Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects (2015) / Chapter Skim
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40 The following discussion of alternative financing and revenue mechanisms is organized under three headings: 1. Service or Asset-Related Revenue (Funding)
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 41 6.2 Public Revenue (Funding) Mechanisms -- Overview Public funding through grants or subsidies can help address a rail project or service's funding gap, as discussed in Section 4.4.
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42 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects in exchange for financing) is generally commensurate with the level of risk of a project.
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 43 Providers of public finance (e.g., state infrastructure banks and government loan programs) also seek to invest in projects that are commercially viable, and these financing products typically have features that make them more attractive (e.g., lower interest rates, longer term loans, and flexible repayment terms)
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44 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects 6.4 Service or Asset-Related Revenue (Funding) Mechanisms 6.4.1 Market Pricing to Maximize Fare Box Revenues Financing Mechanisms Fr ei gh t Pa ss en ge r Ca pe x O pe x Magnitude of Financing Potenal and Cost Public-Private Partnerships (PPPs)
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 45 30 Based on discussions with Shashi Verma, Director of Customer Experience at Transport for London. TfL is the local government body responsible for the planning, delivery, and daily opera on of London's public transport system, including buses, light rail, some overground (commuter)
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46 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects peaks, thereby reducing the need to buy new trains. Most operators also provide off peak service in excess of the minimum requirements: routes that had two trains each hour through the day before priva za on now o en have three or four.
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 47 31 See Ruth Miller and Matthew Schabas "Sketch modeling alternative fare structures: Can BART do better? " paper presented at TRB Annual conference 2013, available at: http://assets.conferencespot.org/fileserver/file/42589/filename/39dunf.pdf San Francisco BART has always had a distance based fare structure and has introduced a smartcard, which gives a small discount (25 cents or 12.5% on the $2 single fare)
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48 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects Sector Freight Passenger Type of cost Capex Opex Descrip on One means of raising cket revenues is to charge higher fares for higher standards of service on public transport (e.g., First Class or express trains)
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 49 32 Amtrak Annual Report 2012. 6.4.3 Onboard and In-Station Retail Concessions Sector Freight Passenger Type of cost Capex Opex Descrip on Transport operators can raise addi onal non- cket revenues from sales of other products and services both onboard trains and at sta ons.
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50 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects Sector Freight Passenger Type of cost Capex Opex Descrip on Rail tracks can have mul ple opera ons in one of two ways: a host railroad owns the infrastructure and operates its own trains, but allows other operators limited access for a fee; or the infrastructure is owned and managed independently and all operators pay a fee. The host railroad can be either a freight operator or a passenger operator, and the tenant operators can be passenger or freight as well.
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 51 By comparison, EU railways have separated their opera ons (i.e., commuters, conventional intercity passengers, high speed passengers, and freight) from the infrastructure providers.
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52 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects at avoidable cost, which ignores the heavy impact of commuter trains on system capacity, especially in and out of New York City at rush hours. By comparison, Amtrak has set extremely high charges for freight, partly because some freight customers can only be served from NEC tracks and partly because heavy freight traffic imposes higher costs on higher speed passenger tracks.
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 53 Enabling requirements for success The owner of the right of way and the user must be able and willing to agree on a reasonable price and condi ons for access to the right of way.
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54 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects contribute funds (e.g., construcon of passenger rail facilies where real estate developers contribute to costs as transport services will increase value of their real estate developments) .36 In addion to revenue and cost sharing, joint development can benefit transit agencies through increased transit ridership, increased staon area density, and adding desnaons on transit lines, both of which increase farebox revenues.
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 55 Enabling requiremen success C s a c r g S w H T D r w T b a N ts for L A p s i d olumbia ($4 ta on's rest nd as a reta ity of Washi eceives no f arage and m ource: Union St ww.usrdc.com udson Berg he diagram evelopmen esiden al co ith the cons he light rail ooming dev nd down th ew Jersey D egal primary ba rohibited fr tates and co ntensity of d evelopers to 0 million) , an ora on and il/entertainm ngton.
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56 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects projects are most commonly associated with transit staons and Transit Oriented Development (TOD) , though they have been used for intercity passenger rail staons (e.g., Amtrak's Union Staon Redevelopment in Washington, DC, and its 30th Street Staon in Pennsylvania)
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 57 6.5 Public Revenue (Funding) Mechanisms 6.5.1 Incremental Property Tax Revenues (for Tax Increment Financing)
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58 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects Case study TIF is widely used in the United States. Forty eight states have some form of TIF policy and it has been used since the 1950s in California.
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 59 Public Approval: Public buy in is cri cal for TIF success. Whereas some local residents may appreciate/desire the new development, others may be concerned about disrup on, change, removal of historic buildings, and so forth.
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60 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects 41 Sources: M Miller and C
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 61 6.5.3 Impact Fees Charged to Property Developers 43 Shishir Mathur and Adam Smith, "A Decision-Support Framework for Using Value Capture to Fund Public Transit: Lessons from Project-Specific Analysis," May 2012. Mineta Transportation Institute MTI Report 11-14.
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62 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects 6.5.4 Station Parking Charges 44 Shishir Mathur and Adam Smith, "A Decision-Support Framework for Using Value Capture to Fund Public Transit: Lessons from Project-Specific Analysis," May 2012. Mineta Transportation Institute MTI Report 11-14.
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 63 UK commuter rail staon parking is usually managed by the franchised train operator. Parking rates are not regulated and are set to maximize overall revenues (and somemes to reduce peak rail demand)
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64 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects 46 Evans 2007, Central London Congestion Charging Scheme: ex-post evaluation of the quantified impacts of the original scheme. 47 Transport for London, 2012, Congestion Charge: Changes Consultation Impact Assessment.
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 65 49 http://www.theatlanticcities.com/commute/2013/07/era-pay-mile-driving-has-begun/6150/ 50 Clifford Winston. "On the Performance of the US Transportation System: Caution Ahead.
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66 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects 6.5.6 Heavy Goods Vehicle (Truck) Charges 54 VIFG, 2012, PPPs for Transport in Germany: Present and Future Dealing with PPPs for Transport in Times of Economic Uncertainty.
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 67 57 National Surface Transportation Infrastructure Financing Commission, US Senate, Washington DC, 2009, Paving the Way. 6.5.7 Gas Tax Partly with the proceeds of distance based charges, Switzerland adopted an innova ve approach to funding investment in rail lines through the environmentally sensi ve mountainous Alps that separate Italy from Northern Europe.
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68 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects 58 European transport policy, progress and prospects, Institute for Transport Studies, University of Leeds.
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 69 6.5.8 Car Registration Plate Auction Sector Freight Passenger Type of cost Capex Opex Descrip on The number of new vehicle registra ons issued each period (month or year) would be strictly limited, below the actual demand, with the available registra ons sold by auc on.
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70 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects avoiding them by registering vehicles in neighboring states. This might also be achieved with legisla on and perhaps also multi state compacts.
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 71 The Oregon VMT Pricing Pilot Project conducted in 2006 tested the viability of replacing motor fuel taxes with a mileage charge. In this pilot, 5,000 vehicles are parcipang in a GPS based vehicle mileage tax scheme at a price of $0.015/mile; volunteers for the experimental system are refunded some state fuel tax charges.
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72 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects 6.5.11 Payroll Taxes Used for Transport Sector Freight Passenger Type of cost Capex Opex A number of areas worldwide require employers to pay a payroll tax for employees working in specific urban areas. The revenues from the tax are typically allocated (in whole or in part)
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 73 6.5.12 Sales Tax 66 "Virginia's Road to the Future" (HB 2313)
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74 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects Enabling requirements for success In most cases, a voter referendum is required. In some jurisdic ons, referenda increasing tax rates (sales and property taxes)
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 75 must also be significant, and there could also be economic costs if the permit prices or carbon taxes significantly distort the market. The net result is debatable, but many esmates have argued that the benefit cost rao of cap and trade or carbon tax programs is substanally greater than one.
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76 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects U.S. applicaon Carbon taxes or carbon trading regimes could generate enormous revenues for funding various programs, including passenger rail.
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 77 potenal design and construcon) , with no financing component; (2)
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78 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects Table 6-4. (Continued)
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 79 6.6.2 Equipment Trust Certificates (Available to Private Companies) Sector Freight Passenger Type of cost Capex Opex Descrip on Equipment trust cer ficates are a form of secured debt financing.
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80 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects 6.6.3 Operating Lease Certificates (Available to Private and Public Companies) $1 million to $ billions Varies by asset: Market prices – annual lease usually 10% to 25% of new asset price per year From 1 to 9 years Level lease payments over the term of the lease Extent of financing poten al For common assets (e.g., freight cars, locomo ves, and heavy maintenance equipment)
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 81 Implementaon and operang costs The cost of entering into a lease is not high. Lease documents must be reviewed by legal experts but many asset leases are similar, so this is not too expensive.
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82 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects 6.6.4 Finance or Capital Leasing (private and public companies) Sector Freight Passenger Type of cost Capex Opex Descrip on A finance lease is an instrument that gives the lessee the use of an asset over a long period of me in exchange for periodic payments.
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 83 6.6.5 Bonds with Public-Sector Backing Case studies Most railroads use finance lease arrangements to acquire rolling stock. A finance lease is generally less expensive than an outright lease, but more expensive than buying the asset outright.
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84 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects scheduled payments are guaranteed by the issuer (e.g., authority, local government, and state government)
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 85 68 Kahn, M E., and David Levinson.
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86 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects 6.6.7 Mezzanine Financing (available to both private and public companies/authorities) Enabling requirements for success Generally, corporate bond sales are limited to large corpora ons with a long credit history and good credit ra ngs.
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 87 6.6.8 Short-Term Corporate Line-of-Credit Financing Extent of financing poten al Funding poten al depends on the size and creditworthiness of the company. Most railroads seek to reduce mezzanine financing because it is more expensive than longer term debt.
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88 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects 6.6.9 Sale of Stock (Ownership Stake) Case studies Short term financing is used when a railroad has a short term liquidity issue, which might arise from the need to make a large cash investment or cover the cost of higher maintenance expenses during a low traffic period, a work stoppage at the railway or at a major customer, or for any other reason.
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Alternative Funding and Financing Mechanisms for Rail Projects and Services 89 6.6.10 Tax/Investment Credits Implementaon and operang costs Issuance of common stock requires a vote of the shareholders. Addional reporng and registraon requirements also must be met.
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90 Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects 69 AASHTO Center for Excellence in Project Finance, "Conference Report: The forum on Funding and Financing Solutions for Surface Transportation in the Coming Decade," January 2011 (Conference held on September 30, 2010)
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