% sales tax to add capacity along 12 miles of Highway 100. The proposal also included funds to overlay all city streets. The money from the sales tax will be used for debt service on bonds issued for the road improvements. St. Francois County New Transportation Sales Tax (0.25%) Defeated St. Francois County was proposing to issue $15-20 million in bonds for high-priority road projects. Macon, Shelby, Ralls, and Marion Counties New Transportation Sales Tax (0.5%) Defeated These five counties were asked to approve a 0.5% sales tax for improvements on the U.S. 36 corridor. The tax had to be approved in all counties to be implemented. Ralls County was the only county not to approve the sales tax. Source: American Road & Transportation Builders Association. Maricopa County, Arizona Case Maricopa County voters approved a 20-year extension of the area’s one-half-cent sales tax in November 2004 to support a wide range of multimodal transportation improvements – highway construction and maintenance, street improvements, bus services, light rail ser- vices and nonmotorized facilities. Passage of Proposition 400 overcame significant, well- organized, and well-funded opposition from both anti-tax forces as well as anti-rail forces. Among the strategies involved were: • A 2000 start to the campaign, four years ahead of voter approval, with the first two years devoted to arriving at a plan that could generate broad support from key con- stituencies and community leaders. Nearly 2,000 meetings were held with elected officials, business, and civic groups through every phase.

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-15 • Guidance for the effort from a broadly representative group of community leaders, the Maricopa 2020/Yes on 400 Committee. • Involvement of a professional campaign and public affairs issues management firm that subsequently won awards for its efforts. • A broad-based coalition of active supporters, 4,000 strong, combined with other existing constituency groups that raised over $4 million for the effort. • Aggressive public responses to Proposition 400 critics coupled with focusing advocacy efforts on the highway portion of the proposal. Florida Case – Local Option Sales Taxes Florida’s Legislation allows for the implementation of local option sales taxes up to 1 percent in the counties of Broward, Duval, Hillsborough, Miami-Dade, Pinellas, Sarasota, and Volusia for transit. This local option sales tax is known as the Charter County Transit System Surtax. To date, only Duval and Miami-Dade have implemented this local option tax, at the rate of 0.5 percent in both counties. In the case of Miami-Dade, an initial proposal to implement the Charter County Transit System Surtax had been rejected by voters in 1999. The sales tax proposal was included again in the November 2002 ballot, when it was finally approved by voters. The key to the successful implementation of the local sales tax in Miami-Dade was the creation of the “People’s Transportation and Plan” (PTP). The PTP development included extensive public participation. This plan specifies the uses for the 0.5 percent sales tax levies. Transit investments included in the plan encompass Miami-Dade Transit rail and bus service expansion and improvements. Several public work projects will also be funded, including upgrades to the traffic signal system, which is currently underway. In addition, 20 percent of the sales tax revenues are transferred to municipalities for transit and other transportation improvements. The county ordinance 02-117, under which the PTP was created, required the creation of the Citizen’s Independent Transportation Trust (CITT) to oversee the use and expendi- tures of the one-half-cent sales tax levies. This ordinance also states that the sales tax revenues cannot be used for projects other than those listed in the People’s Transportation Plan. Furthermore, projects already included in the plan cannot be eliminated without approval of the CITT and the County Board of Commissioners. Changes to the People’s Transportation Plan are only acceptable “as a result of the MPO process as mandated by Federal and state law” or if approved by both the CITT and the County Commission.

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-16 . Oregon Case Currently, Federal and state fuel taxes constitute approximately 60 to 70 percent of road revenues for Oregon. Yet due to increased fuel efficiency, continued inflation, and a gen- eral reluctance on the part of voters to increase the motor fuels tax, the purchasing power of gallonage-based tax revenues (in terms of inflation-adjusted revenue per vehicle-mile traveled) has been steadily declining for decades. In response to this problem, in 2001 the Oregon Legislative Assembly passed House Bill 3946, which mandated the formation of the Road User Fee Task Force (RUFTF) and charged it to establish a long-term vision for Oregon road finance. The RUFTF examined the strengths and limitations of various revenue generating alter- natives for replacing the gas tax as the primary source of revenues for repairing, main- taining, and building Oregon’s roads. After reviewing multiple options, RUFTF focused on a mileage-based user fee on the basis of strengths that included equity among travelers (a “user pay system”), acceptability and transparency to the public, ease of use for the motorist, and sustainability as a revenue source. In short, the mileage-based fee was determined to be a fair, simple, and affordable way to generate revenue based on actual miles traveled in Oregon. In March 2003, RUFTF presented a report to the legislature that reviewed the alternatives and proposed testing the mileage-based fee in a pilot program. The Federal Highway Administration provided funding for conduct of the pilot program. Oregon DOT designed the pilot program specifically to demonstrate the technical and administrative feasibility of implementing a mileage-based user fee. The full pilot test began in June 2006 and will continue for one year. A total of 260 trial participants in the Portland metropolitan area have a mileage-recording and global-positioning-system device installed in their vehicles, and are currently purchasing gas at select service stations in Portland equipped with wireless mileage-reading devices. The mileage-recording device in the each car tracks miles driven in four categories: miles driven in Oregon; miles driven out-of-state; miles driven in the Portland metropolitan area during weekday rush hour (7:00-9:00 a.m. and 4:00-6:00 p.m.); and miles driven when no satellite signal was available (e.g., miles accumulated in underground parking garages, tunnels, etc.). During the first six months of the pilot test, participants are paying the gas tax as usual. In December 2006, participants will be randomly divided into different test groups: one group will continue to pay the gas tax; a second group will pay a mileage-based fee of 1.2 cents per in-state mile instead of the gas tax; and a third group will pay a mileage- based fee plus a congestion pricing fee for mileage accrued during weekday rush-hours in the Portland metropolitan area. A strong public outreach process has been an integral part of this study, including stake- holder meetings, public hearings, and public testimony, an interactive web site, and media reports. Members of the public have raised the following concerns about the mileage- based fee:

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-17 • Privacy – Oregon DOT has clarified through interviews and articles that the road user fee program collects mileage data only and does not collect location information. Mileage data are transferred only at the time of fueling. This has reduced the level of public concern about the protection of driver’s privacy. • Revenue – The mileage-based fee of 1.2 cents per mile was selected as being roughly revenue neutral with the gas tax, based on average vehicle fuel economy data. At the present time, Oregon DOT does not intend to set a higher mileage-based fee that would generate revenue above and beyond what the gas tax would otherwise generate. • Environmental Equity – The mileage-based fee is based on actual miles driven in Oregon. It does not distinguish among different types of vehicles based on either fuel economy or weight. Whether the fee should vary by vehicle type to account for varying environmental and/or road maintenance impacts has been the most signifi- cant public policy concern expressed to date. The technology does allow for a variable fee scheme based on vehicle type to be introduced in the future, and this remains an option to be considered going forward. • Geographic Equity – While the current pilot test involves only participants residing in the Portland metropolitan area, some residents of rural Oregon have expressed con- cerns about the geographic equity of a mileage-based fee if the system were to be expanded statewide. The concern is that rural residents need to drive more miles on average than urban residents on a day-to-day basis, and a mileage-based fee could disproportionately impact rural residents. • Congestion Pricing – The last six months of the pilot test will evaluate the impacts of having a peak-period surcharge (i.e., congestion pricing) in place. Some members of the public do not feel that congestion pricing is equitable. Transportation and land use professionals have asked about the possible intended and unintended consequences of congestion pricing on land uses and travel patterns. No determination has yet been made regarding whether congestion pricing would be recommended for longer-term implementation. The pilot test is proceeding smoothly to date. Occasional equipment failures have been experienced, but the rate has not been unusual or problematic as yet. Following conclu- sion of the pilot test in summer 2007, Oregon DOT will prepare a report and present the findings to the Oregon state legislature in 2009. At that time, next steps will be deter- mined; these may include further testing, evaluation of additional geographic regions, or evaluation of different pricing schemes. Oregon DOT anticipates that adoption of a mileage-based fee system will require legislative support and additional funding for installation of vehicle and service-station technology; development of new state and Federal legislation governing administration, enforcement and privacy concerns; and coordination with vehicle manufacturers, the fuel distribution industry, and organizations representing the general public.

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-18 . Idaho Case Idaho recently authorized the use of GARVEE bonds for the planning and construction of a comprehensive statewide corridor-improvement project. “Connecting Idaho,” the plan endorsed by former Governor Dirk Kempthorne, is a $1.2 billion initiative to reconstruct key elements of the State’s major highways using debt backed by future Federal dollars. Though the plan initially faced strong opposition in the state legislature, the enabling leg- islation passed in April 2005 and the first bond was issued in May 2006. In October 2002, Governor Kempthorne commissioned the 2020 Blue Ribbon Task Force. This nonpartisan citizen task force was charged with assessing the immediate and long- term needs of the State of Idaho, performing an objective analysis of the organization and structure of state government, and recommending necessary changes to meet the demands of the 21st century. The Task Force submitted its findings to the governor in October 2003. One of the long-term recommendations concerning transportation was that the Idaho state legislature enact legislation authorizing the Idaho Transportation Board to issue GARVEE bonds for the purpose of financing specific transportation projects. The bonds would be payable from Federal highway funds, fuel tax revenues, or other reve- nues, provided that this was accomplished within the framework of the states’ constitu- tional and legislative mandates regarding public indebtedness. Though the governor was not initially convinced of the utility of using grant-anticipation bonds, advisors and some legislators demonstrated that the mechanism could be used to secure in excess of $2 billion in funding for highway construction. With this amount of money, more than 30 years worth of projects could be expedited and completed in the next decade. In his January 2005 “State of the State” address, the governor devoted a sig- nificant portion of the speech to laying out his “Connecting Idaho” program, an initiative that would use GARVEE bonds to fund an effort to modernize major highways across the State. The enabling legislation for the “Connecting Idaho” plan was initially submitted to the Idaho Senate where it found strong support. However, even with the governor’s vocal endorsement, the bill floundered in the Idaho House where the legislature’s distrust of debt was most deeply ingrained. The measure initially failed to move out of committee despite gaining significant public attention and the support of chambers of commerce throughout the State. Only after extensive briefings by Idaho DOT officials, debate, and the governor’s strong insistence was the bill revisited, amended, and approved. Amend- ments trimmed the net bond revenues to $1.2 billion and placed a 20 percent cap on the amount of Federal funds received annually that could be allocated to debt service (the cap will grow to 30 percent for FY 2011). A clause was also added that requires yearly legisla- tive approval of new bond issues for that year’s planning and construction projects. At the end of the legislative session in April 2006, the House and Senate approved $200 million of GARVEE bonds for the first set of projects. The key success factors this case were the persistence of Idaho DOT officials in explaining the need for additional investment in Idaho’s highway system and in making the case for use of GARVEE bonds; the commitment of the GARVEE bond proceeds to fund major,

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-19 corridor-level improvements across the State, not just in a single area; and the willingness of the governor to champion the effort politically as an important element underpinning Idaho’s economic development. Of course, the use of GARVEE bonds is borrowing against future revenues, and no new net funds were accrued. Rather, the investments were moved up in time, and borrowing costs will need to be paid in the future. Indiana Case The State of Indiana recently entered into an agreement to privatize the 157-mile Indiana Toll Road. A joint venture between the Spanish transportation services company Cintra and the major Australian investment bank Macquarie will operate the toll road as a for- profit enterprise under the 75-year deal. The agreement called for the consortium to pay the State $3.8 billion in advance and assume the responsibility for operating and main- taining the toll road to explicit standards. In exchange, the consortium will collect all revenues from operation of the road. The funds that the State derives from the deal will be used to pay for other major transportation projects within the State. In May 2005, Indiana DOT identified to Governor Mitch Daniels a shortfall of more that $2.8 billion in the funding needed for transportation improvements around the State. These high-priority projects ranged from local grade-crossing eliminations to major corri- dor initiatives like the I-69 extension from Indianapolis to Evansville. There was a strong desire to improve the state economy by investing in the transportation infrastructure while avoiding tax increases and excessive debt incursion. However, given the State’s existing revenue streams, Indiana DOT determined that some of these projects would not be completed until 2030 and many might never be funded. In November 2005, the gover- nor proposed leveraging new funding sources, including public-private partnerships, to fully fund and construct all of these projects within the next decade. This initiative was given the name “Major Moves.” In Governor Daniels’ proposal, the State would lease the operation of the east-west running Indiana Toll Road to a private partner in order to free the “trapped” value of the facility. The Indiana Toll Road is a major limited-access turnpike crossing the far northern portion of the State from the Chicago Skyway in the west to the Ohio Turnpike at Columbia in the east. For most of the distance across Indiana, the Indiana Toll Road is designated as I-80/I-90. Opened in 1956, the highway is part of a network of pre- Interstate toll roads connecting the Midwest’s industrial cities to New York and Chicago. The semi-autonomous Indiana Toll Road Commission ran the Toll Road until 1981, when it was transferred to the Indiana Department of Transportation. Since then, the highway has been operated directly by the State and has frequently incurred operating losses due to political resistance to implementing regular toll increases. In fall 2005, the Indiana Finance Authority issued a request for proposals to determine interest among prospective bidders. In January 2006, bids were received from four com- panies: Macquarie-Cintra, Babcock & Brown (Sydney), Itinere (Madrid), and Morgan Stanley (New York). None of the other competing bids came within a billion dollars of the

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-20 . $3.8 billion that Macquarie-Cintra was prepared to offer. The lone American bid from investment bank Morgan Stanley was for less than half of that amount. To implement the Major Moves plan, the governor needed legislative approval to lease state assets as well as to spend the proceeds of the deal. Daniels faced opposition from the Democratic minority in both houses as well as legislators from the northern counties that would be most affected by future toll increases. The northern counties were appeased by a deal in which it was agreed that at least one-third of the proceeds of the deal will be reinvested into those counties, with $100 million of that amount going to support a new Regional Development Authority to promote economic growth. The State also agreed to defer toll increases for automobile drivers for a number of years. Toll rate increases were not deferred for truck drivers. An early attempt to forge a strong bipartisan support for the plan by promoting it as a jobs bill was unsuccessful, and the measure was for the most part passed along straight party lines. In mid-March 2006, both houses of the Indiana legislature approved the Major Moves bill. Four weeks later, on April 12, the Governor executed the lease, which was closed on June 29 upon receipt by the State of the full $3.8 billion. The funds will be drawn down over the next 10 years to finance road and bridge construction throughout the State, including reconstruction of U.S. 31 between Indianapolis and South Bend, the Hoosier Heartland Corridor, bridges over the Ohio River, a “new terrain” I-69 from Evansville to Indianapolis, and nearly 200 other projects. An additional $150 million will be shared by all of Indiana’s 92 counties to address local road and bridge needs. The key factors in this case were a pressing state need to fund major improvements across the State; and a toll road with a high, long-term value to investors because it serves a large and relatively captive market of users. Of course, the future revenues from tolls accrue to the foreign investors rather than to Indiana. Florida Case – Toll Road Development Florida has used tolling extensively to provide new urban and interurban highways, to improve capacity, and to maintain high-quality service on its existing toll roads. In recent years, the State has derived between 8.2 to 11.2 percent of annual highway revenue for all levels of government from tolling.7 Florida’s toll agencies have built two-thirds of all new lane-miles and nearly all new limited access highways in the State in the past 15 years. Since 1990, Florida’s Turnpike (now called Florida’s Turnpike Enterprise) has used toll revenue to open nine new system interchanges, add 39 lane-miles of widening projects, make substantial facilities improvements, and invest in a new electronic toll collection system. The Florida Transportation Commission has recommended that “direct user fees, 7 FHWA Highway Statistics.

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-21 open-road tolling concepts, express lanes …, [and] variable rate pricing” be utilized to accelerate the construction of needed transportation facilities.8 Tolling in Florida started with legislation in 1953 establishing the Florida State Turnpike Authority. The Authority’s mandate was to finance, build, and operate the Sunshine State Parkway (now the mainline of Florida’s Turnpike) from Miami to Orlando. Over the next 50 years, successive pieces of legislation made changes to the name, scope, and reporting structure of the organization, transitioning the independent Authority into a subdivision of the Florida DOT. In 1990, the legislature passed Senate Bill 1316, authorizing the expansion of Florida’s Turnpike to include construction of noncontiguous road projects to assist in meeting the State’s backlog of needed highway facilities. In 2001, two studies examined the potential for privatizing the Turnpike based on its record of strong financial returns. Rather than selling the highway, the state legislature chose to maintain the Turnpike organization and use it to construct needed infrastructure. Following recommendations from one of the studies, the legislature granted the Turnpike greater autonomy and increased flexibility to leverage its assets. The charge given to the agency was to pursue innovation and best private-sector business practices, to improve cost-effectiveness and timeliness in project delivery, to increase revenues and expand its capital program, and to improve quality of service to its customers. To reflect the new level of independence and its mandate to act more like a private-sector venture, the Turnpike Authority’s name was changed to Florida’s Turnpike Enterprise. The Turnpike Enterprise is now responsible for toll collections on all Florida DOT-owned toll roads in the State (about 80 percent of the statewide total). The Enterprise operates over 600 miles of highway, including the Turnpike mainline, the Homestead extension, and six other roads. As a semi-autonomous body, the Enterprise is free to utilize private-sector business prac- tices, including public advertising, leveraging nontoll revenues (concessions), utilizing selected exempt (at will) employment, and outsourcing labor. Today, of the roughly 5,000 people who work on the Turnpike, only 400 are state employees. The Turnpike Enterprise remains a public sector entity, controlled by public sector employees who are directly accountable to Florida DOT. Today, the facilities operated by Florida’s Turnpike are operated as a system, with older roads generating surplus toll revenue to establish a solid financial base for the financing and construction of new facilities. While it is not formal policy, it appears that virtually all new limited-access roads in Florida will be built with tolls. The newly integrated elec- tronic tolling system, Sunpass, will facilitate the tolling of new capacity on existing free highways. 8 Florida Transportation Commission, Assessment of Florida’s Regional and Intermodal Transportation Planning Process, December 15, 2003.

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-22 . To improve the feasibility of new toll projects, Florida DOT leverages the Florida’s Turnpike Enterprise by providing the Enterprise with grants, state infrastructure bank loans, and support of operating and maintenance expenses. Florida has also set up a toll- facilities revolving trust fund that can advance funds to toll road operators to study and plan new revenue-producing road projects. These tools, combined with the credibility and flexibility of the Turnpike Enterprise, give new toll projects in Florida a tremendous advantage compared to new toll road projects in other states. In Florida’s Turnpike Enterprise, Florida DOT has developed an institutional approach that successfully leverages its existing toll road system to generate a stable revenue flow for new projects. The combination of a larger existing system to backstop new projects, a flexible organizational structure, and availability of financing tools such as state infra- structure bank loans, has given Florida the ability to advance new projects that could not have been funded on a pay-as-you go basis, especially in the absence of significant motor fuel tax rate increases. „ 7.3 Revenue Transition Although most of the report focuses on shorter term actions that need to be taken to enhance surface transportation funding it is not too early to begin planning the transition from the current transportation revenue system to modified or new transportation reve- nue systems for the future. One path of phasing and sequencing of actions needed to sustain short-term investment and transition to long-term revenue sources is summa- rized in Figure 7.4, based on recommendations originally presented in the National Chamber Foundation report.9 The Chamber report suggests needed actions at all levels of government to help enable this transition. For states and local governments, transition to new charging systems will inevitably be piecemeal, based on individual needs and political feasibility. The next 10 to 15 years are likely to be a period of significant experimentation with tolling, pricing, and VMT-based road charging systems driven by a number of different factors, including revenue needs as well as demand management. With Federal support for VMT pilots and promulgation of architecture and standards for the technology in the short term, we could see fairly wide implementation of such systems in the period past 2015 as illustrated in Figure 7.4. Even- tually, the Federal government may choose to piggyback on state VMT systems as is the case with fuel taxes now. The current motor fuel tax system has been in place for more than 60 years. It will take time and a broad public education effort to develop and explain the need for a new or modified transportation revenue system and to gain political and public acceptance. 9 U.S. Chamber of Commerce, National Chamber Foundation. Future of Highway and Public Transportation Financing. Washington, D.C., 2005.

NCHRP 20-24(49) – Future Financing Options to Meet Highway and Transit Needs 7-23 Figure 7.4 Timeframe for Transition 2006 2009 2015 2021 2027 SAFETEA-LU TEA-X TEA-2X TEA-3X TEA-4X Commission Short-Term Revenue Actions Federally Supported VMT Pilots State/Local VMT Implementation Federal VMT Piggybacking HTF Solvency The TRB policy report on alternatives for transportation funding suggests that a clear pol- icy rationale may be the most important factor in implementing new or modified revenue mechanisms.10 The transition will inevitably involve policy discussion of the future Federal role in highway and transit programs, a topic being considered by the National Surface Transportation Policy and Revenue Study Commission authorized in SAFETEA-LU. „ 7.4 Conclusions There are no easy solutions to the nation’s transportation funding challenges. This study provides information for decision-makers and the public on the extent of the transporta- tion revenue and investment shortfalls and alternative strategies to fund the nation’s highway and transit systems. Implementing the recommendations and meeting the nation’s transportation needs will require leadership and political will to build a broad consensus for action. 10 The Fuel Tax and Alternatives for Transportation Funding, Appendix A; TRB Special Report 285, January 2006.