The Urban Ring: Searching for Innovative Strategies to Finance Public Transportation
A thesis submitted by Ivanna Bandura de Cavallo In partial fulfillment of the requirements for the degree of Master of Arts in Urban and Environmental Policy and Planning
TUFTS UNIVERSITY
May, 2004
ADVISER: Julian Agyeman READER: Christine Cousineau
Abstract The decisions about where public transportation investments are made can have great impacts on a region. This thesis describes the importance of public transportation, specifically in the Boston metropolitan region, and explains the importance of carrying out the Urban Ring project. This transit project, linking six jurisdictions around Boston’s financial district, is a clear example of how coordination between transportation, land-use planning and economic development goals can be brought about; yet, in spite if its clear benefits the project may likely be postponed due to a lack of resources.
The thesis assesses the financial challenges faced by the project proponent (the Massachusetts Bay Transportation Authority - MBTA). As these challenges are similar to those faced by most transit agencies worldwide, many agencies and funding authorities have begun searching for innovative strategies to finance public transportation. The thesis explores some options available to both local governments and transit agencies and gives examples of places where they have been implemented. The thesis continues by examining the advantages and disadvantages of each strategy, based on a set of criteria, and assesses their applicability to the Urban Ring project, and the MBTA in general.
Many strategies have already been identified by the MBTA and Urban Ring communities and it appears that the majority of the options lie outside the MBTA’s scope of authority. The Commonwealth of Massachusetts and the local governments involved will have to collaborate and make changes to their regulations, in order to implement some of the more “aggressive” funding strategies, and accelerate the Urban Ring’s completion.
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Table of Contents Abstract
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Detailed Table of Contents
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Introduction
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Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation
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Chapter 2: The MBTA’s Current Funding Mechanisms
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Chapter 3: Funding Strategies
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Chapter 4: Applicability of the Identified Funding Strategies to the MBTA
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Chapter 5: Policy Recommendations and Conclusions
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List of Acronyms
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Appendices I
List of Personal Communications
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The MBTA’s Budget for Fiscal Year 2004 and Historical Statements (1994-2003)
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Federal Programs for Public Transportation
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List of Legal Commitments
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Additional Information on Examples
Bibliography
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List of Tables Table 4.1
Options for Local Governments
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Table 4.2
Options for Public Transportation Agencies
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List of Figures Figure 1.1
Radial Configuration of Transportation Network
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1.1.1
Major Road Network in Massachusetts
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1.1.2
Public Transportation in the Boston Metropolitan Region
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Figure 1.2
The MBTA Service District
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Figure 1.3
The Urban Ring Corridor
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Figure 2.1
Operating Revenues 1994-2003
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Figure 2.2
Sources of Operating Revenues
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Figure 2.3
Fare Revenues 1994-2003
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Figure 2.4
Operating Expenses
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Figure 2.5
Sources of Capital Funding
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Figure 2.6
Capital Spending by Area
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Detailed Table of Contents Abstract .................................................................................................................................. ii Introduction............................................................................................................................ 1 Purpose of the Study................................................................................................................ 1 Personal Interest in the Topic .................................................................................................. 1 Research Question ................................................................................................................... 2 Methodology............................................................................................................................ 2 Thesis Outline.......................................................................................................................... 4 Limitations............................................................................................................................... 5 Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation............... 7 Introduction.............................................................................................................................. 7 Public Transportation Needs in the Boston Metropolitan Area............................................... 9 Current Trends in the Boston Metropolitan Region............................................................ 9 Public Transportation Infrastructure ................................................................................ 12 Benefits of the Urban Ring Project.................................................................................... 14 Chapter 2: The MBTA's Current Funding Mechanisms................................................. 24 Introduction............................................................................................................................ 24 Funding Before the Enabling Act of 2000............................................................................. 26 Funding Under “Forward Funding”....................................................................................... 26 Operating Revenues........................................................................................................... 26 Operating Expenses........................................................................................................... 30 Capital Program Funding Sources.................................................................................... 32 Capital Program Needs ..................................................................................................... 36 Alternative Funding Sources ................................................................................................. 39 Local Options .................................................................................................................... 39 Commonwealth Options .................................................................................................... 40 Private Funding Options ................................................................................................... 41
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Chapter 3: Funding Strategies ........................................................................................... 44 Aim ........................................................................................................................................ 44 Introduction............................................................................................................................ 44 Strategies Implemented By Local Governments ................................................................... 46 Road Value Pricing ........................................................................................................... 46 Consumption Taxes............................................................................................................ 50 Local Motoring Taxes........................................................................................................ 50 Employer/Employee and Income Taxes............................................................................. 52 Property- Related Taxes .................................................................................................... 53 Development Levies ........................................................................................................... 56 Parking Charges and Fines............................................................................................... 57 Cross-Utility Financing..................................................................................................... 57 Other Unconventional Charges......................................................................................... 58 Passenger Facility Charge.............................................................................................. 58 Severance Taxes ............................................................................................................ 58 Lodging Taxes ............................................................................................................... 58 Real Estate Transfer (or Mortgage Recording Tax) ...................................................... 59 Other Findings: Public-Private Partnerships ................................................................... 59 Strategies Implemented By Public Transportation Agencies ................................................ 62 Partnerships with the Private Sector................................................................................. 62 Progress Payments ......................................................................................................... 62 Cross Border Leasing .................................................................................................... 63 Turnkey Procurement .................................................................................................... 64 Joint Development of Facility ....................................................................................... 65 Private Contributions ..................................................................................................... 66 Private Donations....................................................................................................... 66 Station Connection Fees ............................................................................................ 67 Cashless Payment Method............................................................................................. 67 Partnerships with the Community ..................................................................................... 68 Pass Programs................................................................................................................ 68 Creative Use of Assets ....................................................................................................... 69
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Advertising .................................................................................................................... 69 Stations for Joint Development ..................................................................................... 70 Resource Sharing ........................................................................................................... 71 Station Concessions ....................................................................................................... 72 Leasing Rights-of-Way.................................................................................................. 73 Shared Right-of-Way..................................................................................................... 74 Other Findings: Cost Reductions ...................................................................................... 75 Chapter 4: Applicability of the Identified Funding Strategies to the MBTA ................ 78 Introduction............................................................................................................................ 78 Assessment Criteria ............................................................................................................... 79 Chapter 5: Policy Recommendations and Conclusions.................................................... 99 General Conclusions and Recommendations ........................................................................ 99 The Urban Ring ............................................................................................................... 104
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Introduction Purpose of the Study The provision of high-quality public transportation in a region can have significant social, economic and environmental impacts: it can forestall sprawl, revitalize urban areas and fuel economic growth in a region, while sustaining the environment. Nevertheless, many necessary public transportation projects become abandoned or pushed back due to the lack of sufficient resources, among other factors. It is therefore extremely important to consider every possible source of funding.
The purpose of this study is to assess a range of different strategies applied around the world to finance public transportation and to identify innovative funding strategies that could be applied in the Commonwealth of Massachusetts, specifically aiming at assessing their applicability to the Urban Ring project, in the Boston metropolitan region.
Personal Interest in the Topic The decision to pursue this topic arose from an idea suggested by an advocate from the Conservation Law Foundation (CLF), where I am currently pursuing a one-year fellowship. CLF is an environmental organization advocating among other things, for urban transit1 investment and a commitment to making the Urban Ring project become a reality. Aware of the importance of public transportation (and being a frequent rider too) I immediately welcomed the suggestion. With hardly any knowledge of public transportation finance, I embarked on the project with great interest and my enthusiasm grew as the project evolved. I have learned about the complexities of the issue and have become an advocate for public transportation myself. I am grateful to CLF for the idea and support.
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Introduction Research Question The research question I intend to answer is: What innovative funding strategies exist around the world that could be applied to help finance the Massachusetts Bay Transportation Authority’s (MBTA or agency) capital projects, such as the Urban Ring project?
Methodology As the MBTA has begun to analyze funding alternatives based on projects being financed in the Commonwealth of Massachusetts and across the United States, the goals of the research are: a- To verify whether any of these strategies has been applied effectively in other parts of the world. b- To search for other creative funding strategies not yet assessed by the MBTA. c- To describe the advantages, disadvantages and the potential applicability of the identified strategies based on a set of criteria.
As a first step, the following documents were reviewed: (1) legislation related to public transportation funding in the Commonwealth of Massachusetts as it applies to the Boston metropolitan region, (2) MBTA and other state agency documents, (3) scholarly articles and books related to public transportation and financing mechanisms and (4) literature produced by other stakeholders such as environmental organizations and community groups. Based on the information obtained from these documents, the research continued primarily through the World Wide Web, focusing on finding new reports, papers and data to supplement the initial information. The examples were obtained from the various articles,
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Introduction papers and reports. The targeted sites were official government and public agency websites. Searches were also conducted through “Google” mainly to verify an example referenced in a report or to obtain additional information on a particular example.
Personal communications and informal non-structured interviews were conducted with employees, transportation planners and members from the relevant state and municipal agencies. Among them were the Urban Ring project manager, the MBTA’s Chief Financial Officer, City and Town officials from the communities involved in the project, CLF advocates and Tufts professors. The list may be found in Appendix I. The questions mainly focused on learning about the agency or personal position on the issue, what funding alternatives were being analyzed, which options were available to them and which they considered more feasible. Many questions were also aimed at clarifying or confirming data or information. These communications helped to improve my understanding of the current limitations in public transportation funding, and to gain new perspectives on the issue.
To assess the identified funding strategies, a set of criteria was developed. These were framed based on the information obtained from the different readings (mainly the TRCP 1984 report), the personal communications and from attending a meeting and presentation related to the MBTA and the Urban Ring. Personal knowledge and common sense were also applied. The criteria are described in Chapter 4.
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Introduction Thesis Outline The first chapter “The Urban Ring: Rationale for Increasing Public Transportation” explains the importance of public transportation systems, provides a brief description of the overall needs of increasing public transportation in the Boston metropolitan region and describes the benefits of the Urban Ring project.
The following chapter “The MBTA’s Current Funding Mechanisms” describes the current funding sources available to the MBTA to finance its operations and capital projects and briefly describes the innovative funding strategies identified by the agency. The purpose is to understand where the MBTA currently stands in terms of funding sources, and use this as a baseline against which to compare and label other strategies as “innovative”.
The third chapter on “Funding Strategies” describes a series of strategies implemented by local governments and public transportation agencies from around the world, considered to be “innovative”. The chapter also gives examples of places where these strategies have been applied and additional information on some of the examples is provided in an appendix.
The fourth chapter “Applicability of the Identified Funding Strategies to the MBTA” explores the advantages and disadvantages of the different strategies identified in the previous chapter based on the set of developed criteria, and the extent to which some of these strategies have already been applied by the MBTA. Where possible, it assesses whether others could also be applicable to the Urban Ring project and to MBTA’s capital
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Introduction projects in general. The final chapter provides policy recommendations and a general conclusion.
Limitations The study presents several limitations. First, the project was ambitious in scope and due to time and financial constraints a cut-off point had to be established. This makes the findings limited and not necessarily representing the whole range of possibilities. Furthermore, the search was limited to information available online, in libraries and through personal communications (although very limited in cases involving other countries). Second, many of the books, reports and papers used as references were published a few years ago, which could make the information outdated or inaccurate. It was difficult to verify the data in many cases.
Finally, the preference as a source of reference given to reports produced by one program – the Transit Cooperative Research Board (TCRP)2 – could also be considered a limitation. Nevertheless, this federally-funded program has done extensive research and work on topics related to public transportation, which makes it a reliable and valuable source. Furthermore, its international missions specifically aimed at assessing transit systems in other countries, provide detailed information and very useful insight. Although not sufficient to judge the source per se, having read a TCRP report on the public transportation system in Buenos Aires, Argentina (my home city) increased my trust and confidence in these reports. Every aspect I am familiar with based on my personal experience and knowledge as a very
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Introduction frequent user of the system, was described by the report very accurately and comprehensively.
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The term transit is used as a synonym of “public transportation”. This program promotes operating effectiveness and efficiency by assisting the industry in developing and applying the latest in technology and operating techniques designed to improve mobility and accessibility. TCRP is sponsored by FTA and carried out under a three-way agreement among the National Academy of Sciences, acting through the Transportation Research Board; the Transit Development Corporation, the educational and research component of the American Public Transportation Association; and FTA. Funds are allocated by transit industry consensus through TRB. The Transportation Research Board (TRB), which administers the TCRP, maintains a publications list and description of all TCRP projects on its website (http://www.tcrponline.org) Federal Transit Administration (http://www.fta.dot.gov). 2
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Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation Introduction The way in which a city plans its transportation system produces significant social, economic and environmental impacts. In the 1950s many cities in the United States based their planning around highways and automobiles, leading to decades of dispersed development or sprawl and increased automobile usage. This process was influenced by demographic and socio-economic factors, public policies on highway construction, taxes, and land use (U.S. EPA 2001). While the automobile yields clear benefits in terms of mobility, convenience, and flexibility, it is the dependence on this mode of transportation that brings along unintended environmental and social consequences. As these problems became more evident, an era of growth management and smart growth strategies began in the 1980s, which recognized transportation planning as a critical component of all aspects of land use planning, growth and development.1
Automobiles will continue to represent an important mode of transportation in the years to come. Nevertheless, cities and regions may increase the variety of transportation options to reduce the use of automobiles and achieve a greater sustainability in their transportation systems (Newman and Kenworthy 1999). The adoption of a more balanced and transitoriented planning process, offering a variety of efficient, convenient and well-connected modes of transportation may help to forestall sprawl, revitalize urban areas and fuel economic growth in a region, while sustaining the environment.
A well designed and operated public transportation system - competitive with the automobile in passenger appeal – is expected to reduce automobile use through increased
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Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation mode choice and decreased necessity for vehicle ownership (U.S. EPA 2001). Given these assumptions, public transportation may help reduce the negative environmental impacts associated with automobile use.2
The main social implications of increasing public transportation are related to the fact that it improves mobility for individuals of all ages, income levels and abilities. Many segments of the population cannot drive either because of their age, physical impairments or financial constraints. It is therefore important to provide these populations with more efficient and safer modes of transportation, connecting them to employment areas, recreation and educational centers. The existing system has to be assessed in order to relocate routes, stops and expand services to those areas and populations that lack or have poor mobility.
A region well-served by public transportation may also benefit from certain economic impacts. Although public transportation alone will not spur economic growth, it attracts development, while increasing the connectivity between labor markets and employment centers. It may also help to increase the desirability of a neighborhood, inviting new investments and driving up the value of properties. Public transportation not only serves but can help to create markets (TCRP 2002c).
As a result, high quality public transportation (especially rail) actually benefits all the residents in the area, whether they ride it or not. By taking cars off the road, it helps to relieve congestion (or at least slow down its rate of increase). This consequently reduces travel times for those who continue to drive, as well as air pollution, which affects everyone.
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Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation Furthermore, people who claim to be non-riders probably tend to use public transportation occasionally during snow or bad weather, while their automobile is being repaired, to go to special events and games, to get to the airport, and in certain citywide emergencies, when roadways are blocked. As current non-riders age, they will also find themselves benefiting from public transportation in the future. Finally, public transportation may help household economies by reducing the number of cars needed per household, as well as through potential increased property values. It may be concluded that everyone uses – and needs – public transportation (Weyrich and Lind 2003).
Public Transportation Needs in the Boston Metropolitan Area Current Trends in the Boston Metropolitan Region3 The Boston metropolitan region is composed of 22 cities and 79 towns, where the City of Boston constitutes the major commercial, cultural and transportation hub. According to the 2000 U.S. Census, the region has a population of 3,066,394. This represents an increase of 4.9% over the last decade, a rate slightly lower than the state’s overall growth (5.5%). Yet, it contains almost half of the State’s population in less than one fifth of its total area. The changes in the characteristics of the region could have a substantial influence on the state as a whole (MAPC 2001).
The transportation system in the region has been designed as a hub-and-spoke network serving the region’s main economic and cultural center. Both the roadway network and the public transportation system are radial in their orientation to downtown Boston. See Figure 1.1. It has remained this way, even though development patterns during the last decades
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Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation have shifted from city to suburbs, increasing the suburb-to suburb commutes. These changes in demographics, growth patterns and commuting behavior – which show signs associated with sprawl – have constrained the transportation system, and have created the need for increasing the transportation capacity between suburbs (MAPC 2001). Congestion has increased significantly on most of the major highways and the public transportation system is already facing capacity issues both on vehicles and facilities (MBTA 2003c). The trends suggest that demand for travel in the region is increasing. The way this travel will be distributed among the different modes of transportation will depend on the decisions made on land-use and transportation planning.
Figure 1.1: Radial Configuration of Transportation Network 1.1.1 Major Road Network in Massachusetts
Source: EOTC
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Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation 1.1.2 Public Transportation in the Boston Metropolitan Region (excluding bus routes)
Source: MBTA The trends seem to indicate that ridership on public transportation is constrained by the available supply as well as by the quality of the service. Ridership in the MBTA system has increased over the last decade by 9% overall, with 90% pertaining to commuter rail ridership. On the other hand, between 1991 and 1999 alone, vehicle miles traveled increased by almost 14% and registered vehicles increased by 25.6%. The increase in registered vehicles has outpaced the state’s population growth (5.5%) by almost five times and the growth in the number of people of driving age (2.7%) by over nine times (MAPC 2001). For automobile use to be curbed, there is a clear need to further promote the development and use of convenient, safe and efficient public transportation in the region.
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Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation Public Transportation Infrastructure4 The public transportation infrastructure in the Boston metropolitan region was primarily planned and developed a century ago, originally intended to serve people from fourteen communities around the city core. Through the years, service was extended to residents of eastern and central Massachusetts, with the MBTA now operating the public transportation system within the entire metropolitan region as well as in an additional 74 cities and towns, representing a service district of 175 communities. The population within this service district has grown by over 6% in the last decade, reaching a population of 4.7 million, including the 3 million of the metropolitan region. This represents almost 75% of the state’s total population.
Although eastern Massachusetts maintained a fairly constant during the 1990s, population and employment shifted within the district, from the urban core to the suburbs around Route 128 and I-495, posing challenges for the transit operation. Significant growth rates of over 25% have taken place along the I-495 corridor, which comprises the outer ring of communities around the Boston metropolitan region, within the service district. During the last thirty years, employment within the I-495 corridor more than doubled, at a rate three times that of the metropolitan region’s average, which increased by 44% over the same period. By 2000, 97 outer ring communities within the district had increased their employment almost equaling the total employment within the 14 inner core communities.5
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Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation Figure 1.2: The MBTA Service District
Source: MBTA Advisory Board Website
These changes have impacted commuting trends and needs – especially for these suburban commuters – and have led to constraints in the overall transportation system (MBTA 2003c).
The MBTA transports approximately 1.1 million passengers per day, making it the fifth largest public transportation system in the United States in terms of ridership (MBTA 2003b). In the metropolitan region, a 6.8% share of all trips corresponds to public transportation.6 This share is expected to increase to 7.47% by 2025. In the City of Boston,
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Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation 55% of all the trips to work and 42% of the trips to downtown, are made by public transportation (MBTA 2003c). Service is provided through 200 bus routes, four rapid transit lines, one bus rapid transit (BRT), four trackless trolley lines, 11 commuter rail lines, several ferry boat lines and paratransit service7 (MBTA 2003b). Overall MBTA ridership is expected to increase in number by 32% by the year 2025.8 The MBTA acknowledges that if the current capacity constraints are not addressed, it will be limited in its ability to improve regional mobility and meet future demands for public transportation (MBTA 2003c, ES-2).
As the region’s transportation system is reaching its capacity, the MBTA considers that capacity building projects have to be prioritized to address the limitations (MBTA 2003c, ES-2). Nevertheless, these projects are constrained by the available funds and by a backlog of necessary maintenance and modernization projects to keep the system running. When programming the available funds during the next five fiscal years, the MBTA has allocated 80% of the budget to preserve and enhance the existing system, while only 20% to system expansion (MBTA 2003b).9 The decisions about where public transportation investments are made will have great impacts on the region.
Benefits of the Urban Ring Project10 One area of critical importance in the region is what is known as the Urban Ring Corridor. This corridor – fifteen miles long and one mile wide - wraps around Boston's downtown financial district linking the communities of Chelsea, Everett, Somerville, Cambridge, Brookline and Boston. See Figure 1.2. The corridor is home to a significant portion of the metropolitan region’s population and is growing faster than the regional average, containing
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Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation many important medical, cultural and educational institutions, retail and high-density employment (MBTA 2001). The corridor also presents several areas of brownfields and undeveloped or unused commercial and industrial sites. Containing a high proportion of the metropolitan area's existing and potential economic base, it could play a key role in the development of Eastern Massachusetts over the next few decades (CLF 2001)…provided the transportation system is redesigned to support this potential.
Figure 1.3: The Urban Ring Corridor Within the Boston Metropolitan Region
Source: MIS
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Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation The corridor is composed primarily of population groups that heavily depend on public transportation for their mobility. A large percentage of the households is low-income, and the average automobile ownership rate in 1990 was 0.8 automobiles per household – 42% less than the regional average of 1.37. Furthermore, during this same year, approximately 21% of its population was reported to be under the poverty line. Minorities make up 45% of the total population in the corridor, as compared to 21% of total population in the metropolitan region (MBTA 2001). The Cities of Chelsea and Boston are considered “majority minority” cities as the total minority populations combined outnumber the nonHispanic white populations (MAPC 2001). The population in the corridor is expected to increase by approximately 16% between 1995 and 2025, a rate that is more than twice that of the metropolitan region as a whole for that same period (6.6%). As population grows, so will the demand for transportation.
At present, every MBTA commuter rail, heavy and light rail transit line – existing and planned – and over half of the bus routes cross through a portion of this corridor. Yet they do so in a radial configuration oriented towards the City of Boston, lacking good circumferential connections along the corridor and good connections within the corridor itself: for instance, there are only three commuter rail stops within the Urban Ring. Transit travel along the Urban Ring and in the larger metropolitan region is inefficient, inconvenient and extremely time-consuming as travelers are forced to ride into downtown Boston to reach destinations outside the core area. The multiple transfers needed, together with a travel speed that is half of that required for trips within the hub, makes service quality for corridor travelers very poor (CLF 2001). Furthermore, as the spokes branch out, more areas are left
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Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation beyond walking distances of the existing rail transit stations. This configuration leads to long travel times between areas that are relatively close by.
Despite these limitations, public transportation use is heavy within the corridor. One in every five trips made on the MBTA’s rapid transit system, starts in the Urban Ring, while almost 40% of the bus routes carrying 60% of MBTA’s bus ridership, pass through the corridor (CLF 2001). The poor quality of the service places a heavy burden on the portions of the population that depend on public transportation. It also encourages the use of the automobile for those who may afford it, consequently leading to the environmental impacts associated with automobile dependence. However, automobile users also face congestion both at crosstown arterials and at the radial network going in and out of the City of Boston. These traffic problems further burden bus users, as crosstown buses also suffer the limitations of the road network.
The radial rapid and light rails are also facing capacity issues. Although many trips to and from the Urban Ring involve an origin or a destination in downtown Boston, the majority of the trips later reroute to destinations outside the core. This rerouting is causing MBTA congestion in downtown Boston using up system capacity, which will be necessary to meet the growing demand forecasted on the system.
The corridor presents many areas with well-established employment centers (East Cambridge Riverfront, Longwood Medical Area in Boston and Cambridgeport) as well as emerging areas where growth and changes in land use are anticipated (Telecom City in
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Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation Everett and North Point in Cambridge). The presence of brownfields and unused commercial and industrial sites further adds to the corridor’s potential growth and development. Yet, development and redevelopment are limited due to poor public transportation access and traffic congestion. Improvements in mobility may help spur economic growth by attracting market attention. While representing 14% of the total employment in the metropolitan region in 1995, the corridor is expected to increase employment by 52% in 2025 – a rate almost twice that of the region as a whole (27.4%) (MBTA 2001). The corridor has a solid base to sustain its growth, but the transportation system as it exists today cannot guarantee that this growth will be sustainable. With existing and abandoned railroad rights-of-way (ROW), transit easements and existing public transportation facilities, the area has the potential to expand public transportation and support a more transit-oriented and higher density mixed-use development.
The Urban Ring project is the type of expansion needed. This public transportation project consists of creating a circular connection between the MBTA transit modes crossing the corridor, providing greater connectivity within it. It has been designed in three phases which build upon each other, progressively adding capacity to the system.11 Once the project is completed (originally planned to be by the year 2025), ridership along the integrated network is expected to reach approximately 300,000 riders.12
This project is the missing “rim” needed to join the spokes in the radial design, steer the key mobility improvements in the region and drive development in the right direction. By addressing crucial mobility needs, it brings about clear environmental, social and economic
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Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation benefits. The greatest impact will be felt in the Urban Ring communities, where the mobility improvements will help spur economic growth and opportunities, and support transit-oriented development, by linking previously unconnected areas of activity. The increased connectivity and access to an efficient public transportation service will allow the heavily burdened segment of the population to reach employment centers, educational facilities, recreation and health care in less time, through improved transportation options. By diverting trips to the new crosstown public transportation system, the project will help relieve congestion within the inner core’s public transportation and free up needed capacity – especially in the Green and Red rail lines.
With the potential to support transit-oriented development and to divert the use away from the automobile, the project will offer positive environmental impacts on air quality, ambient noise and the use of land, by helping to create more “walkable” neighborhoods and relieving congestion. Additional environmental benefits will stem from the potential investments made to clean up and develop the numerous brownfield sites present in the area. Furthermore, by creating the right opportunities to develop density and growth within the urban core, the project may help forestall sprawl to outer regions, guaranteeing growth in a more sustainable manner.
This public transportation project is a clear example of how coordination between transportation, land-use planning and economic development goals may be brought about (MBTA 2001). Yet, in spite of its numerous benefits and its apparent “simplicity”, the full project could still be far from becoming a reality. One of the main obstacles is funding. The
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Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation three phases could cost close to $2.9 billion dollars13, with approximately 55 million dollars in annual operating and maintenance costs.
Although the three phases of the Urban Ring Project have been identified as projects of high priority in the MBTA’s Program for Mass Transportation (PMT)14, the program prioritizes investments in the existing system to address the backlog of maintenance and preservation needs – estimated at $3 billion (with an additional $13 billion estimated for the next twenty years). The identified high priority projects will have to wait for the MBTA to find options to secure their funding. Although the PMT is expected to inform the future regional transportation plans produced by the Boston Metropolitan Planning Organization, the current 2003-2025 Regional Transportation Plan (RTP), has only included Phases I and II as “recommended” expansion projects. This does not guarantee their funding either. Phase III is considered an “illustrative” project that could significantly contribute to the mobility in the region, but is not formally included in the RTP due to insufficient revenue to fund it. If funds become available, it may be included in a future transportation plan (Boston Metropolitan Planning Organization 2003). Furthermore, in the MBTA’s Capital Improvement Program (CIP) for fiscal years 2004 through 2009, Phases I and II are listed as anticipated future efforts. Only the project’s federally-funded Draft Environmental Impact Statement/Report has been included on the MBTA’s expansion list (MBTA 2003b)15. Under the scenario that a Section 5309 New Starts grant from the Federal Transit Authority16 is awarded (equivalent to 50% of the cost), the MBTA estimates that it may have funds available for Phase II between 2016 and 2025.17 The project is clearly far behind its original
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Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation schedule and is unlikely to be implemented in the near future, based on the current programming and available funding sources.
As described in the following chapter, the MBTA is facing several financial challenges. Funding sources are limited, especially given the legacy of the “Big Dig”18 which has weakened the Commonwealth’s chances of obtaining considerable federal funding. Furthermore, it is legally mandated to carry out the projects required by the Commonwealth’s legal commitments under the State Implementation Plan (SIP) and the Central Artery / Tunnel commitments.19 Given the current fiscal situation, a project will more likely be implemented if it may be completely or partially funded by innovative funding strategies. 1
In the 1970’s policies for addressing mobility issues turned away from highways in favor of public transportation (MBTA 2001). 2 Among the environmental impacts are: degradation of air quality and global climate change (due to burning of fossil fuels), impairment of water quality associated with deposition of air pollutants and polluted stormwater runoff (oil spills, road de-icing), increased traffic noise, alteration of the water cycle due to the creation of impervious surfaces needed to support the automobile, and the vast consumption of undeveloped land. 3 Although the trends are assessed for the overall region, differences will exist among and within sub-regions and communities themselves. 4 The information provided in this section was mostly obtained and referenced from (MBTA 2003c; MBTA 2003b). 5 The fourteen inner core communities are Arlington, Belmont, Boston, Brookline, Cambridge, Chelsea, Everett, Malden, Medford, Milton, Newton, Revere, Somerville and Watertown (M.G.L. 161A §1). Also see MBTA Advisory website at http://www.mbtaadvisoryboard.org. 6 The remaining percent of the trips is made by other modes of transportation (i.e., automobile, bicycles, walking). 7 Service available for people who are unable or have difficulty using regular route public transportation services because of a disability or health condition. 8 Considering the planned expansion projects in the MBTA’s Program for Mass Transportation (PMT), based on models and assumptions. An increase in ridership has to be distinguished from the percent share of public transportation. Ridership is the total number of people taking buses, subways, trolleys, ferries and commuter rail and is expressed through fares. The percent share is the number of trips made by public transportation considering the total number of trips made by all modes of transportation (i.e., public transportation, automobile, trucks, bicycles, walking). The two may be related although this will depend on the conditions and scenarios. An increase in the number of people riding public transportation could result from an increase in population (normal or accelerated rate of increase, immigration influxes or increased tourism) or an improvement or increase in services, attracting more users. The increase in ridership could increase public
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Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation transportation’s share of the total number of trips or maybe leave it unaltered if even more people purchase and use automobiles at the same time. The PMT must assume that the increase and improvements in public transportation services (through the projects included in the program) will attract more users to public transportation and away from other modes (i.e., particularly the automobile), increasing the percent share. The total number of people taking public transportation is likely to increase mainly due to the general increase in population by the year 2025 and also based on the assumption that the service improvements and expansions will likely attract more riders to the system. 9 The following chapter will discuss the MBTA’s capital programming in further detail. 10 The information provided in this section was mostly obtained and referenced from the Major Investment Study (MBTA 2001). 11 Phase 1, currently underway, consists of new and improved crosstown and express commuter bus routes along the corridor. The buses are 40-foot, low-floor, clean-diesel and/or compressed natural gas (CNG) buses. Phase 2, originally expected to begin in 2006 would consist of introducing a bus rapid transit system (BRT) over multiple routes, using exclusive busways, bus lanes and Intelligent Transportation Systems (ITS), providing travelers with a more convenient and quality service. The BRT buses would be 60-foot, low-floor articulated CNG or alternative fuel bus rapid transit vehicles. During this phase, new and improved commuter rail stations would also be constructed. The new intermodal connections would allow travelers to transfer from one mode to the other, without traveling into downtown Boston. This phase is currently undergoing environmental analysis as required by the Massachusetts Environmental Policy Act. Finally, Phase 3 would add a rail transit system in a heavily traveled segment of the corridor, between Assembly Square in Somerville and Dudley Square in Roxbury, where the services of the previous two phases may not adequately cover the long-term demands (MBTA 2001). 12 The data has not yet been actualized. Based on a conversation with the Urban Ring project manager, the FTA has disapproved the models used by the Central Transportation Planning Staff (CTPS), which provides technical and policy-analysis support to the Boston Metropolitian Planning Organization (MPO) and other members of the region’s transportation community. According to a recent “Urban Ring Funding Subcommittee” meeting (Nov.26, 2003), the project has been redefined to include one station in Medford. These seven communities are now referred to as the “Urban Ring Service communities”. 13 Costs are expressed in 2001 constant dollars exclusive of debt service and include a 50% contingency on construction, design and construction management, administration and insurance (MBTA 2001). Based on a recent “Urban Ring Funding Subcommittee” meeting (Nov.26, 2003) the cost is estimated to escalate at a 3.5% annual rate. 14 The MBTA is mandated to produce a “Program for Mass Transportation (PMT)”, which has to be updated every five years (M.G.L. c161A §5g). This program is financially unconstrained and establishes a potential universe of projects, for the next twenty five years. By defining a vision and setting priorities for infrastructure investments, it serves as a base for planning in Eastern Massachusetts. The MBTA works closely with the Metropolitan Planning Organizations (MPOs) that have communities within the MBTA’s district – especially with the Boston MPO as the whole MPO region is served by the MBTA. The MPOs are responsible for the transportation planning and programming process in their respective regions and for this, have to prepare a long-range regional transportation plan (RTP). The Boston RTP is based on the PMT but is financially constrained by assumed funding availability. These fiscal constraints influence how much of the PMT will actually be implemented. The MBTA and the MBTA’s advisory board have voting power in the Boston MPO’s RTP. For projects to move forward, they have to be included in the MBTA’s Capital Investment Program (CIP). The CIP covers specific projects to be implemented in the following five years and is financially constrained as funds have to be identified for the project to be included in it. Finally the MPO programs the federal projects selected in the CIP, in its annual Transportation Improvement Program. These are the federally funded projects expected to be implemented in the following three to five years (MBTA 2003c). 15 The Draft Environmental Impact Statement for Phase II commenced in April 2002 and is scheduled for completion in early 2004. Through FY 2003, Congress has appropriated $5.30 million in Section 5309 New Starts funds for this effort (Federal Transit Administration 2004a). 16 Federal grant that provides financial resource for supporting transit “guideway” capital investments. Allocated on a discretionary basis, typically through a full funding grant agreement that defines the scope of the project and specifies the total multi-year Federal commitment to the project. Funding allocation
22
Chapter 1: The Urban Ring: Rationale for Increasing Public Transportation recommendations are made in an annual report to Congress: “Annual Report on New Starts” (Federal Transit Administration). A more detailed description of this federal program is provided in Appendix III. 17 “Urban Ring Financing Subcommittee” meeting November 26, 2003. 18 The “Big Dig” is the common term used for the Central Artery / Tunnel (CA/T) project in the city of Boston, a federally financed project that began in 1987 and has undergone much controversy due to its high overrun costs. Approximately $14.6 billion have already been spent. 19 The State Implementation Plan (SIP) is a legal requirement imposed by the Clean Air Act, on states that do not meet federal air quality standards. Massachusetts is required to produce a SIP and the MBTA, among other transportation agencies, is required to implement the transportation projects included in the Plan (Boston Metropolitan Planning Organization 2003). The CA/T commitments derived from the approval process of the CA/T project. In 2000, the Executive Office of Transportation and Construction (EOTC) signed an agreement with the Massachusetts Department of Environmental Protection Agency (DEP). This Administrative Consent Order (ACO) – further amended in 2001 – is related to the CA/T project and establishes additional legal commitments and deadlines for their completion The MBTA is required to implement the projects. (MBTA 2003c; Boston Metropolitan Planning Organization 2003) A list of the status of these commitments – based on the 2003 PMT – is detailed in Appendix IV. The original agreement and the ACO, allow for lower-cost substitutions as long as the State, demonstrates that the original projects are infeasible either economically, environmentally or technically (Flint 2004).
23
Chapter 2: The MBTA’s Current Funding Mechanisms Introduction Public transportation agencies face important capital demands and operating costs, and must balance service needs within their financial constraints. The most traditional sources of funding in the United States over the last three decades include federal grants (capital and operating), state subsidies and local government funds combined with revenues from fares (TCRP 1998a). The need for government involvement derives from the fact that public transportation is a public good and an unprofitable business, as public transport systems tend to operate at a deficit. Government subsidies therefore tend to provide the financial support required to keep the system operating (Ubbels and Nijkamp 2002).1
A combination of factors ranging from the labor-intensiveness of the industry, the increasing maintenance and enhancement needs caused by aging transportation systems, the suburbanization of employment and residences and growing government mandates, has burdened the cost and revenue structures of most public transportation systems (TCRP 1998a). The growing gap between operating revenues and expenses, and the need for additional financial resources have motivated many government agencies and transit operators to search for alternative sources of revenues (Ubbels and Nijkamp 2002). Although this search has clearly intensified over recent years, it began several decades ago. Many of the techniques - such as private-sector involvement, benefit assessment districts, tax increment financing (TIF), various lease and sale agreements, contracting arrangements, private service providers, donations, merchant subsidies and dedicated taxes (Transportation Research Board 1984), are not new but are now being re-examined and classified as “innovative”.2 For instance, local governments across the country have been implementing a
24
Chapter 2: The MBTA’s Current Funding Mechanisms dedicated revenue stream from taxes for public transportation since 1981, including sales taxes, property taxes, fuel taxes and beer taxes (Transportation Research Board 1984).3
Most agencies (government and transit operators) continued nevertheless to rely on the more traditional sources rather than explore and implement new funding alternatives, mainly due to political reasons or the lack of staff capacity (Transportation Research Board 1984).4 In the case of the MBTA, the “unlimited”5 state government subsidies of the past created no incentives - or the need - for the agency to be creative and innovative in terms of funding options…until recently. With new enabling legislation and a challenging fiscal climate, the MBTA has begun to explore many of these “alternative” funding sources with greater resolve. Based on limited resources, the MBTA will have to be even more aggressive and creative in finding and securing additional funding sources if it aims to accomplish all the necessary maintenance, enhancement and expansion projects it has envisioned in its most recent Program for Mass Transportation.6
The MBTA’s main sources of funding continue to be federal, state and local funds combined with debt financing and the agency’s own “innovative” revenues. The following sections examine these sources in more detail, and present a general overview of the MBTA’s present fiscal situation. The purpose is to understand where the MBTA stands in terms of financing mechanisms, and use this as a “baseline” against which to compare and “label” other strategies as “innovative”.
25
Chapter 2: The MBTA’s Current Funding Mechanisms Funding Before the Enabling Act of 2000 The MBTA created in 1964 constitutes a political subdivision of the Commonwealth of Massachusetts. As such, it traditionally depended on an unlimited state support to finance its capital projects and operating costs. State subsidies covered for net cost of service7, reimbursing the MBTA for operating deficits 18 months after the fact (Laszlo and Tuerck 1999). These “blank checks” provided no reason for the MBTA to control its spending, or pursue cost-effective projects (MTF 2002). As of July 1, 2000, the MBTA was “recreated” as an independent and financially self-supporting public transportation agency (MBTA Advisory Board 2003). The Commonwealth repealed and restated the MBTA’s original enabling legislation through law St. 1999, c.127 § 151, replacing the practice of “backward funding” with what is commonly referred to as “Forward Funding”, as state support is now determined in advance. The MBTA has to operate within a finite budget – no longer overseen by the Governor and Legislature8 – based on a limited state support and the revenues it is capable of generating on its own.
Funding Under “Forward Funding” Operating Revenues Three main streams of revenues support the MBTA’s operations: (i) a government dedicated revenue stream (set forth by the enabling legislation), (ii) revenues from fares and (iii) other (MBTA 2003c; Boston Metropolitan Planning Organization 2003). For fiscal year (FY) 2004, the total operating revenue was estimated at $ 1.187 billion. Over the last ten years it has increased from approximately $785 million to over $1.15 billion in fiscal year 2003 (MBTA 2004b; MBTA 2004a).
26
Chapter 2: The MBTA’s Current Funding Mechanisms Figure 2.1: Operating Revenues 1994-2003 1,400
1,200
1,143
1,153
2002
2003
1,082 1,000 828
Million $
1,005
1,017
1999
2000
919
800
785
807
1995
1996
852
600
400
200
0 1994
1997
1998
2001
Years
Source: MBTA
Dedicated Revenue Stream: This source of revenue accounts for almost 70% of the total operating revenues, and consists of (i) assessments paid by the communities served by the MBTA and (ii) 20% of the state’s sales tax revenue or a guaranteed floor set at $645 million, whichever is greater.9 The floor increases annually at the rate of inflation or 3%, whichever is less (M.G.L. c.10 §35T). The state’s sale tax revenues have grown at an average 5.3% since 1989, declining twice in 1990 and 1991 (MTF 2002). As the growth in sales tax is expected to remain flat in FY 2004, the MBTA will receive the guaranteed floor (corrected for inflation) (Boston Metropolitan Planning Organization 2003). See MBTA’s Budget for Fiscal Year 2004 in Appendix II. This floor protects the MBTA from large fluctuations (MTF 2002).
27
Chapter 2: The MBTA’s Current Funding Mechanisms Figure 2.2: Sources of Operating Revenues Before “Forward Funding”
MBTA Operating Revenues (In Millions)
only 78 communities paid
Other Revenues $60 5%
Local Assessments $139 17%
Dedicated Revenue Stream $824 69%
Fares $304 26%
State Sales Tax $684 83%
assessments, while an additional 97 cities and towns benefited from the MBTA’s services (MTF 2002). Now, the 175 cities and towns are
2004 Total Budget = $ 1.187 Billion
included in the assessment
Source: MBTA
base and payments are made according to a weighted percentage of the total population served and the level of service received (M.G.L. c161A, § 9). However as mandated by the legislation, the total amount received by the MBTA has decreased from $144 million in fiscal year 2001 to $139 in 2004, and will continue to do so until the floor of $136 million is reached in 2006. From then on, assessments will increase 2.5% annually or at the inflation rate, whichever is less.
Figure 2.3: Fare Revenues 1994-2003 300
281
250 222
214
$ Million
200
185
190
192
Fare Revenues: Before “Forward
283
274
Funding”, a rise in revenue simply
231
198
reduced the state subsidy by an equal
150
amount providing no incentive to 100
focus on generating more income
50
0 1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
(MTF 2002). The current limited state
Year
support has created incentives to
Source: MBTA
28
Chapter 2: The MBTA’s Current Funding Mechanisms increase revenues from the MBTA’s own sources. Fare revenues account for approximately a quarter of the total revenues. See Figure 2.2. Due to a decrease in ridership, fare revenues have declined between FY 2002 and FY 2003.10 See Figure 2.3.
Since 1990 the MBTA has implemented three fare increases: in 1991, 2000 and the most recent - and largest one - on January 3, 2004 (CLF 2003b). Fares were increased by approximately 25%, varying along the different modes and services.11 According to the MBTA’s FY2004 budget, revenues from fares are estimated to increase approximately $30 million from the former fiscal year. See FY 2004 Budget in Appendix II. The increase is less than 25%, since an increase in fares brings a loss in ridership.
The “Forward Funding” legislation established fare increases as a last resort, after taking all the necessary efforts “to maximize nontransportation revenues, increase ridership and improve fare collection practices” (M.G.L. c161A § 11). According to the MBTA’s advisory board, the last fare increase was necessary due to the decline in fare revenues, the mandated decline in local assessments and the lack of growth in the sales tax revenue. After having implemented certain cost-cutting efforts, the MBTA felt that the tradeoff between increasing fares and curtailing certain services was inevitable (MBTA Advisory Board 2003).12 Nevertheless, several organizations do not support this two-option tradeoff. They believe the MBTA has not exhausted all the options for “improving efficiency, reducing costs, improving non-fare revenue and increasing ridership” as to justify the fare increase, and that the MBTA could pursue other new and creative non-fare sources of revenue to close its budget gap (CLF 2003a). Furthermore, excessive increases in fares ultimately lead to
29
Chapter 2: The MBTA’s Current Funding Mechanisms important decreases in ridership and therefore in revenues.13 Increasing ridership is a critical challenge faced by the MBTA. The agency has agreed to make no additional fare increase at least until January 1, 2006 (CLF 2003c).
Other: Other sources of revenue, considered more “innovative” include those derived from advertising14, concessions, real estate sales15, parking fees, interest income, utility reimbursements and federal government funds (under anticipated allocation formulas, the MBTA will receive minimal federal aid for operating expenses (Boston Metropolitan Planning Organization 2003; MBTA 2004b). Altogether these other sources account for approximately 5% of the total operating revenues. See Appendix II for more details.
Operating Expenses The unlimited state support gave the MBTA few incentives for applying strong fiscal management. This led to a legacy of high operating costs, making the MBTA one of the most expensive transit systems in the country (MTF 2002). Wages and benefits constitute the largest percentage of operating expenses – close to 40%. See Figure 2.4. Among the factors that contribute to these high costs are the labor intensiveness of the industry, enhanced by the MBTA’s antiquated infrastructure, the high pay scales – among the highest compared to other transit operators16 – and the agency’s limited flexibility in making assignments due to collectively bargained work rules (MTF 2002).
30
Chapter 2: The MBTA’s Current Funding Mechanisms Figure 2.4: Operating Expenses MBTA Operating Expenses (In Millions) Other $174 15%
with commuter rail service and debt service, from the MBTA’s heavy reliance on short-term
Personnel $447 37%
Purchased Commuter Rail Expenses $207 18%
Other important expenses are those associated
borrowing.
Debt Service: Prior to “Forward Funding”, Debt Service $349 30%
2004 Total Expenses = $1.177 Billion
Source: MBTA
MBTA bonds as well as operating shortfalls were covered by the Commonwealth. Now, the contract payments from the State have ceased
and any new debt issued after June 30, 2000 and the repayment of prior obligations is the responsibility of the MBTA (unless authorized by special legislation) (KPMG LLP 2003). Payments on debts consume almost one third of the current operating revenues (and expenses). See Figures 2.2 and 2.4. The MBTA was found to spend the highest portion of its budget on debt services, among other large transit authorities (MTF 2002). The MBTA currently has over $4 billion in outstanding debt (MTF 2003) and the total debt service payments projected over the period of the 2003-2025 RTP including both prior and new debt, are approximately $9 billion (Boston Metropolitan Planning Organization 2003).
Other Factors: Political resistance and the Commonwealth’s anti-privatization statute (known as the Pacheco Law) are also commonly stated as contributing to high operating costs (MTF 2002). In 2000, the MBTA missed the opportunity to reduce commuter rail costs through a change of contractor, due to the resistance posed by Amtrak and its labor unions, and the consequent threat by the Department of Transportation to withhold federal
31
Chapter 2: The MBTA’s Current Funding Mechanisms aid, should the change have taken place.17 In the case of the Pacheco Law, it restricts the agency’s ability to obtain savings from competitive bidding and subcontracting of services (Laszlo and Tuerck 1999; MTF 2002). Furthermore, a contract signed with its biggest union restricts the MBTA’s right to subcontract. The agency has only maintained the ability to hire part-time operators (MTF 2002).
According to a report published in 1999 by the Beacon Hill Institute, the MBTA could reduce operating costs by increasing efficiency to levels achieved by comparable transit authorities (Laszlo and Tuerck 1999). The MBTA’s finance plan assumes operating expenses will increase 3% annually in 2005 and 2006, and 2% thereon due to an MBTA policy to reduce operating expenses. This includes net operating costs for the expansion projects assumed in the RTP (Boston Metropolitan Planning Organization 2003).18
Capital Program Funding Sources The MBTA’s capital program is funded primarily through two main sources: revenue bonds (54%) and federal grants (43%). Other sources, which account for the remaining 3%, include pay-as-you-go funding, project financing and state appropriations (MBTA 2003c; MBTA 2003b). See Figure 2.5.
32
Chapter 2: The MBTA’s Current Funding Mechanisms Figure 2.5: Sources of Capital Funding Revenue Bonds: Prior to Forward MBTA's Capital Program Funding FY 04- FY09 (In Billions)
Funding, the MBTA issued General
Federal Grants $1.400 43%
Transportation System bonds Pay-As-You-Go
Other $0.093 3%
State Appropriations
guarantee. Under Forward Funding, the MBTA issues Assessment and
Project Financing
Revenue Bonds $1.740 54%
backed by Commonwealth
Sales Tax bonds, secured by the respective assessment and sales tax
Total Capital Investment Program = $3.233 Billions S MBTA
Source: MBTA
revenue streams (MBTA 2003c).19
The MBTA issues bonds to pay for the local share of all capital projects. The amount is limited by the mentioned revenue streams, the MBTA’s ability to afford the debt service given its heavy debt burden built up from previous years20 - and the high operating costs. They are not governed or limited by the Commonwealth’s $1.2 billion annual cap bond (MTF 2002). In its Capital Investment Program 2004-2009 (CIP)21, the MBTA plans to issue approximately $1.74 billion in revenue bonds (MBTA 2003b). The plan aims to reduce bond issues during the coming years.22 If it scaled back debt issuance more gradually, it could finance more projects but the tradeoff would be future outstanding debt and higher debt services.
Federal funding: The Federal Transit Administration (FTA) funds several major assistance programs under the Transportation Equity Act for the 21st Century. The funds are provided through legislative formulas or discretionary authority usually on an 80-20% federal-local funding match basis. Although this program expired on February 29, 2004 and the new
33
Chapter 2: The MBTA’s Current Funding Mechanisms program has not yet been finalized, the MBTA has estimated in its CIP what it is likely to receive under the new formulas for the next 6 years (MBTA 2003b).23 A detailed explanation of the different federal programs is included in Appendix III.
Given the legacy of the Central Artery cost overruns, it is unlikely that major construction projects in Massachusetts will receive large federal project-specific earmarks (MTF 2002). The MBTA estimates it will fund approximately 43% of its CIP – equivalent to $1.40 billion – with federal grants. After approval of the FY 2004 federal appropriations, the MBTA will apply for FTA grants expecting to obtain a total of $249.7 million for this fiscal year, to be distributed between accessibility improvements (32%), enhancements (3%), infrastructure reinvestment (54%) and expansion needs (11%) (MBTA 2003b).24
The funds from the federal New Starts program are projected to be secured for three projects at 50% of their cost, among them the Urban Ring Phases I and II. A total of $443 million is estimated to be available after 2015 (nine years after the planned date for Phase 2 implementation). Although this program is extremely competitive, the Metropolitan Planning Organization (MPO) assumes that the Urban Ring is likely to be selected since it has already received this type of funding for current studies (Environmental Impact Reports as part of the MEPA25 process) (Boston Metropolitan Planning Organization 2003). Still, there is no guarantee and even if this funding is obtained, the local share has to be identified.
Pay-as-you-go: The MBTA is planning to transition from a heavy reliance on borrowing and bond proceeds to a greater use of pay-as-you-go funding. The money would be obtained
34
Chapter 2: The MBTA’s Current Funding Mechanisms from the growth in sales tax revenues above the projected 3% (Boston Metropolitan Planning Organization 2003; MTF 2002). This will require operating surpluses, determined by the fare and non-fare revenue and the contention of operating expenses. Coupled with any future growth in the sales tax revenue, this could increase operating surpluses and thus money for capital projects.26 The Stabilization Fund27 mandated by “Forward Funding”, requiring a 0.5% contribution from the dedicated revenue stream, has also enabled the MBTA to maintain a modest amount to be used only in the case of unforeseen expenses related to maintenance priorities.28
Project Financing: The MBTA also applies project financing, which involves generating funds to finance an economically separable project. The lenders depend on the cash flow generated by the project to service their loans. This method will most commonly be applied to future parking facilities (Boston Metropolitan Planning Organization 2003).29
State Appropriations: The MBTA anticipates that the state Legislature will appropriate funds for projects required by the legal commitments predating “Forward Funding” and any new projects mandated by the reform legislation (Boston Metropolitan Planning Organization 2003). According to M.G.L. C.161a §18 the MBTA may use the Commonwealth’s bonding authority to fund projects required under the Americans with Disabilities Act and the commitments made in connection with the Central Artery /Tunnel (CA/T) project (CLF 2003a). Additional appropriations are anticipated until 2015 to cover the costs of projects legally committed under the State Implementation Plan (SIP) prior to “Forward Funding” (Boston Metropolitan Planning Organization 2003). Both the language
35
Chapter 2: The MBTA’s Current Funding Mechanisms of the legislation (M.G.L. c. 161A § 18) and the actions taken by the Legislature over the last several years, lead to anticipate state funding for transit projects (Boston Metropolitan Planning Organization 2003). With the completion of the Central Artery / Tunnel project, the state’s bonding capacity is expected to increase, creating additional funding for other transportation projects. Nevertheless, according to the MBTA’s advisory board, recent comments from state officials indicate that the State has neither the will nor the capacity to fund the required Central Artery Mitigation projects (MBTA Advisory Board 2003).30 If there are no funds for mandated projects, other projects will have even less of a chance of making the list.
Capital Program Needs The MBTA’s capital program reflects three main categories of need: system preservation, service enhancement and system expansion (MBTA 2003b). The existing infrastructure has to be maintained, repaired and replaced in order to keep the system in a state of optimal repair. Some of the nation’s oldest transit infrastructure31 and a decade of aggressive expansion have left the MBTA with an expensive system to maintain and the responsibility to ensure safety and reliability. Improving the quality of the service and adding capacity to the system, are essential for increasing ridership and therefore revenues. At the same time, the MBTA is under pressure to expand the system not only to comply with the legal requirements of the SIP and the CA/T agreement, but to support economic and transitoriented development and improve equity within its service.
36
Chapter 2: The MBTA’s Current Funding Mechanisms Figure 2.6: Capital Spending by Area “Forward Funding” guides the MBTA's Draft FY04-FY09 Spending by Area (in Billions)
MBTA’s capital planning process by
Expansion $0.644 20%
requiring a “Program for Mass Transportation (PMT)” to be updated
Accessibility $0.151 5%
Infrastructure $2.172 66%
Enhancement $0.279 9%
every five years, as well as a Capital Investment Programs (CIP), which cover specific projects to be
Total Capital Investment Program = $3.248 Billions
implemented in the following five
Source: MBTA
years. While the PMT is
unconstrained and establishes the potential universe of projects, the CIP is financially constrained and the funds have to be identified for a project to be included in it. Furthermore, the regional transportation plans prepared by the MPOs are linked to the PMT and are also financially constrained by assumed funding availability (MBTA 2003c).
Projects therefore have to be prioritized and “Forward Funding” places an emphasis on those projects that (i) maintain the current system, (ii) are required by the Central Artery mitigation agreements, (iii) are required to comply with the Americans with Disabilities Act and (iv) those that provide the greatest benefits at the least cost (MTF 2002).
The MBTA is facing the challenge of meeting two competing needs within its current financial capacity: maintaining and modernizing the system, and expanding it to provide new services. It is worth noting that expansion projects not only bear the cost of construction, but also contribute to operating deficits, as fare revenues never fully cover the
37
Chapter 2: The MBTA’s Current Funding Mechanisms cost of operating the new line (MTF 2002).32 The high operating costs eat up revenues that could otherwise be available for debt service or pay-as-you-go funding, also making it more difficult for the MBTA to absorb additional operating expenses generated by new expansion projects. The Urban Ring could add approximately $55 million annually to operating and maintenance costs (MBTA 2001).33
In its CIP, the MBTA has assigned approximately 80% of the available capital revenues to maintenance needs (signal and track upgrades, system enhancement projects, and accessibility projects). See Figure 2.6. This leaves only 20% for any expansion project. The expansion projects planned by the MBTA are required by the Central Artery mitigation agreements and the State Implementation Plan.34 Most of the effort is designated for the Silver Line rapid bus line and the Greenbush commuter rail project. Completing all the requirements would cost at least $3 billion. According to a report by the MTF (MTF 2002), meeting these requirements and trying to complete other projects like the Urban Ring, while living within the MBTA’s fiscal constraints and attending to the backlog of necessary improvements, will be next to impossible. Their conclusion is that maintenance and modernization of the system have first claim on the capital resources, and therefore the MBTA cannot afford future expansion unless it wants to threaten the integrity of the system.
Based on this report, the MBTA’s advisory board conveys that the MBTA does not have sufficient funds to implement its capital program with expansion and mitigation projects– not even with the recent implemented fare increase. Although the Artery Mitigation projects were agreed to by the Executive Office of Transportation and Construction (EOTC), the
38
Chapter 2: The MBTA’s Current Funding Mechanisms MBTA has received the responsibility for the approximately $4 billion in outstanding debt incurred by the Commonwealth to fund the required transit projects, and these projects have been transformed into unfunded mandates for the MBTA (MBTA Advisory Board 2003).35 As mentioned previously, the Commonwealth seems to have neither the will nor the capacity to fund them.36 The agency does not have the resources either.
Alternative Funding Sources Given the current fiscal situation, the MBTA has turned to identifying alternative and “innovative” funding sources. The agency is increasingly engaged in joint-development projects, and revenue-generating activities such as advertising, concessions, leasing and parking. Furthermore, it has begun to explore options that local governments can undertake to enhance the existing revenues and provide the local match for federal money. Many of the innovative funding sources identified in the most current PMT and RTP had been examined for the Urban Ring project in its Major Investment Study. These mechanisms are being applied in projects currently underway in Massachusetts or in the rest of the country. A brief description of each identified mechanism is presented below. They have been classified according to the source of funding (local government, state government and private funding).
Local Options Tax Increment Financing (TIF): a method that captures the growing tax revenues from an increase in property value produced by a specific transit investment. The Commonwealth of Massachusetts applies the term differently, as TIFs provide developers tax incentives for their projects. Nevertheless, the Legislature has recently enacted a new bill introducing
39
Chapter 2: The MBTA’s Current Funding Mechanisms under the rubric of “District Improvement Financing” (DIF), the financing mechanism as commonly applied in other states (Hackney and Wodlinger 2003).37 Payment in lieu of taxes (Pilot): revenue is captured from tax-exempt institutions receiving a benefit from the new project (universities in Boston have PILOT schemes).38 Joint Development: partnership with a municipality or a developer to improve an existing asset. Betterment Assessment District: imposition of a fee to properties within a certain catchment area, i.e. a transit corridor where investment could help pay for the transit investment. Impact Fee: imposition of a fee to developers within a catchment area. Parking Surcharge: additional charge on parking spaces within a certain catchment area. Mortgage Recording Fee: imposition of a fee on mortgage recording. The revenues will depend on the amount of parcels that fall within the fee district.
Commonwealth Options General Obligation Bonds: bonds used by the Commonwealth to finance major infrastructure projects. Highway-flexed Funding: use of federal highway dollars to implement transit projects. According to the RTP for the Boston metropolitan region however, the Metropolitan Planning Organization (MPO) has determined that there would be no flexing of funds from one mode to another (Boston Metropolitan Planning Organization 2003).39 Outside Sections in the State budget: earmarks provided by the Legislature. MBTA Infrastructure Fund: transfer of funds from the General Account.
40
Chapter 2: The MBTA’s Current Funding Mechanisms Private Funding Options Property Transfer: transfer of MBTA property to private landholders, in exchange for their land that is needed for a transit project. This can avoid certain land acquisition costs. Station Sponsorship: revenues generated from naming rights associated with selected stations. Private Employers Currently Financing Transit: investment in a new MBTA service, instead of providing the service themselves (e.g. private shuttle services currently operating in Urban Ring). MBTA-Promoted Development: revenue generated from leveraging MBTA property, including the disposition of air rights or the sale/lease of property. Formation of a 60-20 Corporation: a nonprofit entity exempt from federal income tax, created only to provide financing for a capital investment.
Several of these alternative mechanisms are further explored in the following chapter and act as a starting point for the research. 1
Other arguments for government involvement include “equity” issues and second-best consideration (Ubbels and Nijkamp 2002). Many segments of the population are dependent on public transportation, among them the poor, the disabled, the young and the elderly. The government subsidy is considered a redistribution of income to less privileged groups. Public transportation is also considered a substitute for road use. Therefore the argument is that as long as road use is priced neither at cost nor according to income, the “substitute” should be subsidized. 2 A recent paper on unconventional funding techniques, includes “non-farebox revenue from concessions, adopting private sector methods (e.g. turnkey development), new fare structures, value capture strategies, use of property rights, leasing techniques and hypothecated local taxation” as “innovative” (Ubbels and Nijkamp 2002, p. 318). 3 Birmingham, Alabama was the first local government to dedicate a revenue stream for public transportation from the beer tax (Transportation Research Board 1984). 4 The political reasons are associated with citizen pressure and image of elected officials, especially related to the implementation of new fees and taxes. 5 It was “unlimited” in concept as the Commonwealth funded the MBTA in arrears (the MBTA incurred the cost and then made the requisition to the Legislature, who at that point could not do much in terms of cost reduction). Nevertheless the MBTA operated under a budget that had to be approved by the MBTA advisory board. Based on a personal communication held with Jonathan Davis, MBTA Deputy General Manager and Chief Financial Officer.
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Chapter 2: The MBTA’s Current Funding Mechanisms 6
May 2003. Net cost of service= total costs (operating costs plus debt service costs) in excess of revenues. 8 The Budget is first approved by the MBTA’s board of directors, appointed by the Governor and chaired by the Secretary of the Commonwealth’s Executive Office of Transportation and Construction (EOTC). The budget is finally approved by the MBTA’s advisory board (MBTA 2003b) and based on a personal communication with Jonathan Davis. 9 This floor was set in 2001, corresponding to the approximate amount the MBTA would have received under the 20% allocation. 10 The decline in ridership was related to the economy (with the recession and decline in jobs, less people commuted to the City to work). Also, according to the MBTA’s Deputy General Manager and Chief Financial Officer (CFO) there has been a general increase in automobile use and consequent loss in market share for public transportation. In spite of the costs associated with automobile use, as highways systems have become more efficient and easier to use, the automobile provides more flexibility. The average consumer does not compare the costs between the two modes and favors flexibility (Based on a personal communication with Jonathan Davis). According to (MBTA 2004a) fare revenues decreased a little over 3% from FY 2002 to FY 2003. See Appendix II. According to the CFO a 3% decline is significant, and was among the reasons for implementing a fare increase. 11 This represents an average. For a detailed breakdown of fares among the different modes, see http://www.mbta.com/contact_us/fares.asp (MBTA 2004c). 12 The need for periodic fare increases – together with growth in other internal sources - had already been recognized by the Massachusetts Taxpayers Foundation (MTF), in a report released early in the year 2002. The Blue Ribbon Committee (BRC) created to advise the MBTA on the implementation of “Forward Funding”, urged tying these moderate fare increases to tangible service enhancements, as well as implementing measures to reduce costs (MTF 2002). Among the priorities that will be undertaken is the installation of an automated fare collection system, in order to achieve more equitable fare policies. 13 Fare increases especially affect lower-income, transit-dependent segments of the population. They divert people with resources to the use of the automobile and therefore can also contribute to congestion and air pollution problems. 14 A recent newspaper article revealed that according to a state audit, the MBTA recently lost more than $10 million in revenue in an outdoor advertising contract, because it failed to establish ownership property rights of billboards in a 1998 contract (Wallace 2003). This reflects past “negligence” in securing other important sources of revenue. 15 The value of real estate owned by the MBTA, if included in the project costs, may be eligible to be counted as part of the non-federal share of project costs. According to the “Urban Ring Financial Subcommittee” meeting on November 26, 2003 the MBTA owns real estate within the Urban Ring Corridor, which was estimated at a value of 5% of the construction cost. 16 For further detail see Laszlo, Aniko, and Tuerck, David G. 1999. Financing the MBTA. An Efficient and Fare Solution and Massachusetts Taxpayers Foundation. 2002. MBTA Capital Spending: Derailed by Expansion? 17 The MBTA has recently executed a new commuter rail maintenance and operation contract with Massachusetts Bay Commuter Rail that will represent a saving of approximately $59 million over the contract period as compared with the former Amtrak contract (MBTA Advisory Board 2003). This time the negotiation succeeded because of two reasons: (1) all the services were bundled up (in the prior agreement only mechanical services were considered) and (2) the agreement required the provider to take over the entire workforce (the prior contract made no requirement of this sort, probably leading to the resistance). The MBTA has obtained reductions from a decrease in workforce. Based on a personal communication with Jonathan Davis. 18 It is likely that many projects will not actually be implemented within their original time frame. The Urban Ring Phases I and II are included in the RTP although as mentioned in the previous chapter, neither their funding nor timely implementation is guaranteed. Phase III is only an “illustrative” project. 19 According to MBTA spokesman Joe Pesaturo, the MBTA “has the highest bond rating of any state agency, including the Commonwealth itself” (Rosenwald 2004). The latest series of Sales Tax bonds received a rating of AAA by Standard and Poor’s and Aa2 by Moody’s. The 2000 assessment bonds earned AAA and Aa1 respectively. See http://www.mbta.com/insidethet/investor2.asp# and (MTF 2002, p. 13). 7
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Chapter 2: The MBTA’s Current Funding Mechanisms 20
(MTF 2002) According to this same report, although the heavy debt could affect MBTA bond credibility in financial markets, bond buyers assume the Commonwealth would never allow the MBTA to default on its payments. 21 The section on “Capital Program Needs” explains the CIP process. 22 From a presentation by the MBTA’s Deputy General Manager and Chief Financial Officer at the “Third National Transportation Finance Conference: Meeting the Funding Challenge Today & Shaping Policies for Tomorrow”, held on Sunday, October 27, 2002 in Chicago, IL. Available at http//:gulliver.trb.org/conferences/Fin3/ Track2_Davis_10-28-02.pdf 23 The assumption is that federal aid will continue at TEA-21 levels (MBTA 2003b; MTF 2002, p. 13). 24 The MBTA is committed to keeping the system in a state of good repair and has made the decision to dedicate the majority of the funds for maintenance and enhancement projects. This decision is consistent with the State’s Fix it First” policy (and was therefore welcome) but did not derive specifically from this state policy. The state of good repair is considered the state where all capital assets are functioning at their ideal capacity within their design life. 25 Massachusetts Environmental Policy Act 301 CMR 11.00. 26 According to the Massachusetts Taxpayers Foundation report, the reduction is applied before collective bargaining and other inflationary factors are added in, so it concludes it will not actually decline the budget but offset cost increases and the rate of growth. It further adds that based on the MBTA’s failure to reduce personnel and contract costs, these reductions are likely to be difficult to achieve (MTF 2002, p.51). 27 This is a “rainy day fund” and not for budgeting purposes. 28 Based on a personal communication with Jonathan Davis. 29 An example is the new parking facility in North Quincy (Boston Metropolitan Planning Organization 2003) According to the CIP, this project will have the “ability to generate sufficient revenues to cover operating and debt service costs, thereby minimizing its impact on the MBTA’s capital program” (MBTA 2003b, p.95). 30 The RTP is based on assumptions and anticipations. The Commonwealth has not yet made any appropriations and the MBTA is working with the Commonwealth to find the way to finance the commitments. (Based on a personal communication with Jonathan Davis). 31 In 1897, America’s first subway was built and the segment happens to be the Green Line segment running between Park Street and Boylston, still in operation (MTF 2002). 32 No service currently pays for itself, so an expansion not only is more costly to maintain but also operates at a deficit. (Based on a personal communication with Jonathan Davis). 33 Costs are expressed in 2001 constant dollars. 34 The legal commitment projects listed in the RTP, with their original completion date, are: Old Colony/Greenbush Commuter Rail (December 31, 1996); Arborway Restoration; Blue Line-Red Line Connector (December 31, 2011); Green Line extension to Medford Hillside (December 31, 2003); and Russia Wharf Ferry Terminal (as part of the Silver Line Transitway project). These commitments were made by the Commonwealth to avert a lawsuit that would have delayed the construction of the Big Dig. At the end of 2003, the state environmental commissioner warned the transportation secretary and the MBTA general manager that the state was not making any adequate plans to move ahead on any of the projects and was subject to administrative penalties. The commissioner has agreed to allow the state to suggest lower-cost alternatives as long as they improve air quality. This was allowed by the 1990 agreement and the later consent order (Flint 2004). 35 The MBTA’s position is that they are a legal requirement of the Commonwealth. (Based on a personal communication with Jonathan Davis). 36 This was reaffirmed in a newspaper article stating “state transportation planners have said there's not enough money to finance all of the other Central Artery transit proposals” (Flint 2004) 37 This information was also provided by Ron Farrar, City of Somerville. See Appendix I. 38 The City of Boston has traditionally not allowed the earmarking of Pilot revenues. It prefers to have all the revenues flow into the City’s general fund (Minutes of Meeting: The Urban Ring MIS, September 10, 1999). 39 According to a conversation with the MBTA’s CFO and another MBTA employee, the statement is not rigid and the Boston MPO is looking into this possibility. There has to be an agreement between all parties. Each MPO can decide whether to flex highway funds or not.
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Chapter 3: Funding Strategies Aim The aim of this chapter is to explore how public transportation agencies from around the world are financing their operating expenses and capital needs. As the MBTA has already identified some “innovative” funding strategies based on projects across the United States, the aim is to build upon these strategies, verify whether they have been applied effectively in other parts of the world, and search for other funding strategies not yet assessed by the MBTA.
A general description of the different strategies is presented, together with examples of countries that have applied them. They have been organized according to the agency with the authority to implement the strategy (i.e., local governments or public transportation agencies). Additional information on certain examples (marked with a *) is found in Appendix V.
Introduction To understand why some funding strategies are considered “innovative”, it is important to first define this term. To innovate is “to introduce as or as if new; to do something in a new way”.1 Therefore, being innovative in terms of funding is not only being able to introduce new sources but also being creative in modifying and refining existing techniques, to broaden the general mix of resources. “Creative financing means being resourceful and opportunistic” (TCRP 2002c, p.49). It is thinking outside the box, thinking about alternatives. As a result, “innovative” financing can take many different forms and classifications.
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Chapter 3: Funding Strategies Public transportation agencies across the United States face similar challenges of maintaining revenue sources to meet their operating costs and capital needs – especially when the level of federal and state grants (the two most traditional and abundant sources) has decreased (TCRP 1999) and is not expected to increase too much over the coming years.2 This challenge extends to other public transportation agencies around the world too. There has been a recent trend of reduced national3 government financial support for public services, especially in Europe (Ubbels and Nijkamp 2002; Farrell 1999; UNECE 2003). The uncertainty and limitation of government sources has motivated many agencies with vision and innovative staff to develop alternative funding strategies by increasing state and local shares - where the value of their services is most evident - and by turning to non-traditional revenue sources (TCRP 1998a). Learning from examples is one way of obtaining new ideas and stimulating the creativity needed to explore innovative financing mechanisms.
Innovation is not necessarily limited to public transportation agencies. Public transportation is essentially a public service that is provided and managed locally (Federal Transit Administration 2004b). State and local governments also depend on a limited budget to meet competing needs within their region. In most countries, government support for public transportation has been financed through general taxation, without a direct link between the source and the revenue. This leads to a considerable competition for the same funds, possibly leaving public transportation behind other spending needs (Ubbels and Nijkamp 2002). Therefore local governments also need to be resourceful and creative in increasing the opportunities of generating new revenues for public transportation and must work
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Chapter 3: Funding Strategies collaboratively with public transportation agencies – and possibly the state – to enhance the alternatives.
Strategies Implemented By Local Governments As a way of decreasing the competition for general funds, many governments have turned to find alternative sources that directly link revenues with public transportation: the use of unconventional taxes and charges earmarked for public transportation. These unconventional strategies can be classified into (i) Charges for the use of roadspace (commonly known as road-value pricing or congestion pricing), (ii) Consumption taxes, (iii) Local motoring taxes, (iv) Employer/employee and income taxes, (v) Property-related taxes (based on the concept of value-capturing), (vi) Development levies, (vii) Parking charges and fines, (viii) Cross-utility financing, and (ix) Other unconventional charges (Ubbels and Nijkamp 2002).4
Road Value Pricing Road Value Pricing is a strategy that involves charging higher prices for the use of roadways during peak travel times. Market forces allocate the limited roadway capacity among the users based on their need and willingness to pay. This mechanism has traditionally been used to finance the construction of new roads, and as a way to manage traffic congestion and air pollution. The innovation is to dedicate the revenues or a portion of them, to finance public transportation (Ubbels and Nijkamp 2002; TCRP 2003d). There are four types of road value pricing (TCRP 2003d):
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Chapter 3: Funding Strategies a. Areawide Value Pricing: fees are charged on vehicles entering a certain area, crossing a “cordon” or using a road network within a defined area. b. On Single or Multiple Highway Lanes: surcharges are applied for use of certain lanes during peak periods. A common example is the High Occupancy Toll (HOT) lanes. c. On a Single Facility, Route or Corridor: surcharges are applied on a certain transportation facility (including bridges and tunnels) during peak periods. d. Vehicle Use Pricing Programs: programs that seek to convert fixed vehicle ownership costs to variable usage costs (examples are pay-by-the-mile insurance and car sharing. Car sharing refers to an automated hourly or mileage-based neighborhood car rental, which may replace or fulfill the need for car ownership).
Road value pricing is considered very much a Scandinavian phenomenon (Farrell 1999). Norway* has implemented areawide value pricing in many of its cities since 1986. The primary motive has been revenue generation, dedicated both to road and public transportation infrastructure (Ubbels and Nijkamp 2002; Farrell 1999; TCRP 2003d). In general, reductions in traffic were achieved and revenues were generated although not substantially to cover many public transportation needs (Farrell 1999). Sweden* presents an example of an indirect use of toll revenues to support public transportation. Revenues finance the road component, while easing the pressure on the government budget. Additional funds can this way be released for public transportation, which is funded by a mixture of national and local government grants (Farrell 1999).
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Chapter 3: Funding Strategies Other examples of areawide value pricing have been found in many Western European countries. In the United Kingdom*, London’s recent “congestion pricing” scheme implemented in 2003, has been successful in reducing traffic congestion and generating revenues for public transportation. On the other hand in Durham, the implemented scheme while successful in reducing traffic was not successful in generating revenues (TCRP 2003d).
Other Western European cities, interested in the development of road pricing schemes, embarked on simulations and trial schemes. Germany conducted an areawide value pricing simulation in the City of Stuttgart.5 Since 2000, eight European cities are participating in a project funded by the European Commission, designed to assess the potential for congestion charging.6 Two of the cities (Rome in Italy and Trondheim in Norway) have already implemented an areawide value pricing scheme (TCRP 2003d) while the remaining six (Bristol (UK) – project coordinator, Copenhagen (Denmark), Edinburgh (Scotland), Genoa (Italy), Gothenburg (Sweden), and Helsinki (Finland) are conducting user trials and research (CUPID 2003).
In Asia, Singapore* is the country with the longest history of areawide value pricing. The scheme was first implemented in 1975 and has been updated and modified over the years (Ubbels and Nijkamp 2002; TCRP 2003d). Korea implemented a road value pricing “on a single facility” in the City of Seoul; and while Hong Kong attempted several times to implement electronic road pricing feasibility projects between 1983 and 1985, and again in 1997, all the efforts were considered politically unworkable (TCRP 2003d).
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Chapter 3: Funding Strategies In the United States, road value pricing schemes are mostly either “On Single or Multiple Highway Lanes” or “On a Single Facility” and revenues are usually assigned to roads, bridges and tunnels (Ubbels and Nijkamp 2002). Nevertheless, some examples were found, where a portion of the revenues has been dedicated to public transportation: toll revenues from San Francisco’s Golden Gate Bridge (Ubbels and Nijkamp 2002), San Diego’s High Occupancy Vehicle (HOV) Lane7 on I-15*(Ubbels and Nijkamp 2002; TCRP 2003d) and a project by the New Jersey Public Transportation Corporation (NJT)* (TCRP 2003c). In Boulder, Colorado* a pilot demonstration to implement road value pricing failed due to media and political pressure (TCRP 2003d). Attempts also failed in Minneapolis (Minnesota) and Portland (Oregon) (BBC London).
Switzerland* has led the development of Vehicle Use Pricing Programs through carsharing. In Texas, a variable insurance project, “Autograph” was implemented by the Progressive insurance company in 1998 (TCRP 2003d).
In Auckland, New Zealand the regional government is considering road value pricing among the options to finance the completion of its transportation network. According to a recent funding plan, the existing sources may only cover approximately 50% of the total cost of completing the network within the established timeframe (10 years). Although the national government may consider borrowing as an option to fill the gap, other innovative alternatives are being explored, including a regional fuel tax, a regional road user charging levy and project specific tolls (EECA 2003).
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Chapter 3: Funding Strategies Consumption Taxes Most countries impose a tax on the consumption of certain goods (general merchandise, specific services and luxury items). A portion of this revenue stream may be assigned to public transportation, as has been a common practice in the United States. Dedicated revenues usually come from sales tax (on goods and services), gambling taxes (lotteries) and beer taxes (Ubbels and Nijkamp 2002; Transportation Research Board 1984).8 The sales tax is the most common revenue source dedicated to public transportation (TCRP 1998a). The MBTA already benefits from this state source of revenue for its operating expenses. Thirtythree states in the United States have authorized a local options sales tax for transportation purposes. Twenty states specifically dedicate the revenue to public transportation, and rail transit projects tend to be among the main purpose.9 The highest rate of taxes dedicated entirely for public transportation is found in Aspen, Colorado (1.5% transit sales tax) (Goldman et al).
Local Motoring Taxes Motoring taxes can be imposed on vehicle owners (vehicle registration and titling fees, personal property taxes, use taxes, sales taxes on motor vehicles) and on fuel sales in addition to state and federal fuel taxes. Although taxing motor vehicles is a common practice throughout the world, especially in the United States (fuel and excise taxes), few countries earmark the revenues to specific public transportation projects (Ubbels and Nijkamp 2002). The taxes can be levied by local governments (if authorized to impose their own) or levied by the state and allocated locally, among counties, towns and cities (Transportation Research Board 1984).
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Chapter 3: Funding Strategies In the United States, systems that receive significant dedicated motor fuel tax revenues include those in Chicago (Illinois), Detroit (Michigan), Pittsburgh (Pennsylvania), New York (New York) and Norfolk (Virginia) (TCRP 2003c). Fifteen states authorize a local option gas tax. Nine of them allow them for general uses, among them public transportation and only one (Tennessee) allows for its use exclusively for financing public transportation (nevertheless, until 2001, no county had adopted it). In Florida every county has adopted a local option gas tax10, and many dedicate it exclusively to finance public transportation. In Hawaii, revenues are assigned to public transportation and public safety operations (Goldman et al 2001).11
In the case of vehicle taxes, thirty-three states in the United States authorize some form of local vehicle tax, although only sixteen states allow revenues to be dedicated to uses that include public transportation. North Carolina is the only state allowing local vehicle taxes to be used exclusively for public transportation. Creatively, five states have also authorized new local taxes on vehicle rentals (Goldman et al 2001).
In Canada, the municipalities of Vancouver, Victoria and Montreal have a provincial permission to levy local fuel taxes. In Alberta, the provincial government transfers a portion of its gasoline tax to the Cities of Edmonton and Calgary. Each city uses dedicated gasoline tax revenues to support roadway construction and maintenance, as well as local public transportation.12
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Chapter 3: Funding Strategies Colombia* has recently developed a BRT system in its capital city Bogotá, where the initial investment ($213 million) was funded through a local fuel surcharge tax (46%), general local revenues (28%) mainly from capital obtained from the partial privatization of a power company, a loan from the World Bank (6%) and grants from the National government (20%). Fifteen percent of the local 25% tax on gasoline is being dedicated to support the system’s future expansion (Diaz 2003, 1-31).13
Switzerland has adopted a national policy to limit the use of the automobile, by restricting travel patterns within the cities’ business districts and by imposing a gas tax, which increases the costs of owning an automobile. This tax is also used for supporting transit services in cities and cantons (similar to US counties and regional areas) (TCRP 1997). Auckland, New Zealand is considering among other options, implementing a regional fuel tax to finance the completion of its transportation network (EECA 2003).
Employer/Employee and Income Taxes While most countries collect employer taxes based on wages, few places have assigned a portion of this revenue base to public transportation (Ubbels and Nijkamp 2002).
Europe presents two cases of successful dedicated local employment tax schemes: France* with the “French Versement Transport” scheme, where employers with more than nine employees pay a fixed percentage of wages as a tax, in support of urban public transportation (Ubbels and Nijkamp 2002; Farrell 1999; Brittain 2002, 552-575) and Austria, where a local employment tax in Vienna was used to finance the Vienna metro (Farrell 1999). 52
Chapter 3: Funding Strategies In the United States, sixteen states have authorized some form of local option employment tax (income or employment-related14) for general revenue. Only four states make a specific statutory connection to transportation related expenditures (Indiana, Kentucky, Oregon and Virginia). Cincinnati, Ohio has voluntarily earmarked a portion of its income tax for transit purposes (Goldman et al 2001). Oregon has implemented payroll taxes to help fund public transportation in Portland (district excise tax and transit self-employment income taxes to help fund a light rail extension) and in Eugene (Lane Transit District – LTD for a mix of operating and capital expenses) (Ubbels and Nijkamp 2002; Goldman et al 2001).15
Property-Related Taxes While it is common in most countries to pay for the provision of public services through the collection on both real and personal property, few places have earmarked revenues for public transportation directly. Some examples were found in the United States (Minneapolis16 and New York City), Japan (Osaka), India (Mumbai) and Spain (Barcelona) (Ubbels and Nijkamp 2002).
A strategy for earmarking property taxes is based on the concept of value-capturing; capturing the benefit - usually reflected in higher property values - that parcels surrounding new public transportation developments enjoy due to increased connectivity (TCRP 2002c). Local governments can recoup some of the value added by the investment. Properties pay regular amounts to local governments, who then allocate a portion of the revenues to subsidize public transportation. These taxes may take the form of “special assessments” or “tax increment financing” (TIF) (Transportation Research Board 1984).
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Chapter 3: Funding Strategies The most common form of value capture in the United States is the use of “benefit assessment districts” (TCRP 2002c). Special assessments are applied to owners of properties within a catchment area that benefit from a public improvement. Charges are based on frontage, area, value, distance or a combination of these factors and usually involve revenueproducing properties (i.e. commercial, industrial, rental) (Transportation Research Board 1984). Two examples related to public transportation found in the United States are Denver, Colorado where assessments made to downtown properties were dedicated to operating expenses related to a transit mall (repairs, snow removal, security and other daily expenses) and Miami, Florida, where the Metromover was partially funded through a special assessment levied against downtown properties (TCRP 2002c).
TIF is a strategy to capture the growing tax revenues from an increase in property value that results from redevelopment projects within a district (e.g., a transit investment). Most states implement TIF to stimulate redevelopment and finance public improvements. It is based on the use of anticipated increases in tax revenues over a period of time and earmarking them for the repayment of the bonds that provide the initial project financing. An area is delineated by a public process and a baseline valuation is carried out. Taxes are frozen at that level and bonds are issued. After the project is built and property values go up, a new valuation is conducted. The tax receipts in excess of original valuation are used to repay the bonds (Transportation Research Board 1984). California was the first state to enact TIF legislation in 1952, and the strategy began spreading throughout the rest of the states in the 1970s. TIFs are allowed in most states – varying slightly from state to state– except two (North Carolina and Delaware) (Casella
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Chapter 3: Funding Strategies 2002, 1-5). Several examples of the use of TIFS for public transportation projects were found in the United States: the subway construction in Chicago (three projects received a total of $38.7 million in tax increment funds), two public transportation improvements in Portland, Oregon (received a total of 37.5 million) (Casella 2002, 1-5), the San Francisco Bay Area Rapid Transit District (BART) Pleasant Hill station in California (the Contra Costa redevelopment agency used TIF to pay for the underground utilities, water and drainage system improvements), the Market Corridor between Embarcadero and Powell Street BART Stations, also in San Francisco (a $25 billion bill for streetscape and beautification improvements was paid by TIF), and the Ground Transportation Center in Cedar Rapids, Iowa (a transit joint development project involving an intermodal transit station, a taxi-minibus-car pick up/drop off area, an office building, a mall and an elderly and handicapped housing unit was built in 1984 where the local share of the project’s cost was paid by a bond, backed up by a TIF district created by the community and the transit authority) (TCRP 2002c).
In the Commonwealth of Massachusetts however, the concept of TIFs is applied differently. The strategy is basically a tax abatement program, used to attract businesses and encourage redevelopment and investments. The TIF allows municipalities to exempt a portion of the value added due to the project or improvement from the owner’s property taxes. It does not provide for public financing and is targeted at specific projects (MBTA 2001). However, the Legislature has enacted a bill in 2003 introducing the concept of TIF as applied in other states, under the rubric district increment financing or (DIF) (Hackney and Wodlinger 2003).17
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Chapter 3: Funding Strategies In Japan, the government applies the concept of value-capturing mainly to small scale improvements along existing railroads and rail expansions. Parties that benefit from the projects are expected to pay. In the case of developers, they must pay for the entire cost. If the benefits are more diffused, local governments share the costs (TCRP 2001). Valuecapturing is also applied through land assembly and land-banking in open market conditions. Governments purchase land prior to the development of an area, and hold it in anticipation of future use. When market conditions are ripe, the sale of the land reaps a return on investment (TCRP 2002C; Ubbels and Nijkamp 2002). Through takings or purchases of land for extra right-of-ways for road and rail projects (“Kukaku-seiri” process), the government also promotes the simultaneous development of private housing. The property owners receive their compensation through the increase in property value of the remaining land, derived from the project (TCRP 2001).
In Europe, value-capturing from public transportation investments is typically practiced through land assembly and land-banking in open market conditions (TCRP 2002c).
Development Levies Development levies are fees imposed on developers, to mitigate the impacts on local services caused by the new development. The fees (commonly known as “impact fees”) can be used as a condition for obtaining a site plan approval or a building permit and can take the form of a tax, a sponsorship of the transportation project or financing of improvements to a facility (Transportation Research Board 1984). While most cases are found in North America (e.g., San Francisco’s “Transport Impact Development Fee”*) one example was
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Chapter 3: Funding Strategies found in Germany, where the City of Hamburg implemented a development charge scheme (Ubbels and Nijkamp 2002).
Some authors also include “density bonusing”, “benefit-sharing” (or joint development) and “connection charges” among development levies that are based on the concept of value capturing (Ubbels and Nijkamp 2002). The first two strategies are addressed in a separate section (other findings), while connection charges were assessed as an option for public transportation agencies.
Parking Charges and Fines Although charging for parking is a common revenue-generating mechanism, it is considered innovative when earmarked for public transportation or as part of a planned transport funding package (Ubbels and Nijkamp 2002). A surcharge may also be applied to parking lots within a certain catchment area (i.e., a transit project) charging either users or operators of the facility (Transportation Research Board 1984). Although examples were mostly found in Europe*, Aspen, Colorado is an example referenced for the United States (Ubbels and Nijkamp 2002).18
Cross-Utility Financing Cross-utility financing can take two forms. One form is a levy on utility use (water, sewer, electricity and gas) added to the current service fee based on consumption, where the revenues are dedicated to public transportation. This form is common in the United States (e.g., Pullman, in the State of Washington*) (TCRP 1998a; Ubbels and Nijkamp 2002). The second form is a mechanism by which a loss-making public transportation department is 57
Chapter 3: Funding Strategies cross-subsidized by a profitable utility department. This form is common in most German cities*, where many public transportation systems were developed (during the 19th century) by the same organizations also in charge of supplying municipal services (gas, water and electricity) (Ubbels and Nijkamp 2002; Farrell 1999; TCRP 1997; TCRP 2003, 1-26).
Other Unconventional Charges Passenger Facility Charge In the United States, airports are allowed to apply passenger facility charges to tickets, together with other air-related taxes. Several airports collect these fees mainly for airport improvements, but one example was found where a portion of these revenues was dedicated to public transportation (Airtrain light rail linking JFK airport to the City of New York) (Ubbels and Nijkamp 2002).
Severance Taxes Severance taxes are charges levied on natural resource extraction operations (minerals, timber) generally intended to finance rural road repair. Although most states in the United States apply a uniform rate, some allow for a local options severance rate. In the case of Alabama, where it is allowed for any use (Goldman et al 2001) this could represent a potential source for public transportation.
Lodging Taxes Lodging taxes are charged as a percentage of the cost of a hotel and motel rooms, and are usually dedicated specifically to tourism-related activities. Three states in the United States authorize this tax at the local level. In Nevada, Las Vegas has applied a room tax to fund 58
Chapter 3: Funding Strategies improvements along the Las Vegas Strip and Reno, for the relocation of a freight rail line. In Louisiana, a hotel tax in New Orleans was dedicated to restoring service on an abandoned trolley line (Goldman et al 2001). This is one of the few taxes Massachusetts has enabled local municipalities to adopt.
Real Estate Transfer (or Mortgage Recording Tax) The charge is applied on the sale of property. The State of New York imposed it by a state act and while counties may choose to opt out, all five metropolitan areas support transit operations using these taxes. Similar taxes are allowed in Colorado, Delaware, Illinois and Washington (Goldman et al 2001).
Other Findings: Public-Private Partnerships Europe* presents several examples of public-private partnerships, were local governments have promoted transit-oriented joint development. Although developer contributions are usually associated with commercial developments, there have been some examples where residential development has been used as a primary source for funding. Usually separate public companies were set up to integrate the development schemes (Farrell 1999).
In the United States, New York City in 1990 was the city with most transit-joint development projects, mostly involving cost-sharing arrangements, in return for density bonusing (TCRP 2002c). Density bonusing is a “negotiated investment” strategy and an “incentive zoning” provision that allows developers to increase the floor-to-area ratio (FAR), gain additional density or benefit from changes in the zoning or building regulations in exchange for public improvements including connections to the transit stations, public art 59
Chapter 3: Funding Strategies and streetscape improvements. New York was the first city to introduce the concept in 1961, spreading from then on to other large and growing cities in the United States. The City of New York granted density bonuses in return for financing of the improvements to the 51st and 63rd Street stations along the Lexington Avenue subway line (TCRP 2002c). In Sacramento, California a real estate consortium received a 30% reduction in required parking spaces in exchange for contributing $250 thousand for the construction of a light rail station (TCRP 2002c). In Canada, the City of Toronto is the city with the longest tradition in the use of the tool, although other cities (notably Vancouver and Burnby) have also applied it (CMHC 2000).
Other possible zoning provisions are performance zoning, inclusionary zoning, interim zoning, overlay zoning districts, floating zones and minimum-density (as-of-right) classifications. Performance zoning is similar to incentive zoning (density bonusing) but requires the developer to meet certain criteria that promote the use of public transportation (e.g., projects around metrorail stations in Montgomery County, Maryland must be designed to reduce the number of single-person automobile trips in exchange for relaxed minimum parking standards). Inclusionary, interim, overlay and floating zones aim at creating a mix of land uses that encourages transit use and discourages automobile-centered environments. Not all states allow these types of zoning initiatives. Legislation may also be required to promote mixed-use transit oriented development (TOD) (TCRP 2002c).
In Asia, Japan and Hong Kong present several examples of joint development projects, where public government agencies have partnered with private developers to finance
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Chapter 3: Funding Strategies projects. Japan is known for its department stores built over and around public transportation stations and Hong Kong for its high-rise towers, providing important real estate revenues. Examples in Japan* include the Tokyo waterfront Yurikamome transit line, the Teito Rapid Transit Authority (TRTA) Subway, and the Nagoya Shidami Bus Line. In Hong Kong*, an example is provided by the public corporation Mass Transit Rail Corporation (MTR) (TCRP 2001).
Furthermore, Japan is known for implementing a type of public-private partnership known as a “Daisan-sector”19 company, considered a truly unique Japanese concept. The world’s first fully automated people mover, in revenue service (the tired Port Liner) opened in 1981, and is operated by a public-private company (Kobe New Transit) that is owned by the City (55%) and a coalition of banks, insurance companies and travel agencies. In Osaka, Japan Railways (JR) West, the Osaka prefecture and the city have also formed a Daisan-sector company to undertake a $ 1.1 billion new rail project scheduled for 2005 (TCRP 2001).
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Chapter 3: Funding Strategies Strategies Implemented By Public Transportation Agencies The “innovative” funding sources being considered for public transportation agencies may be grouped into three overlapping20 categories: (1) Partnerships with the private sector (suppliers (e.g., progress payments), investors (e.g., cross-border leases), developers (e.g., turnkey procurement, joint development of facilities, private contributions and transit-joint development), and retailers (e.g., credit card fare payment through ticket machines) and with the community (e.g., student surcharges, pass programs), (2) Creative use of assets (advertising and leasing, stations for joint development and concessions, and rights-of-way for telecommunications infrastructure) and (3) Leveraging funds for capital expenditures
(among others advanced construction authority and use of debt financing)21 (TCRP 1998a, Vol. 1, ES p.15-16).
Partnerships with the Private Sector Progress Payments Traditionally, a public transportation agency pays for vehicles in a lump sum upon delivery, which usually forces the manufacturer to obtain short-term loans. With progress payments, the agency pays as parts are purchased rather than when the vehicle is completely finished (TCRP 1998a). An example in the United States is the purchase of buses by the Central New York Regional Transportation Authority (CNYRTA)* (TCRP 1998a).
A related strategy is “vendor financing”, where financing for equipment and vehicles is financed through a loan granted by the manufacturer. The loan (up to the value of the equipment) is secured by the equipment or vehicle and is repaid by the operating revenues.
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Chapter 3: Funding Strategies Vendors often use loan terms, loan guarantees and other credit devices to obtain a competitive bidding advantage (Transportation Research Board 1984).
Cross Border Leasing Private businesses are allowed under federal law to deduct the loss in value of an asset (facilities and equipments that become obsolete) through an income tax deduction for depreciation. Public companies until the mid-eighties were allowed a similar benefit through “safe harbor leasing”22, which consisted of a leasing arrangement with private investors, whereby the investors purchased the capital required by the public transportation agency, received the tax benefit of depreciation and then leased the capital back to the agency. Some of the tax benefit was therefore passed on to the agency, through the reduction in the direct purchase price of the asset. Once this benefit was eliminated, some creative agencies implemented a similar arrangement with third-party foreign investors in Denmark, France, Germany, Japan, and Sweden, obtaining similar benefits as with “safe harbor leasing”. Although cross border leases are usually applied to rolling stock, separate transactions called leaseholds exist for facilities (TCRP 1998a).
An example in the United States* is the cross border bus lease with Japanese investors, entered by the King County Department of Transportation (Seattle, Washington) in 1996 (TCRP 1998a).
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Chapter 3: Funding Strategies Turnkey Procurement Construction projects in the United States have traditionally been based on the design-bidbuild process (DBB), where a public transportation agency first hires an engineering firm to design the project, and then places the project for construction bids. Through a turnkey procurement method, which often uses and is here equated with the design-build (DB) process, a team of contractors for each stage of the project (design, engineering and construction) is selected under a single “Request for Proposals” (RFP). The RFP states the project in terms of outcomes and awards the contract based on the best design and price stand-point.
The “super turnkey” method is similar to the turnkey procurement but additionally includes within the contract the operation and maintenance of the facility, also known as designbuild-operate-maintain (DBOM) (TCRP 1998a) or furthermore, the securing of funds as a design-finance-build-operate-transfer (DFBOT) (TCRP 2002a). The private sector makes the initial investment, operates the facility for a predetermined time, after which it transfers it back to the public transportation agency. The firm is repaid through fare and other agency revenues (TCRP 1998a; TCRP 2002a).
While the use of this method is just recently increasing within the United States, (“super turnkey” methods are rarer23), both have been used extensively in all matters of construction in Asia and Australia. Cases in the USA have mainly aimed at reaping the benefits related to cost and time savings.24 In the case of Asia, the use of this method has been aimed at
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Chapter 3: Funding Strategies privatization (i.e., financing public transportation systems which would otherwise have been impossible to build) (TCRP 2002a).
Australia and Asian countries also turn to turnkey methods for political leadership reasons, to reduce the risk faced by government and the burden of high investments (i.e. political leaders prefer to see infrastructure projects completed within their time in office and turnkey methods can lead to shorter project schedules) and for revenue-driven projects where the revenue service date is critical in the financial plans (TCRP 2002a). Australia has recently implemented a fully-electronic, cashless tolling system without toll stations or boom gates in Melbourne, along a roadway project. The project was financed by the private sector as a Build-Own-Operate-Transfer (BOOT) scheme with a concession period of 34 years (CUPID 2003). In Asia, Thailand financed a transit system in Bangkok*, entirely with private sector funds and the use of turnkey procurement (design-build-own-operate-maintain-transfer) (TCRP 2002a; Strandberg 2000).
Examples of DB applications in the United States include: the construction of a new bus facility for Community Transit, in Snohomish County, Washington*; and the public-private partnership by Central New York Regional Transportation Authority (CNYRTA), for the construction of a CNG fueling facility and bus purchases (TCRP 1998a).
Joint Development of Facility In some cases agencies enter into a public-private partnership, where a private company partners with the agency to develop a facility. In the United States*, the MARTA in
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Chapter 3: Funding Strategies Atlanta, Georgia and the CNYRTA, in Syracuse, New York benefited from partnering with local natural gas companies to build fueling stations and purchase CNG fuel buses, needed to comply with the Clean Air Act Amendment of 1990. In return, the private companies received tax credits for their investment under the Energy Policy Act of 1992 as well as a large new customer for their natural gas. A partnership of this type requires a long-term commitment and frequent communications between the partners. In some cases, the private partner may require a fuel purchase guarantee and this could lead to higher gas prices for the agency (TCRP 1998a).
Private Contributions Private Donations Land donations or capital contributions may be received from businesses and private citizens for improvements or projects that have a strong private interest. Donors usually benefit from tax deductions (and potentially from increased “access” through the project) (Transportation Research Board 1984)
In the City of Calgary, a transit provider adopted a unique approach to financing door-todoor paratransit services, through private donations for vehicle purchases. In return, the donated vehicles are marked in honor of the donors. Furthermore, the private donations free up additional funds for service delivery (TCRP 1997).
In Switzerland, Zurich offers an interesting example of a public-private partnership, aimed at enhancing ridership. As bicycles complement the public transportation services, bicycle “loaning stations” are established at stations. A private company provides the bicycles, 66
Chapter 3: Funding Strategies earning revenues from advertising attached to the bicycles. Passengers may borrow bicycles free of charge and are expected to return them to the station, based on an honor system (TCRP 2002b).
Station Connection Fees Developers or owners of facilities adjacent to public transportation stations are assessed a “connection fee” to access the station. The Washington Metropolitan Area Transit Authority (WMATA) pioneered this approach through its “station connection fee” program. By entering into connector agreements with a major department store, it saved the cost of construction and an additional saving from the permanent right of way easement at 50% of the fair market value (TCRP 2002c). Other examples include the Seattle Metro in Seattle, Washington and the MARTA in Atlanta, Georgia. Both received cash payments from downtown retailers to finance passageway connections. In the case of one station in Atlanta, a department store not only paid for the construction costs, but also pays an annual connector fee and covers the maintenance costs of the connection (TCRP 2002c). In Canada, the City of Toronto has developed during more than 25 years, an underground path system primarily through private-sector initiatives. A network of approximately 31 miles of tunnels and bridges was built connecting subway stations to adjacent shopping centers and office buildings, entirely with private sector funds (TCRP 1997).
Cashless Payment Method Processing cash from fare payments is a large operating expense. With a cashless fare system, money is available for use almost immediately, reducing collecting and handling
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Chapter 3: Funding Strategies time. Nevertheless, a complete elimination of cash payment is not possible for two reasons: many passengers may not have access to the alternative payment methods (debit or credit cards), and it would also require significant layoffs by the agency. One example in the United States is Virginia Railway Express (VRE) in Springfield, Virginia where a cashless fare payment method was introduced to increase revenues by decreasing handling costs (TCRP 1998a).
Partnerships with the Community Partnerships between a public transportation agency and a community can increase the revenue source for the agency, enhance ridership and strengthen the bond with the community. It may also generate funds to match federal grant funds (in the United States), and provide the community with flexibility in travel options. These types of partnerships are common in the United States and Canada*. They include partnerships with school districts, universities, commercial businesses and even churches.
Pass Programs In 1991 the Regional Transportation District (RTD) that provides transit for the Denver/Boulder metropolitan area in Colorado, introduced a program, in cooperation with local employers, aiming at increasing ridership, decreasing automobile use and improving the region’s quality of life. Through the program, local employers can purchase an “Eco Pass” for their employees, for unlimited rides on the local Boulder routes. In return, the employers can deduct the cost of the pass under the federal transit benefit program, use the pass as a recruiting and retention tool, as well as a marketing tool for the company. By 1998, more than 1,100 companies had enrolled with over 32,000 employees (TCRP 1998a). 68
Chapter 3: Funding Strategies Similar examples were found in Detmold, Germany where companies may buy a “job ticket” for their employees as a fringe benefit (TCRP 1997) and in Maastricht, Netherlands, where the private operating company (City Bus) has undertaken several marketing initiatives to improve financial performance. Among these initiatives are promotions implemented in conjunction with local department stores, arrangements with the cultural center to provide combined tickets and passes for the different performances, “job” tickets marketed to employers, a weekend “2-for-1” pass and night taxis (TCRP 1997). The City of Muenster, Germany also provides various kinds of passes for different types of passengers (employees, students, seniors and family groups) (TCRP 1997).
Creative Use of Assets Advertising Advertising is a strategy that captures private sector funds, charging fees or taxes on billboard advertising and renting space on public facilities such as parking meters, bus shelters, vehicles and terminals (Transportation Research Board 1984). This strategy can provide an agency with a new or expanded revenue source. Enlisting an aggressive advertising vendor, including penalties in the vendor's contract for unfilled space, and referencing the transit system as much as possible, can help increase the revenues. The agency has to decide whether it will handle advertising in-house or contract an outside vendor firm (TCRP 1998a).
Examples in the United States include the Chicago Transit Authority (Chicago, Illinois) Sun Tran (Albuquerque, New Mexico) and the MBTA (Massachusetts) (TCRP 1998a).
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Chapter 3: Funding Strategies In Japan most local governments allow advertisements on trains, buses and streetcars, although Tokyo presents an example where advertising on trains was vetoed. JR East – a private rail operator in Tokyo, planned on raising revenues by advertising on the outside of its urban electric trains but the Tokyo Metropolitan Government cited a local ordinance banning outdoor advertising. The ban did not extend to buses and streetcars (TCRP 2001).
In Switzerland, small cities take advantage of advertising to reduce operating costs. In the City of Scaffhausen, the cost of annually delivering new schedules to homes is covered by an ad on the schedule placed by a local department store. The bus company also earns revenues from this form of advertising. In the City of Frauenfeld, advertisements have paid for the entire cost of covered bus shelters, including amenities such as seats, public telephones, mailboxes and bicycle storage racks. Most shelters are owned by the city, and some by private companies, which make the initial investment, and retain both ownership and the responsibility for its maintenance, in exchange for the right to advertise. The public transportation agency places maps and schedules (TCRP 1997). In Berlin, Germany the public transportation enterprise (BVG) builds bus shelters in its workshop, which it funds with advertising revenues (APTA 1999).
Stations for Joint Development Joint Development is a partnership or venture between a public transportation agency and a private developer, where private funds are used to develop transit property usually resulting in a developed asset for the agency and a profit for the developer. Depending on the form, the risks related to the development may be assumed by both or by one of the two parties (TCRP 1999). It can take the form of revenue-sharing arrangements benefiting the agency 70
Chapter 3: Funding Strategies by securing a stream of revenue (land leases, air rights development, station interface or connection-fee programs and concession leases) or cost-sharing arrangements that allow the transit agency to save on construction, or maintenance costs (resource sharing and joint use of equipment (e.g., air-conditioning systems) (TCRP 2002c).
The most common assets a public transportation agency may contribute to the partnership are real estate and right-of-ways (ROW). Although the main reason for a public transportation agency to enter into a joint development project is to generate new revenues, other purposes may include increasing ridership and enhancing a specific facility (TCRP 1999).
The United States presents many examples of transit-joint development projects undertaken by public transportation agencies where the asset offered by the agency is land. Among the leading agencies is the WMATA in Washington D.C.* Other examples* include the Miami Dade Transit Agency (MDTA) in Miami, Florida and the Santa Clara Valley Transportation Agency (VTA) in San Jose, California (TCRP 1999). The MBTA is overseeing transitoriented development proposals in 26 communities and is currently assessing the possibility of carrying out a transit-oriented development on the deck of one of its commuter rail stations (Waverly Square) in Belmont* (Cole 2004).
Resource Sharing Resource sharing consists of drawing private capital to transit station areas through economies of scale and scope. It can range from developer and agency sharing common staging areas for construction equipment to joint sharing of heating and ventilation systems, 71
Chapter 3: Funding Strategies as was done in WMATA’s station Farragut West in Washington DC. Another example is the sharing of parking areas with entertainment complexes: in San Diego, California the Metropolitan Transit Development Board (MTDB) receives an annual lease from a theatre owner for the use of the Grossmont Station parking lot (TCRP 2002c). Station Concessions In the United States, the Metropolitan Transportation Authority (MTA) in New York provides a good example of station concessions. The MTA generates revenue from licensing retail stores in unused space in stations to concessionaires (individuals, partnerships, or corporations), who are selected under a RFP process. The license terms have traditionally lasted five years (with a five year renewal option), at the end of which the rehabilitation of the store is usually the responsibility of the concessionaires. The title of the improvements is transferred to the MTA. The agency receives rent based on (1) what the charge was under the previous concession with inflation added, (2) rent levels on comparable commercial space in the city and (3) the location of the station (the MTA charges a premium for downtown and busy stations) (TCRP 1998a).
An example in Europe is presented by Berlin’s public transportation enterprise (BVG) which rented out space in 28 major subway stations to concessionaires for operating stores, selling BVG tickets, and making general station improvements. The company launched in 1999 a series of innovative strategies to enhance general revenues (APTA 1999).25
In many European cities, private companies develop and maintain public transportation shelters and provide a fee to the public transportation agency. To offset the costs, pay the fee
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Chapter 3: Funding Strategies and earn a profit, private companies generate revenues from advertising posted in the shelters (TCRP 2002b).
Most US rail systems lease common space under concession agreements: the Southeast Pennsylvania Transportation Authority (SEPTA) offers rent credit to private developers who lease commercial space within rail stations in return for specified capital improvements. In residentially zoned areas, proposed commercial projects have been rejected and most projects to date have been small, neighborhood-scale retailers or eateries (TCRP 2002c).
Leasing Rights-of-Way As described by the previous examples, an agency may sell or lease undeveloped or underutilized land (e.g., equipment staging areas no longer in use, space within a station or terminal), subsurface rights or air rights surrounding a public transportation facility. The agency may also enter into lease arrangements with telecommunications and electric power companies that allow fiber-optic and wideband width cables along transit rights-of-way (TCRP 2002c). Sometimes, this arrangement resembles a “joint-development” cost-sharing strategy, as the public transportation agency may benefit from the use of the telecommunication service installed along its ROW, for its own system. Examples include: the San Francisco Bay Area Rapid Transit District (BART) in San Francisco, California* (TCRP 1999) and the Bi-State Development Agency (BSDA) in St. Louis, Missouri* (both offering the ROW for the installation of a fiber optic telecommunications system) (TCRP 1998a).
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Chapter 3: Funding Strategies Shared Right-of-Way Sharing the right-of-way between modes of transportation can result in lower ROW acquisition costs and operating costs. A common example of shared rail ROWs are among passenger modes and freight users. Commuter rails sometimes need to share tracks or ROWs to expand service. One method has been to install rapid transit or light rail on ROWS adjacent to freight and passenger lines. Track-sharing requires more coordination than single-use tracks and an infrastructure that ensures efficient and safe use by both systems. In the United States, most freight railroads own their ROWs and with the expansion of commuter rail, both cooperation and controversies between the two modes have increased.
In Japan, rail ROW sharing is tending to disappear as rail modes have become more specialized and exclusive to attract maximum ridership away from other modes and serve it effectively. ROW sharing diminishes flexibility and capacity, which rail systems in Japan cannot afford to loose. The right-of-way is mostly shared on roads as many new transit systems consist of elevated structures over roads, carrying rubber-tired trains and sometimes buses. These are usually built in places where the moderate demand is not covered by buses along congested roads, and yet the densities do not justify the cost of rail (TCRP 2001).
In Hong Kong, rail modes are also segregated as densities and specialization are even greater than Japan. There is only one train sharing the ROW with traffic, through the island. Furthermore, Hong Kong does not rely extensively on intermodal freight for its markets (TCRP 2001).
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Chapter 3: Funding Strategies Other Findings: Cost Reductions Canada offers an interesting cost reduction example associated with commuter rail operations. In the City of Toronto, one of the major regional transportation providers (Government of Ontario Transit - GO Transit) has reduced total operating expenses by inserting flexibility into the service. During periods of reduced demand, the agency stops the train service and operates buses instead along the commuter rail alignment bringing costs down without eliminating the service. Additionally, the local buses departing from the commuter rail stations operate at flexible routes depending on demand. This reduced total operating expenses, while still providing a good geographic coverage (TCRP 1997).
Another interesting example related to enhancing ridership, is Montreal’s suburban transit system. Under its “Between Two Stops Program”, passengers riding after 9 p.m. concerned about safety issues may request a stop anywhere along the service route instead of at designated stops only (TCRP 1997).
After reviewing a range of strategies that are available to local governments and public transportation agencies, the next chapter explores the advantages and disadvantages of each option, the extent to which some of these strategies have already been applied or identified by the MBTA, and where possible, assesses whether others could also be applicable to the Urban Ring project and the MBTA in general. 1
According to the Merriam-Webster's Online Dictionary http://www.britannica.com/dictionary?book=Dictionary&va=innovate 2 According to a Legislative Update produced by the American Public Transportation Association, dated February 3, 2004, the FY2005 federal transit funding will maintain the same level as FY 2004 and the proposed reauthorization of TEA-21 has a $9 billion increase, although it would all go to the highway program. The federal government, recognizing this decline, has been encouraging new innovative sources of funding to support public transportation. The Intermodal Service Transportation Efficiency Act of 1991 (ISTEA)
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Chapter 3: Funding Strategies promoted revenue enhancement and the creation of public/private partnerships (TCRP 1999). Furthermore, the Federal Transit Administration has identified and described innovative methods to be used by transit operators receiving federal aid, to enhance the effectiveness of their capital investment programs with these techniques (TCRP 1999). The selected mechanisms are: (i) Repaying Bonds and Certificates of Participation, (ii) State Revolving Loan Funds (iii) Lease Payments (iv) Joint Development of Transit Assets (v) Super Turnkey and Private Financing (vi) Delayed Local Match and (vii) Toll Revenue Credits. For further information refer to (Federal Transit Administration 2004c). 3 Many countries use the word “State” to refer to the federal or central government. To avoid the confusion with the concept of “State” as applied in the United States, the term “national” is used instead to refer to federal or central governments in other countries. 4 These sources can also been classified into “user fees, nonuser fees, special benefit fees, private financing, debt financing, private property utilization, special revenues and enhancing revenue picture” (Transportation Research Board 1984). 5 An interesting finding from the experiment was that the demand for both park and ride facilities as well as public transportation remained higher after the simulation. Researchers concluded that by providing people with information on alternative transportation options other than the automobile, coupled with a reason for trying them out, enhanced their general acceptance (TCRP 2003d). 6 The PRoGRESS project supported by its sister-project CUPID (CUPID 2003). 7 Exclusive or controlled access right-of-way that is restricted to high occupancy vehicles (buses, passenger vans and cars carrying more than one, in some instances more than two passengers) for a portion or all of a day (FTA – Glossary of National Transit Database terms). 8 In the United States, a tax on lotteries is allowed by several states although very few allocate revenue to transportation projects (TCRP 1998a). 9 Most have been voter approved. Successful cases include: Atlanta, Charlotte, Dallas, Denver, Houston, Los Angeles, Phoenix, Sacramento, Salt Lake City, Seattle, San Diego, San Francisco, San Jose and St. Louis. Unsuccessful cases include: Austin, Kansas City, San Antonio, and northern suburbs in both Portland and San Francisco (Goldman et al 2001). 10 The State of Florida has two types of local motor fuel taxes: a voted gas tax (allows a 1% per gallon tax to be levied subject to voter approval in a county-wide referendum) and a local option fuel tax (implementation requires the approval of a county commission) (Ubbels and Nijkamp 2002). 11 Most states primarily allow the use of revenues generated from the local option motor fuel taxes for maintaining and improving local road systems. In Nevada for example they MUST be used for highway or streets. In Tennessee, cities and counties may levy a 1¢/gallon tax for public transit subject to voter approval but until 2001, no city or county had adopted it. The Virginia state law imposed a local tax in several counties and cities, where a portion of revenues is allocated to debt service and operating expenses for public transportation (Goldman et al 2001). 12 Based on (Ubbels and Nijkamp 2002), the information was verified from a 2002 Report by the Canadian Taxpayers Federation, available at http://www.taxpayer.com/studies/federal/GasTaxReport2002.pdf. retrieved 03/03/2004. 13 This information was obtained from personal communications as well as the Testimony of Oscar Edmundo Diaz to the Senate Committee on Banking, Housing, and Urban Affairs on June 24, 2003 provided by Mr. Diaz. Mr. Diaz is the former advisor on foreign affairs to the former Mayor of Bogotá, Enrique Peñalosa. 14 Occupational privilege taxes or business license taxes that vary according to profits, employees or other (Goldman et al 2001). 15 Oregon Department of Revenue website http://www.dor.state.or.us/q_a/transit-faq.html, updated 02/10/2004. Accessed 03/03/2004. 16 Apparently the State recently revoked the ability of public transportation agencies to benefit from property tax revenues, as part of a property tax relief program (TCRP 2003c). 17 This information was also provided by Ron Farrar, City of Somerville. See Appendix I. 18 Parking meter and ticket revenues are allocated to: 5 free in town bus routes, transportation option programs and carpooling programs. The City of Aspen Website. Department of Transportation http://www.aspenpitkin.com/depts/61/revenue.cfm accessed 03/03/2004. 19 Daisan means “third” – a third sector, which operates in conjunction with the other sectors in the economy: the public (first sector) and the private (second sector) (TCRP 2001).
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Chapter 3: Funding Strategies 20
Transit-joint development is both a partnership with the private sector and a creative use of the asset. Advertising and leasing rights-of-way for telecommunication are both a creative use of assets and a partnership with the private sector. 21 The example found in the United States was actually applied by the MBTA to construct a commuter rail maintenance facility. Through this strategy the agency is able to finance the reconstruction of the facility over 19 years while completing the project in six. The agency incurs expenses to reconstruct the obsolete facility and submits the receipts to the Federal Transit Administration (FTA) for reimbursement of the federal share. For expenses not covered by the FTA, the MBTA issued short-term debt for that year. To cancel the short-term debt, it issues long-term general obligation bonds. The interest is covered up to 80% by FTA (TCRP 1998a). 22 The MBTA has several prior lease agreements under “safe harboring”. These obligations will amount to approximately $128 million terminating in 2013 (Boston Metropolitan Planning Organization 2003). 23 The examples found were listed in TCRP Reports: Tren Urbano in Puerto Rico and the New Jersey HudsonBergen Light Rail Transit Extension. The latter was the first super turnkey project in the United States (TCRP 2002a) and Metropolitan Atlanta Rapid Transit Authority’s public-private partnership for a CNG fueling facility (TCRP 1998a). 24 The FTA was mandated by the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) and its successor TEA-21, to conduct a turnkey demonstration program to explore methods that encourage advanced technologies and decrease the time and cost of implementing new systems. Five projects out of seventeen proposals were chosen under the demonstration program, among them the first design-build-operate-maintain project in the United States: the New Jersey Hudson-Bergen Light Rail Transit Extension (TCRP 2002a). 25 Among other measures, to enhance lost ridership, it (1) operates an intercity coach and travel agency that offers bus trips within Germany and Europe; (2) facilitates purchase and renewal of monthly passes at over 1,000 retail outlets and approx. 3,500 vending machines in stations and on buses; (3) obtains revenues from sports and cultural events organizers (even hotels and car repair shops) for the use of tickets, room registration cards, or service receipts as farecards; (4) contracts with companies and federal government agencies for discounted, tax-deductible farecards for their respective employees; (5) reducing fare evasion by placing some 500 retired employees in stations on a small stipend, dressed in civilian clothes, to fine evaders; and (6) promotes customer loyalty through a free BVG Club with cultural/social events, including tours, a magazine, and site visits (APTA 1999). Also see section on Advertising.
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Chapter 4: Applicability of the Identified Funding Strategies to the MBTA Introduction The aim of this chapter is to assess each of the identified strategies, in terms of their advantages, disadvantages, and their potential application to the Urban Ring project and the MBTA in general. Although learning by example is often easy and practical, examples taken from other countries or states, raise the question of to what extent the findings are transferable to the Commonwealth of Massachusetts. Caution must be used when drawing conclusions, as each technique may yield different results in different contexts. Every place is unique in terms of the political and social attitudes, and demographic, environmental and economic attributes. Nevertheless, sometimes a good idea is a good idea regardless of context or place. Furthermore, although not all the strategies have had excellent results, they can always be refined and improved to be made successful (TCRP 1999).
A critical aspect to consider is the legal aspect. Federal, state and local laws have to be examined to determine any issues that may arise from using a certain strategy. It must be noted that under Massachusetts law, cities and towns do not have the power to tax outside of property tax.1 They may however exact fees.2 It is important therefore to distinguish between these two charges, as most options assessed for local governments involved levying local taxes. Fees share three common traits: (1) they are charged in exchange for a particular service which benefits the party paying the fee in a manner not shared by other members of society, (2) they are paid by choice in that the party has the option of not utilizing the service and avoiding the tax3, and (3) they are not collected to generate general revenues but to compensate the government entity providing the service for its expenses.4
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Chapter 4: Applicability of the Identified Funding Strategies to the MBTA Furthermore, special attention must be paid if federally-funded assets are being used. Federal tax laws may also be important especially if tax-exempt financing has been involved in any of the assets under consideration. State and local laws may further exclude or restrict certain strategies, requiring amendments to regulations or special consents (TCRP 1999).
Assessment Criteria In general, when evaluating the possible application of each strategy, the following factors have to be taken into consideration: legislation, revenue potential and stability, administrative costs and efficiency, political structures, institutional feasibility, resistance by affected groups, ideologies, public acceptance, spatial factors, equity in distribution of costs and benefits, economic conditions, revenue source pre-emption by other governments and potential side effects (Transportation Research Board 1984).
When assessing the options available to local governments, among the questions that have to be addressed to determine whether a certain strategy may work, are: 1- Does some form already exist in the Commonwealth, and is it similar, different? 2- Is it like a new tax? 3- Is legislation required? 4- Does it require state or local obligations? 5- What controls would state and local governments have? 6- Is the source equitable and is it connected to the benefit? 7- How stable is the revenue (is it strong and reliable in terms of revenue base, does it keep up with inflation and is it stable in times of recession)?
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Chapter 4: Applicability of the Identified Funding Strategies to the MBTA 8- What administrative costs are involved? 9- What are the potential side effects?
In the case of the public transportation agency, while many of the same questions previously identified have to also be addressed – especially related to legislation and therefore the strategy’s likely implementation –the criteria of greater concern to the agency (according to the MBTA’s CFO) are risk and administrative costs.5 Every technique bears a certain degree of risk which must be carefully examined. Furthermore, the economic gains often may depend upon a number of factors beyond the public transportation agency’s control (TCRP 1999).
The following tables (Table 4.1. Options for Local Governments, and Table 4.2. Options for Public Transportation Agencies) attempt to answer the set of questions for each of the strategies available for local governments and public transportation agencies assessed in the previous chapter, describing the advantages and disadvantages: (i) in general, (ii) based on its applicability to Massachusetts, (iii) as a strategy considered for the Urban Ring project and as a financing source for the MBTA in general.
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Chapter 4: Applicability of the Identified Funding Strategies to the MBTA Table 4.1 Options for Local Governments6 Notes: The numbers in the table refer to the list of criteria on p. 79-80. The text in italics discusses the applicability of the strategy to the Urban Ring project and the MBTA in general. The MIS has classified the strategies into conventional (mechanisms currently utilized in Massachusetts, which would not require legislative action), innovative (mechanism not currently in use within Massachusetts, but proven records of success in other states, and where some legislative action will be necessary), and aggressive (mechanisms with track records elsewhere, some may be precedent setting and would require new legislation at the state and/or municipal level. These are further classified according to the source of funding: local/municipal, private sector or state (MBTA 2001). The symbol # indicates the strategies that could be applicable to both local governments and public transportation agencies. Funding Strategy Road Value Pricing
Main Advantages
Main Disadvantages
7 - Stable revenue source. 9 - Potential reduction in the use of the automobile, especially when there are no or limited highway alternatives, trip makers will turn more to public transportation and other modes, especially if good public transportation alternatives exist. 9 - May represent an indirect benefit by freeing up general funds, available for public transportation. 6 - Variable tolls that reflect congestion costs at different times of the day are socially equitable (taxpayer pay for the benefits they receive proportionally to the costs they impose). 6 - Relevant to public transportation if they tend to reduce congestion.
1- Limited experience in the United States and in Commonwealth. - Political resistance (not yet gained a “political foothold” in the United States) (TCRP 2003d).7 2 - Like a new tax. 3 - Requires legislation 8 - Presents important collection costs 9 - May present legal difficulties. 9 - Requires extensive public information, stakeholder consultation and public hearings. 9 - Resistance from businesses and risk of “fleeing” to surrounding areas. - Many of the road value pricing projects implemented in the United States are in suburban areas where people are more affluent and automobiles are more accessible (TCRP 2003d). As a type of tax, it would require Legislative action (i.e. enabling legislation).
According to the MBTA’s General Manager, the City of Boston could be among the first cities to implement road value pricing, due to its similarities with European cities.8
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Chapter 4: Applicability of the Identified Funding Strategies to the MBTA
Consumption Taxes (Sales Tax)
5 - Enforcement and redistribution is done at the state level. 6 - Fair in that expenditures are a better reflection of ability to pay than income or wealth. 6 - In areas where non-residents cause impacts on transportation (e.g., tourists or visitors) the tax is a way of making them share the cost of the improvements (Goldman et al 2001). 6 - Relevant to public transportation as these investments tend to promote the regional economy. 7 - Broad base, producing high revenues at low marginal rates. 7 - Responds quickly to income changes and inflation. 7 - Strong revenue pledge for debt issues. 8 - Easily administered. 9, 6 - Usually more acceptable politically than other levies (paid continually and not in a lump sum). All users contribute. - Typically applied to both highway and public transportation capita and operating costs.
The MIS has identified a “Local Option Sales Tax” as an aggressive, local/municipal funding strategy for the Urban ring project. This would involve determining the amount of local sales tax revenue generated by each of the compact communities, and multiply it by a certain percentage to estimate the funding possibly available for the Urban Ring project. - Revenues generated on an annual basis.
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3 - Requires state action and approval, and participation of local residents and community leaders. 5 - Strong competition with other public services. 6 - May be regressive depending on structure (retail purchases rise more slowly than income, impacting lowerincome households). 6 - Moderate relation/relevance to public transportation (less related to transportation use). 7 - Revenues decline during an economic downturn. 7 - Decline with increased use of sales by catalog and internet. 9 - May encourage purchasing outside the taxing district.
2, 3 - Massachusetts is among the 17 states that has not authorized a local option sales tax (Goldman et al 2001). This would require a state legislative process. 2, 3 - Ability to implement in Massachusetts. 4 - Even if allowed by the Commonwealth, cities and towns may not be willing to create new taxes or earmark existing taxes for the Urban Ring project.9
Chapter 4: Applicability of the Identified Funding Strategies to the MBTA Motor Fuel Taxes
- Typically applied to highway capital and maintenance projects. 6 - Generally accepted as fair and equitable. - Less visible to taxpayers. 6 - Relevant to public transportation if investments tend to reduce congestion. 7 - Good revenue potential at state and federal levels. 8 - Easily administered. 9 - Possible deterrent to driving.
1- In addition to the federal tax, the Commonwealth applies a state “gas tax” of 21 cents per gallon borne by the purchaser (M.G.L. Ch. 64A§1,§9).
The MIS has identified a possible increase in the amount of state gas tax dedicated to funding the urban
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2 - New local tax 6 - Highly regressive tax. 6 - Inequitable horizontally as people who do not own a car can avoid the tax regardless of their high income. 6 - Moderate relation to public transportation and poor acceptance if the need is not evident. 7, 9 - Limited revenue base (one product) so tax rate must be set high to generate substantial revenue. This is a problem for local governments: politically and economically difficult to be adopted at high levels to generate sufficient revenue (could lead drivers to purchase their fuel elsewhere). 7 - Tax usually charged on a fixed basis and does not adjust to inflation if not indexed. Revenues tend to lag over time because the real value declines with inflation (could be charged on a percentage basis, making it more inflation-responsive). 7 - Subject to decline due to improved fuel economy and the use of alternative fuels. 7 - Sharp declines in consumption may lessen revenues severely. 9 - May produce border problems among local governments. 9 - Evaded by long distance commuters. - Statewide only 15% of the revenues are assigned to public transportation, although the Commonwealth also allocates funds from the general fund through the appropriations process.10 2, 3- Massachusetts does not authorize a local option fuel tax.7 The rate is not indexed11 and the “purchasing power” has decreased over the years. The gas revenues have not kept pace with rising transportation budgets, and have led to increased borrowing.12 2, 3 - Ability to implement in Massachusetts. - Implementation on a regional basis
Chapter 4: Applicability of the Identified Funding Strategies to the MBTA
Vehicle Fees
ring as a possible aggressive, state funding strategy. - Revenues generated on an annual basis. - Typically applied to highway capital and maintenance projects. 6 - Accepted by automobile owners. 6 - Relevant to public transportation if investments tend to reduce congestion.7 - High revenue potential. 7 - Stable source of revenue during recession. 8- Additional administrative costs tend to be low, as most states have some form of vehicle registration process. 9 - Possible deterrent to driving. 1- In Massachusetts, under MGL Chapter 60A every resident who owns and registers a motor vehicle must annually pay a motor vehicle excise. Every motor vehicle, whether registered or not, is subject to taxation, either as excise or personal property, for the privilege of road use. The excise is levied by the city or town where the vehicle is principally garaged and the revenues become part of the local community treasury.13 - The MIS has identified an “Auto Excise Tax” strategy as an innovative, local/municipal funding strategy for the Urban Ring project. The strategy would consist of an annual surcharge on registered vehicles within the 101 Boston MPO communities. - Revenues generated on an annual basis.
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or throughout the Commonwealth.
2, 3 - Requires state action. 6 - May be regressive depending on structure (moderately regressive). 6 - Inequitable horizontally as people who do not own a car can avoid the tax regardless of their high income. 6 - Moderate link to public transportation. 7 - Limited base (one product). 7 - Not indexed for inflation (except ad valorem vehicle taxes).
The Commonwealth does not authorize a local option vehicle tax (Goldman et al 2001). This would require a state legislative process.
2, 3 - Ability to implement in Massachusetts. - Possible resistance from other communities claiming “no direct benefit” from the Urban Ring project.
Chapter 4: Applicability of the Identified Funding Strategies to the MBTA Employer Payroll Taxes and Income Taxes
Property Taxes (Ad Valorem)
7 - Substantial revenue potential due to broad base. Payroll 6 - Progressive tax. 6 - Commuters into a city contribute to services that benefit them. 6 - Relevant to public transportation if investments tend to reduce congestion. 7 - It increases automatically with salaries (Farrell 1999). 7 - Usually on a flat-rate based on income (inflation sensitive as wages tend to pace with or outgrow inflation). Income 6 - Progressive at the federal and state level, although mainly income-neutral at the local level. 6 - Individuals of comparable income pay comparable amounts.
- In 1999, a Financial Subcommittee for the Urban Ring project had identified the possibility of exploring an income-tax surcharge on nonMassachusetts residents who work in greater Boston. 5, 8 - Maybe directly earmarked to public transportation or appropriated through general funds. 6 - Fair in that transportation provides access, a determinant for land value and provides broad public benefits (everyone benefits even if they don’t “use it”). 7 - Substantial revenue potential due to very broad base 7, 8 - Not easily evaded as they are based on immobile assets 7 - Inflation sensitive (if reassessments are conducted frequently and effectively) 7 - On the other hand, if property is not reassessed frequently the source tends to be stable in times of
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2, 3 - Few local governments are authorized to use these taxes locally for transportation. 7 - Subject to economic cycles (greatly affected by recession). Payroll 6, 9 - May be controversial since commuters may have no representation within the government and therefore no control over its use. 6 - Moderate link to public transportation. 8 - More challenging to administer if separated from regular state tax collection processes. 9 - Opposition from employers and employees. 9 - Unless applied regionwide, it may discourage job creation and lead to the dispersion of employment to other areas not served by public transportation. 2, 3 - Massachusetts does not authorize a local option employment tax (Goldman et al 2001). This would require a state legislative process.
6, 9 - Public resistance and unpopularity (Goldman et al 2001): • Seem high due to lump sum payment • Used for services that appear to benefit only a segment (e.g., schools) • Administration appears arbitrary • No relation to income or ability to pay 6 - Moderately regressive. 6 - Inequitable horizontally: some people (retirees) can be property-rich but income-poor. 9 - In many states voters have put forced rollbacks or set limits on the rates or amount of tax to be
Chapter 4: Applicability of the Identified Funding Strategies to the MBTA
District Increment Financing (DIF)
recessions (if property is frequently reassessed, revenues will rise and fall with market values) (Goldman et al 2001). 1- Property taxes in Massachusetts are local and, as in all the other states, are used to fund streets. Nevertheless, 17 districts imposed a property tax dedicated exclusively for public transportation (Goldman et al 2001). 6 - Anticipated tax revenues can be used to secure bonds and project expenditures do not create an additional burden on taxpayers. 6 - Revenues are tied to economic development, and may be linked directly to transit development specifically. 7 - The key to its success is establishing a redevelopment zone around station areas to help leverage private investments (TCRP 2002c). 7 - As private investment is attracted by the project, the tax base eventually increases.
1 - The Legislature has enacted “District Increment Financing” (DIF), as used in other states (Hackney and Wodlinger 2003).15 1, 5 - Massachusetts has also enacted a “TIF” legislation where the concept is implemented as a “tax increment exception”, exempting from taxation, portions of the increased value of the parcel in primarily economicallydistressed areas in areas designated as Economic target Areas by the Massachusetts Economic Assistance
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generated.
1, 2, 3 - Massachusetts has a cap on the rate of increase in property taxes: Proposition 2 ½. 14
2, 3 - Requires state authorization. 5 - The district or area must be designated by a City Council or Town Meeting, with the approval of the Mayor. The district and the projects must be certified by the State’s Economic Assistance Coordinating Council. 5, 8 - Requires an ad valorem taxing authority. 7 - Limited to areas where there is a reasonable expectation that development will be spurred (TCRP 2002c). 7 - Revenue is less certain (problem if property values don’t increase too much – as bonds are floated with the financial backing of the assumed increase, there is a risk of default). 4, 9 - The financial agent may require the pledge of other local revenues, other sources of financing or guarantees – decision is made by the local government, complex administration. 2 - Considered a tax. 5 - It is up to each municipality to apply the DIF concept. 5 - Proposition 2 ½ restricts municipal tax levy power, as it allows tax revenues to grow only through “hard cost” development. Any property value increase due to increased neighborhood desirability produces no fiscal dividend. 8, 7- Financial risk for DIF bonds must be repaid within 30 years (Hackney and Wodlinger 2003). 4 - Municipalities may have to pledge
Chapter 4: Applicability of the Identified Funding Strategies to the MBTA
Special Assessments (Betterment Assessment District)
coordinating Council (M.G.L. c.23A).
existing revenue streams as collateral against the risk that property tax revenue do not rise sufficiently to service the bonds. 7 - Residential property taxes tend to be low.
- The MIS has identified TIF (known as DIF in Massachusetts) as an innovative, local/municipal funding strategy for the Urban Ring project. - Revenues generated on a one time basis or over time within a specified period.
- To apply DIF, knowledge is required on current assessed values of parcels, the mill rate16, the anticipated increase in property values and the percentage of the tax that will be dedicated to the project. As the tax benefits are accrued after the completion of the project it is a tool for financing operation and maintenance costs rather than construction – unless bonds are secured. 2 - To consider it a fee, benefits to specific property owners have to be distinguished from the benefits to the community at large. 3 - Special local legislation is required. 5 - Establishment of the betterment district and related fee is subject to the acceptance of property owners within the district. 7 - Are typically not adjusted with inflation. 7 - Limited revenues – one time charge or recurring charges. 8 - The administration for a single project may be complex. 6, 9 - For non-capital uses assessed property owners have to be convinced of the benefits posed by the public transportation project (TCRP 2002c).
- Can be used on a variety of expenditures (capital, operation and maintenance). - May be used to leverage expenditure of other funds. 7 - Can be used to secure bonds, providing a guaranteed stream of assessment revenues (TCRP 2002c). 6 - Equitable for owners who benefit from the project. 6 - Revenue tied to development. 6 - Geographic equity (area that pays, receives the benefits of the revenues). 7 - Stable revenue source. 8 - Limited number of participants who need to approve the approach. 8 - Flexibility in application through adjustment of formulas. 1 - Massachusetts allows the assessments of betterments, “whenever a limited and determinable area receives benefit or advantage, other than the general advantage to the community, from a public improvement” (M.G.L. c.80 § 1). The MIS has identified a “Betterment Fee” as an aggressive, local/municipal funding strategy for
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8 - Implementation in six (or seven) jurisdictions could be complex.
Chapter 4: Applicability of the Identified Funding Strategies to the MBTA
Land Banking#
Impact Fees
the Urban Ring project. The strategy would consist of a one-time fee charged to all (new and existing) non-residential uses within a catchment area based on square footage. As it is not considered a tax, it may be applied to tax-exempt properties too. - Revenues generated on a one-time charge. 1 - Land banking is a common practice for resource preservation. 9 - Potential substantial cost savings since land is bought at a lower cost prior to speculation, and parcels may be easily assembled. Value capture is achieved through the benefits of increasing land values that result from facility investments (TCRP 2002c). 6 - Direct users pay. 6 - Small base of opposition. 6 - “Accepted” as charges are usually placed as a condition for obtaining site plan approval or building permits. 7 - May yield substantial revenues. 9 - Potential to encourage mixed use development if exclusively charged on office space (and zoning permits).
- The MIS has identified the use of “Impact Fees” as an aggressive, local/municipal funding strategy for the Urban Ring project. The strategy would be applied within the Corridor, based on square footage of new development within the station catchment areas. - Revenues are generated on a onetime basis.
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3 - Some states may prohibit use. 8 - Large capital outlays may be required. 9 - Local officials may place more priority on short-term projects.
2, 3 - State regulation and local ordinances are required. 7 - The assessed value of properties should be at least three times the bond par amount. 8 - Substantial history of legal challenge (ordinance must be appropriate to stand up against class action suits, has to be based on extensive studies and public involvement and use appropriate language). 8, 5 - Requires a mechanism to make collection enforceable, if necessary. 9 - Limited to growth areas, as they may drive developers to other locations. 2 - Massachusetts does not authorize the use of impact fees. 3 - This would require a state legislative process. 2 - Impact fees are currently not authorized in Massachusetts. 7 – Lower potential than the betterment assessment strategy.
Chapter 4: Applicability of the Identified Funding Strategies to the MBTA - The MIS has also assessed the use of “Linkage Payments” as a conventional, local/municipal funding source for the project. It is similar to the concept of impact fee, where fees are assessed by municipalities for certain types of development to support the provision of municipal services and/or the construction of municipal facilities. - Revenues generated on a one-time basis. - Potential application of mechanism to public transportation and the Urban Ring in particular. Developer Financing or Joint Development #
3 - May be voluntary or required by law. 7 - Good revenue potential. 7 - Successful in areas experiencing growth and having a strong real estate market. 7 - More successful if project is essential for the success of a developers’ project (Tokyo waterfront example). 9 - Potential reduction in public or agency expenditures. 9 - More rapid initiation and development of projects.
Negotiated Investments (Density bonusing)
7 - Potential revenue source. 9 - Reduction in public or agency expenditures.
Parking Surcharge
5 - In Massachusetts, this is up to the local governments to decide. 6 - Relevant to public transportation as would tend to reduce congestion and increase use of public transportation. 7 - Could be more effective on captive long-term downtown parkers.
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1 - The Cities of Boston and Cambridge already apply “linkage fees”. In Boston, the fees are negotiated for large projects, planned development areas and institutional developments. Payments are contributed towards the development of low and moderate income housing and job creation (to qualifying projects). In the City of Cambridge, fees are assessed for non-residential development, in Boston on all downtown development and payment is deposited in an affordable housing trust fund. 3 - These impact fees were allowed through special state legislation. 3 - May require local or state legislation. 5 - A key element is local government support, through local zoning and permits (TCRP 1999) (possible lack of supportive zoning, lack of land acquisition authority, lack of transit oriented or joint development opportunity identification). 6 - May be inequitable if developers are required to pay more than a fair share of the project 7 - Uncertainty with some development projects and potential for failure. 9 - May lead to long negotiating periods. 6 - Extent to which conditions may be attached to zoning approvals and may be perceived to confer special treatment on owners in rezoned areas. 7 - Negotiations are limited by the area’s growth, construction rate, mobility requirements and location desirability.17
9 - May affect certain local businesses. 7, 9 - May reduce parking demand and therefore decrease revenues. 9 - Could potentially discourage use of downtown areas (against
Chapter 4: Applicability of the Identified Funding Strategies to the MBTA
Utility Fees
Passenger Facility Charge (e.g., airport departure tax)
9 - Possible reduction in automobile use. 9 - Cost saving in building new parking to meet demand. - The MIS has identified a “Parking Surcharge” as an aggressive, private sector funding strategy for the Urban Ring project. The surcharge would be applied to commercial and private off-street parking spaces. Public spaces could also be included. - Revenues generated on an annual basis. As applied in Germany: 9 - A sustained source of local funding. 9 - By including public transportation among the public services, it defines it as an essential utility service. People perceive the importance and need of public utilities for their general well-being and therefore this elevates the community’s perception of the importance of public transportation (TCRP 1997). As applied in the USA 8 - Additional administrative costs are low (as utility use is already charged). 6 - Relevant to public transportation as tourists, residents or business people tend to use public transportation systems (if they use rental cars, taxis or their own vehicles it is relevant if investments tend to reduce congestion). 7 - Air travel does not have close substitutes. 8 - Easily collectable. - In 1999, the Financial Subcommittee created for the Urban Ring project had identified this source and a fuel jet tax, together with other tourism-related taxes (hotel tax and rental cars).
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revitalization). 9 - Opposition from general public. 8 - Implementation in six (or seven) jurisdictions could be complex (e.g., the City of Everett is not considering this option at this time, but commented that the City of Boston could. Everett claims to have no funding, and a scarce number of businesses and tourists).18 As applied in Germany: 7 - Revenues may not be sufficient, if company is not profitable. 1 - Not applicable in USA As applied in the USA: 2 - Considered a tax. 3, 8 - Requires state action and extensive public outreach. 6 - Citizen pressure and political resistance (opposition from residents, especially if convinced they do not use or benefit from public transportation). 6, 9 - Opposition from large businesses (potentially high proportionate cost). 2 - Considered a tax. 7 - Limited tax base (one service). 9 - Opposition from airline companies.
2, 3 - The use of airport related revenues would be limited by regulations, to the portions of the system closest to the airport. 9 - In Boston and the region, airport, airlines, rental cars and hotel taxes have already been established to pay for the Big Dig, so public resistance to yet another round for the Urban Ring would be very high.19
Chapter 4: Applicability of the Identified Funding Strategies to the MBTA
Mortgage Recording Fee
1 - Similar to a sales tax. 6 - Fair in that transportation provides access, a determinant for land value and provides broad public benefits (everyone benefits even if they don’t “use it”). - The MIS has identified this strategy as an innovative, local/municipal funding strategy for the Urban Ring project. - Revenues generated on an annual basis.
7 - Limited base (one product) and small potential revenue. 7 - May be affected by an economic turndown. 2, 3 - Ability to implement in Massachusetts.
Table 4.2 Options for Public Transportation Agencies20 Funding Strategy Progress Payments
Main Advantages
Main Disadvantages
- Cost savings in purchase price. - The price discount preserves any FTA grant and associated local matches, for other agency uses. - The MBTA has on occasions used progress payment, although straight finance is more common.21
Vendor Financing
- Private funding. - Lower rates offered by vendors, to demonstrate their equipment. - When financing is backed by purchased equipment it usually does not need a specific revenue pledge.
Cross-Border Leasing
- Private funding. - Cost savings from reduced purchase price. - Private firm benefits from accelerated depreciation allowances.
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- Since the MBTA’s credit rating is so high, the bonding program is considered the lowest cost alternative, for vehicle and equipment purchase. The lease is relatively more costly and also taxable which increases the general.22 - Vendor financing can be a substitute for obtaining a lower purchase price. - Some agencies have been criticized for accepting subsidized loans from foreign vendors (who may obtain low interest loans from export-import banks). - Transportation agency must have authority to issue long-term debt - Very high transaction costs. - Smaller agencies may have to pool assets to make the transaction possible. - Agency may be criticized for purchasing from foreign vendors. - Statute may be required to pass an ordinance in order to complete the dollar investment portion of the lease structure. - May require FTA approval.
Chapter 4: Applicability of the Identified Funding Strategies to the MBTA Funding Strategy
Main Advantages
Main Disadvantages
The MBTA has on occasions used cross-border leasing as well as other forms of leases, although straight finance is more common.23
Turnkey Development
Joint Development #
- Time savings (expedites the procurement process and may speed up project completion, as design and construction phases may overlap). - Cost savings (in terms of overruns as they are based on a fixed price). - Reduced risk (shared between the agency, the contractors and subcontractors). - Less potential for conflict between the designer and the builder (same team – in DBB method, communication between the two parties may be very limited). - Less change of orders during construction because the builder is part of the team from a start (in DBB method the builder is chosen once the entire design is finished). - Streamlined oversight of procedures as the number of contracts to manage is smaller.
- Promotes economic development. - Potentially increases ridership. - Enhances community development. - Helps to enhance the agency’s own local subsidy as the tax revenue from the development is captured by the local jurisdictions, which then make subsidy payments to the public transportation agency (TCRP 1998a).
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Since the MBTA’s credit rating is so high, the bonding program is considered the lowest cost alternative for vehicle and equipment purchase. The lease is relatively more costly and also taxable which increases the general cost.24 The Legislature is in the process of eliminating all non-financial leases, to eliminate the tax deductions which have drained money from the treasury.25 - Prohibited by many states as small and medium-sized firms may be affected by the process and must partner to form consortiums (some public transportation agencies encourage their participation through incentives in their clauses). - Requires trained personnel to manage this new method of procurement (TCRP 2002a). - Important to negotiate the project price in a fairly advanced design stage to avoid cost overruns.
- The MBTA is generally prohibited from employing DB contracts. New legislation would be required (MTF 2002). - Local government support through local zoning and permits is a key element (TCRP 1999). - Statutory authority of the agency to undertake the activity may be lacking (public bidding requirements may prohibit the structure) - Limitation of funding available for joint development (state, local or
Chapter 4: Applicability of the Identified Funding Strategies to the MBTA Funding Strategy
Private Donations and private contributions #
Main Advantages
Main Disadvantages
- The MBTA in general is engaged in transit-oriented joint development. It is supervising proposals in 26 communities. The process is case-bycase as it lies within each municipality (there is not statewide force).27 - Revenues generated on a one-time basis (for each project) or on an annual basis if shares in future profits (i.e., from commercial activities). - The MIS has identified this strategy as a conventional, private sector funding source for the Urban Ring project. - Revenues may be variable in terms of frequency of generation.
federal) and any tax law restrictions on the various funding mechanisms available for the joint development project (TCRP 1999, p.12). - Limitation on joint development capabilities. - Station area constraints (poor access and scarce land). - Complex station ownership. - State procurement laws and other restrictions on the use of property at the state level (overcoming the public bidding laws is one of the most difficult hurdles) (TCRP 1999). - Understanding of FTA restrictions (if FTA-funded land is involved).26 - In some examples such as BART, VTA and Miami-Dade, the direct monetary benefits appear to be small compared to the project costs (TCRP 1999). - Potential for uncompensated or undercompensated exploitation of public assets by private developers if unfairly selected (TCRP 1999). - May lead to long negotiating periods. - Uncertainty with some development projects and potential for failure. - Need for a well organized and highly visible fund-raising campaign to assure donors that their contributions will be publicly recognized. - Small revenue potential. - Few projects generate sufficient interest.
- Private funding. - Additional revenue that may free up funds for other expenses. - The example provided by the MBTA’s CFO was the construction of a new head house by the developer of the Prudential building. The MBTA does not receive cash payments from private donors.28 - The MBTA is working with Harvard University and the EOTC, to study the future transportation needs and what may be done in Allston and Brighton after Harvard’s new development project. Apparently the University has provided the funding to carry out the study.29 - The MIS has identified “Property Transfer” as a conventional, private
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Chapter 4: Applicability of the Identified Funding Strategies to the MBTA Funding Strategy
Station Connection Fee
Station Sponsorship
Cashless Payment System Partnership with the Community and Pass Programs
Main Advantages
Main Disadvantages
sector funding strategy for the Urban Ring project. The strategy consists of an arrangement, whereby property is traded between the MBTA and a private landholder. - Applied for purchases of ROWs. -Revenues generated on a one time basis. - Additional revenue source. - Can avoid costs of maintenance or construction.
- Additional revenue source. - Revenues are generated on a onetime basis. - The MIS has identified this strategy as a conventional, private sector funding strategy for the Urban Ring project. - Reduction in operating expenses. - Money available for immediate use.
- Enhances revenues through increased ridership. - Enhances bond with community.
- The MIS has identified the possibility of working collaboratively with private shuttle operators in the corridor. These operators include MASCO (Medical Academic and Scientific Community Organization, Inc.), UMass, University Park at MIT, Harvard Medical School, CambridgeSide Galleria, Boston City Hospital, the Boston Globe and Lotus Development Corporation. The assumption is that the project will reduce the service needs and operators could be willing to make payments in return for no longer
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- Traditionally resisted by developers, although attitudes are changing as the value of public transportation is reassessed. - The MBTA has not applied any connection fees.30 - The MBTA has not been too successful in this strategy.31
- Personnel layoffs. - A combined payment method is still required for riders without access to alternative payment methods (such as debit or credit cards). In the case of student surcharges: - Requires university and student approval. - Usually requires severe congestion or parking problems to obtain an approval. - In the case of shuttle operator, the Urban Ring could replace some of the fixed routes but not all of them. - In the case of student surcharges, the numerous institutions would require numerous separate negotiations and the potential revenue stream would be modest. - The MBTA is not very aggressive in pass programs to enhance ridership. - Furthermore, it is not anticipating distance-based fares when
Chapter 4: Applicability of the Identified Funding Strategies to the MBTA Funding Strategy
Main Advantages
Main Disadvantages
requiring the operation of the shuttles. This is considered an innovative, private sector funding strategy for the Urban Ring project. - Revenues generated on an annual basis.
Advertising Fees (TCRP 1998b)
- The MIS has identified “Student Surcharges” as a conventional, local/municipal funding strategy for the Urban Ring project. The fee would be assessed to institutions of higher education, generating revenues on an annual basis. The strategy is encompassed under a broader strategy “Payment in Lieu of Taxes” (or PILOT). PILOT payments are a strategy used to generate revenue from institutions benefiting from city services that might otherwise be exempt from property taxes (e.g., universities, hospitals). Payments are based on property values and the revenue foregone by government. - The PILOT strategy is already implemented in the Cities of Boston and Cambridge. In Boston, it is a voluntary annual payment from taxexempt institutions contemplating expansion or improvements to the property. - A way to leverage revenue from existing passive resources.
- The MBTA has already identified the potential for an advertising strategy. It has doubled its advertising revenues since the late 90s and aims at further enhancing this revenue source. It has been especially successful with advertising
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implementing its new automated fare collection system. It may implement time-based fares to free up capacity during peak hours.32 -The channeling of revenues to the MBTA or the Commonwealth appears to be an issue.
- Usually represents a small percentage of the agency budgets.33 Operational issues - Restrictions, maintenance related to touch up or repaint vehicles that have been painted or covered with adhesive material. - Safety issues and aesthetic issues. - Public perception.
Chapter 4: Applicability of the Identified Funding Strategies to the MBTA Funding Strategy
Main Advantages
Main Disadvantages
operations in bus shelters in Boston. It is looking into the option of having private companies build the stations, in exchange for the right to advertise.34
Leasing or Selling Development Rights#
- The MIS has identified this strategy as a conventional, private sector funding strategy for the Urban Ring project. - Can generate site-specific revenues. - Can provide a steady, long-term cash flow. - Agency maintains some level of control over future use of the property and the possibility to renegotiate rent payments based on increases of property values. - The MIS has identified “ROW Access” strategy as a conventional, private sector funding strategy for the Urban Ring project. - The MBTA manages its property through a private company (Transit Realty Associates).
Leasing or Selling Existing Facilities# Station Concession Shared Right of Way
- The MBTA is currently overseeing several transit-oriented developments (leasing land and air rights). - Potential revenue source.
- Revenue potential. - Enhancements and improvements to facilities. - Lower acquisition and operating costs.
- The MBTA already has agreements with freight line:
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- Enabling legislation may be needed for air rights and excess taking of land. - Public opposition if agreement significantly benefits the developer more than the public sector. - Problems if agency has purchased land with state or federal grants. - Most remunerative air rights are those associated with large rail systems.35 - In some examples financial benefits constituted a low percentage of the capital expenditures.36
- May require approval if facilities are funded by federal or state sources. - Revenues are based on availability and conditions of the facilities and characteristics of local real estate market. - Limitations on type of commercial activities according to zoning area where the station is located. - More coordination and infrastructure capable of permitting efficient and safe use by both systems. - Freight railroads own ROWs in USA - Does not amount to a lot of money (both in payments received or made
Chapter 4: Applicability of the Identified Funding Strategies to the MBTA Funding Strategy
Main Advantages -
-
Main Disadvantages
The MBTA receives payments or in-kind services for the use of lines it owns (e.g., the Providence line up to the MA border) Must pay for the use of other lines it uses (e.g., payment to CSX for the Framingham – Worcester commuter rail line).37
by the MBTA).
This chapter has focused primarily on describing the advantages and disadvantages of each of the identified strategies as they relate to the MBTA and the Urban Ring project. The following chapter builds on these findings and those presented throughout the thesis, and offers final policy recommendations and general conclusions. 1
(Art. 89 § 7 of the Articles of Amendment to the Constitution of the Commonwealth) Limitations on Local Powers. - Nothing in this article shall be deemed to grant to any city or town the power to […] (2) to levy, assess and collect taxes […]. This article is known as the “Home Rule Amendment”). 2 See MGL c. 40 § 22F. 3 This criteria was considered “a not compelling consideration” by the Supreme Court of Hawaii (State v. Medeiros 89 Haw. 89 (1999), “to invalidate an otherwise legitimate charge”. 4 See Emerson College v. Boston, 391 Mass. 415 5 Based on a personal communication held with Jonathan Davis, MBTA Deputy General Manager and Chief Financial Officer. See Appendix I. 6 The information was primarily obtained from (Transportation Research Board 1984; TCRP 2003c), unless otherwise referenced. 7 According to a public opinion poll cited in this same report, carried out between 1993 and 1996, road value pricing was less supported as a transportation funding mechanism than gas taxes (TCRP 2003d). Nevertheless the opinion polls could have changed since 1996. 8 Presentation by MBTA’s General Manager Michael Mulhern: “The Future of the MBTA” on February 24, 2004 at Harvard University, Allison Dining Room, Taubman Building, Cambridge, MA. 9 This information was provided by Ron Farrar, City of Somerville. See Appendix I. 10 Massachusetts allocated only 8.4% of the revenues to public transportation between 1998 and 2001. The almost exclusive dedication of gas tax revenues to highways is important in that (1) it precludes the use of these state funds for public transportation, at a time when they are in need, (2) Few options exist for paying for transit investments. States also find it hard to use federal funds for transit as it is often difficult to raise matching funds locally or through other sources. “A 1993 U.S. General Accounting Office report pointed out that without access to state gas tax revenues, some transit systems often have to rely almost exclusively on funding derived from local sales taxes, which is often inadequate to meet their needs” (Puentes and Prince 2003). 11 Massachusetts abolished its variable tax rate at the end of FY 2001. Indexing the state gas to a reasonable measure of inflation would rationalize the process of increasing the tax rate and allow the revenues to keep pace with rising costs (Puentes and Prince 2003).
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Chapter 4: Applicability of the Identified Funding Strategies to the MBTA 12
In 2001, Massachusetts allocated 50% of the gas tax receipts spent on highways to debt service (Puentes and Prince 2003). 13 Obtained from “Citizen’s Information Service” at http://www.state.ma.us/sec/cis/cisexc/excidx.htm (accessed 03/10/2004). 14 Proposition 2¹/2, enacted in 1980, places constraints on the amount of the property tax levy raised by a city or town and on how much the levy can be increased from year to year. Two limits are established: (1) a community cannot levy more than 2.5 percent of the total full and fair cash value of all taxable real and personal property in the community (ceiling) (2) a community’s levy is also constrained in that it can only increase by a certain amount from year to year (limit) (DLS undated). 15 This information was also provided by Ron Farrar, City of Somerville. See Appendix I. 16 The amount of tax paid per dollar of assessed property value (one mill is 1/10th of a cent ($.001) 17 Any market-based incentive needs a strong market in order to work; allowing a higher density of development is only a bonus to the developer if there is ready demand for the additional square footage and investment; this applies to impact fees, linkage, and developer financing/joint development as well – there has to be good potential for development to reap benefits from development. 18 Based on a personal communication held with Marzie Galazka, City of Everett. See Appendix I. 19 Information provided by thesis reader. 20 The information was primarily obtained from (MBTA 2003c; Transportation Research Board 1984; TCRP 2003c), unless otherwise referenced. 21 Based on a personal communication held with Jonathan Davis. 22 Ibid. 23 Ibid. 24 Ibid. 25 Ibid. 26 The policy is to ensure that private developers do not benefit from the use of public property without a fair selection process or a just compensation (TCRP 1999). 27 Presentation by MBTA’s General Manager Michael Mulhern: “The Future of the MBTA” on February 24, 2004 at Harvard University, Allison Dining Room, Taubman Building, Cambridge, MA. 28 Based on a personal communication held with Jonathan Davis. 29 Same as footnote 24. 30 Based on a personal communication held with Jonathan Davis. 31 Ibid. 32 Same as footnote 24. 33 According to a TRCP report from 1998, the annual income from ads for the surveyed transit authorities ranged between from $1,000 in Dayton, Ohio to $17 million in New York City. The four largest transit agencies (except New York) averaged $6.1 million a year (The MBTA did not respond the survey and therefore is not included among them) (TCRP 1998b). Advertising in the MBTA’s budget is included under a general “other revenue” source which altogether accounts for 5% of the operating revenues (and operating expenses). 34 Presentation by MBTA’s General Manager Michael Mulhern: “The Future of the MBTA” on February 24, 2004 at Harvard University, Allison Dining Room, Taubman Building, Cambridge, MA. 35 MARTA receives approx. $0.5 million annually in lease payments from the Resurgens Plaza above the Lenox station in Atlanta, GA and WMATA receives approx. over $2 million annually in air rights from 2 mixed-used projects: Bethesda Station in MD, and Ballston Station in VA (TCRP 2002c). 36 To date, most research on revenue impacts have focused on joint development programs, such as ground leases and station connection fees. A 1990 analysis of TJD projects found capital contributions (e.g., onetime in-lieu-of payments by private interests for items like station plazas) generally represented no more than 2% of annual capital expenditures by rail transit agencies. In the case of New York City, however, capital contributions to the Metropolitan Transit Authority (MTA) were as much as 37% of annual investment outlays in the mid-1980s. Revenues from air rights leases, station connection fees, land rents, concessions, and other income-producing joint-development initiatives, however, made up no more than 1% of operating budgets of nine U.S. transit systems that were studied. Some research suggests that the most substantial revenue impacts of joint development are indirect, mainly in terms of increased farebox receipts (TCRP 2002c). 37 Based on a personal communication held with Jonathan Davis.
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Chapter 5: Policy Recommendations and Conclusions General Conclusions and Recommendations The MBTA, as most public transportation agencies throughout the Commonwealth of Massachusetts, is operating under a very discouraging financial climate. Federal sources of funding for public transportation are limited and are not expected to increase over the coming years. Commonwealth appropriations are unpromising and uncertain, and local governments – under the political pressure of being the closest level of government to the citizens – are struggling to allocate their scarce resources between the different competing needs. Furthermore the MBTA is also under a tight fiscal situation trying to distribute the limited funds between its maintenance needs and expansion pressures. The stage is ready for the implementation of alternative and “innovative” strategies to finance public transportation.
This thesis began by focusing on strategies that could be implemented by the MBTA. Nevertheless as it evolved, it became clear that the majority of the strategies applicable (or applied by) the MBTA are mainly cost-reduction strategies or strategies to enhance ridership, rather than strategies capable of creating a substantial additional revenue stream for a major capital investment, such as the Urban Ring project. Most of the revenuegenerating strategies are actually outside the agency’s scope of authority. While many lie within the competence of local governments, their applicability is limited by state regulations. The Commonwealth regulates how communities raise and spend money, therefore new legislation is required to approve many of the new processes and financing mechanisms, especially related to local option taxes, tax increment financing and road value pricing. Based on the “Home Rule” amendment in the Constitution, the Commonwealth of
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Chapter 5: Policy Recommendations and Conclusions Massachusetts maintains the control over local governments to tax, outside of property taxes.
Furthermore, taxes are the most resisted funding instruments because they are a politically unappealing option. Nevertheless, many local option taxes made by voter approval and earmarked for specific projects have been successful in other states. The reasons that have made these taxes more acceptable are: political cover (by making them subject to voterapproval, elected officials may increase taxes and “avoid” the blame), measurable results (the use of revenues in visible results that address voter concerns) and speed and flexibility (local taxes can avoid some delays generated by the federally mandated planning process to obtain federal money). Some states also provided financial incentives to encourage the communities to adopt them. Constituents tend to support local option taxes when there are measurable results and earmarking (as this ensures that officials will not use the money wastefully or in other bad decisions) (Goldman et al 2001). It is also a matter of public involvement and communications. The success of these initiatives corresponds to extensive public involvement and grassroots community efforts (TCRP 2003a).1 Nevertheless, it should be noted that many local taxes have not succeeded and changing the tax system in the Commonwealth could prove a difficult if not impossible process - especially due to the “Home Rule” and a current governor who is against increasing taxes.
One strategy with great potential is the application of District Increment Financing (DIF), currently introduced by a bill from the Massachusetts Legislature. In spite of its name, the strategy need not be understood or presented as a formal tax increment. Whenever property
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Chapter 5: Policy Recommendations and Conclusions values increase, the owner pays a share of that increment according to the existing tax rates. If the increase in property values is caused by a new transit project it is “fair” to capture that increase and dedicate it to the project itself. The implementation of this technique will depend on each local community. While local governments may be reluctant to give away this increase in tax revenue, from general municipal funds to the transit project, it is clear that the increase would not have resulted in the absence of the project. It is important to make local governments understand that it is not “getting a piece of their taxes” but rather that the increased tax revenue generated by the project would never have been available for local use in the first place, without the implementation of the project. This technique is complex to implement but has been successfully applied elsewhere. The main limitation for its application in Massachusetts is Proposition 2 ½: the bonds issued under the DIF legislation count against the municipality’s property tax cap (Hackney and Wodlinger 2003).
Road value pricing schemes in general do not generate substantial revenues, and may likely encounter strong political resistance. Nevertheless, as it successfully spreads across Europe it may develop into an attractive option for local governments to implement. Furthermore, the advantages for public transportation are numerous especially in the Boston metropolitan region where good public transportation options exist: it can lead to a change in modal split, increasing the use of public transportation and it may reduce congestion (benefiting both road users and bus riders). Its successful implementation and acceptance are also a matter of public involvement and communication (as can be seen by the London example, the Trondheim survey, as well as the failure in Boulder, Colorado). It is important to package the pricing as part of a program of improvements and not merely as a “toll”.2 Furthermore it
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Chapter 5: Policy Recommendations and Conclusions is essential to attend to local concerns, bring all the parties to the table3 and have positive media coverage. As in the case of tax increment financing and taxes in general, how the alternative is portrayed is crucial: to increase public acceptance, people have to understand that everyone “uses and needs” public transportation.
Among those strategies that may be implemented by the MBTA, transit-oriented development is among the strategy with the greatest potential. The agency is already looking into this strategy mainly through the lease of land and ROWs.4 It is worth noting that the federal New Starts program weighs the importance of transit-supportive existing land use policies and foreseeable development patterns when appraising the likely cost effectiveness of major capital investments (TCRP 2002c).
Some aspects may nevertheless be beyond the agency’s control. As local governments are responsible for land-use regulatory and zoning controls, they may influence the development of transit-joint development through general plans, special zoning provisions and through expediting development review processes. It is important that the local communities ensure transit supportive policies. Furthermore, by demonstrating public commitment to turning an area around through complementary infrastructure, the community may help attract private investment to the neighborhood (TCRP 2002c). While the Commonwealth promotes the policy as part of the "Communities First" program5, it would have more strength if enforced through a state plan. Meanwhile, the MBTA can nevertheless be proactive and aggressive in influencing the development around its stations, by advocating and educating the community, government officials and development partners.
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Chapter 5: Policy Recommendations and Conclusions The agency should also be more aggressive in involving the private sector, through station sponsorship, advertising and concessions. Currently these sources make up for a small percentage of the budget (5%) and every step should be taken to increase these sources of revenue.
Cost reductions already applied by the MBTA included reductions in workforce, rebidding service contracts to achieve savings, renegotiating labor contracts (to freeze wages and limit wage increases), reducing agency contributions as employer towards health care insurance costs, achieving savings from debt portfolio management and realizing cost efficiencies of power and fuel. Non-fare revenues were increased through increases in parking fees, rebidding parking management contracts, selling, leasing or licensing property, a more aggressive advertising program and increased use of “pay-as-you go” financing. The steps taken to enhance ridership consist mainly of improvements to the MBTA’s existing bus system (conversion to low emission, handicapped accessible vehicles, free bus to bus transfer, automatic announcements and Global Positioning System), improved station cleanliness, improved information services and signage, some service expansions (Silver Line Phase I) and the installation of an automated fare collection system (MBTA 2003c).
The agency should nevertheless place more emphasis on aggressive strategies to enhance ridership, especially in an era where terrorist threats constitute a new disincentive to ride public transportation. The agency should work on achieving more attractive fare programs, applying distance-based fares, partnering with cultural and recreational facilities as well as businesses to provide joint passes and incentives. Based on the numerous institutions of
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Chapter 5: Policy Recommendations and Conclusions higher education in the Boston region, the MBTA should also consider pass programs and surcharges involving these establishments.
The Urban Ring The Urban Ring project depends on the approval of the federal New Starts grant which would cover 50% of the project costs. Although the project stands a good chance of receiving federal money, the grant is extremely competitive. Furthermore, assuming the grant is awarded, the MBTA still has to come up with the 50% balance. Under a scenario of traditional funding methods, whereby the MBTA programs the project in accord with the RTP as funds become available and no Commonwealth or local contributions are received, Phase II of the Urban Ring could be developed between 2016 and 20256 (the original deadline for the entire project). The only way of accelerating the project is by finding alternative funding strategies. This would also increase the project’s competitiveness for a New Starts grant as innovative funding strategies are encouraged in the competition.
According to the MBTA’s CFO, the Urban Ring project will increase property values in the area, and therefore has to be treated from an administrative and legislative standpoint. As project proponent, the MBTA does not have the authority to create taxes and has little influence over the process. It would be the Commonwealth’s responsibility to get local communities to apply innovative funding.7 Furthermore, during an Urban Ring Funding Subcommitttee meeting, held in June 2003 expecting limited Commonwealth and Federal participation, it was assumed that the unfunded portion would be covered by the local communities, how they would raise the money being up to them to decide. Nevertheless, as
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Chapter 5: Policy Recommendations and Conclusions mentioned it is not entirely up to them. The Commonwealth would have to play its role by providing the enabling legislation.
According to one city official, the MBTA as project proponent should assume the responsibility for undertaking the majority of the cost. The city, one of the six communities linked by the Urban Ring, currently has no funds. “Under better economic situations the city would be willing to contribute toward this project”.8 Other communities are facing similar budget constraints and consider it difficult to ask the cities and towns to come up with the gap.9 Furthermore, communities facing multiple transit projects are giving other projects priority over the Urban Ring, and are therefore advocating for federal and state support for these projects.10
According to the MBTA Advisory Board, the Commonwealth does not have the capacity or the will to finance the legal commitments. The Urban Ring project is not even among these commitments. Furthermore, the Commonwealth has a bond cap of approximately 1 billion and is unlikely to contribute half of it to a single project (Phase II alone costs approximately $500 million).
The parties appear to be more concerned with assigning to others the responsibility for financing the project, than on working together to develop ways to pay for the project. It is clearly the responsibility of all the parties to jointly work to secure the remaining 50% of the funds needed for the project – provided the New Starts grant is obtained.11 The Commonwealth and the local governments have to collaborate and instrument the changes
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Chapter 5: Policy Recommendations and Conclusions needed to implement some of the more “aggressive” funding strategies. Nevertheless, these strategies cannot be isolated from one another and every possible option should be implemented. Every party is responsible both for implementing the strategies within their jurisdiction and ability, and for supporting and advocating for the options to be implemented by others.
According to the MIS, the cornerstone of the Urban Ring planning process was the “extraordinary level of cooperation and coordination between the MBTA and the six jurisdictions” (MBTA 2001, p. 1-1), and the information reflected in the study proved how coordination between transportation, land-use planning and economic development goals could be brought about. It clearly illustrated the strength of adopting a regional approach and how much more could be accomplished through a joint-community stance. In light of this evidence, the message and approach behind the MIS should definitely be revisited.
Furthermore, cooperation and coordination need not be limited to funding strategies only. Supportive policies and initiatives may help the project gain enough visibility and public acceptance, to be ranked high among the regional priorities. These initiatives come not only from “the top” through Commonwealth policies, but also from “the bottom” through the work and effort of grassroots activism.
Among the Commonwealth initiatives worth mentioning, is the creation of the new Office for Commonwealth Development (OCD)12, whose mission is “to promote sustainable development through the integration of energy, environment, housing, and transportation
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Chapter 5: Policy Recommendations and Conclusions agencies' policies, programs and regulations”. Guided by a set of ten sustainable development principles, OCD aims at encouraging “the cooperation and coordination between all agencies, invest public funds wisely in smart growth and equitable development, and give priority to investments that will deliver living wage jobs, transit access, housing, open space and community-serving enterprises”. Most of the sustainable development principles are directly supportive of the Urban Ring project: provide transportation choice, plan regionally, redevelop first, concentrate development, increase job opportunities and be fair.13 Together with the OCD program commitment towards “coordinating development around transportation nodes” the Commonwealth is clearly setting the stage for a project like the Urban Ring.
To date, grassroots activism for the Urban Ring project has not been too strong (a possible reason could be the project’s time-frame).14 The strongest advocates have been the Urban Ring community officials, who reach out to residents through community meetings, and CLF, a leading environmental advocacy group in New England. Many institutions of higher education and medical centers, such as Boston University, the Massachusetts Institute of Technology, or the Longwood Medical Area, have an important interest in the project, and while currently not considered strong advocates, they could play a greater role in the future. Other non-governmental organizations in the Boston area, such as Alternatives for Community and Environment (ACE) indirectly support the Urban Ring project by advocating for transit in general. Intellectual research institutes, such as the Rappaport Institute for Greater Boston of the John F. Kennedy School of Government at Harvard University play a role in educating the public.
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Chapter 5: Policy Recommendations and Conclusions Grassroots activism is crucial in involving the public and getting a project in the political agenda. Given the numerous community and grassroots groups within the region, the MBTA and the community officials should strive to increase the support and advocacy of these groups.
With a strong grassroots activism and given the supporting Commonwealth policies, MBTA and community officials should take advantage of a “top to bottom” rhetoric and endorsement, to strengthen the project’s foothold and gain the support needed to implement the more aggressive funding strategies. 1
Some information was also obtained from a few local transit-related referenda on ballots conducted in 2002. Although the data is not representative due to the limited number of examples, it nevertheless provides a good picture of what voters tended to approve or reject, in terms of initiatives for funding public transportation (TCRP 2003a). An important claim made by many jurisdictions was that the success of an initiative corresponded to extensive public involvement, grassroots community efforts or the vocal support of local leaders. From a total of 27 initiatives, 16 included increasing the dedicated sales tax (only 6 were approved or 38%), 4 included increasing the dedicated property tax (two were approved or 50%), 2 increasing the dedicated auto excise tax (one was approved or 50%), while 5 other initiatives included issuing bonds, creating a transit authority and changing the constitution to allow public agencies to use “sale-leaseback” arrangements (three were approved) (TCRP 2003a). 2 According to a public opinion poll cited carried out between 1993 and 1996, road value pricing may receive better support if: (1) Pricing is packaged appropriately for public acceptance (projects are described not only in terms of congestion but in terms of additional benefits too), (2) revenues are allocated to specific transportation improvements. Furthermore, it was found to be less supported as a transportation funding mechanism than gas taxes (TCRP 2003d). Nevertheless the opinion polls could have changed since 1996. 3 Studies conducted by the European Commission have identified three major groups of concern for the application and results of road value pricing: Motorists (directly affected), politicians (concerned about reelection) and the business community. Other key issues to consider are perception (of the current problem i.e. congestion and pollution), social norms, knowledge (on program objectives, costs, benefits and effects), perceived effectiveness, fairness and equity, revenue allocation and case-specific characteristics (TCRP 2003d). 4 Based on a personal communication held with Jonathan Davis, MBTA Deputy General Manager and Chief Financial Officer. See Appendix I. 5 For more information see “Romney Kicks Off Transit Oriented Development Initiative”, at the Commonwealth of Massachusetts’ website at http://www.mass.gov/portal/govPR.jsp?gov_pr=gov_pr_031217_Tranist_oriented_initiative.xml 6 Based on the information exchanged during an “Urban Ring Funding Subcommitttee” meeting held on November 26, 2003. 7 Based on a personal communication held with Jonathan Davis. 8 Based on a personal communication held with Marzie Galazka, City of Everett. See Appendix I. 9 Based on a personal communication held with Robert Duffy, Town of Brookline. See Appendix I. 10 According to Ron Farrar (City of Somerville), the City is currently advocating for federal and state support for the Assembly Square T station.
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Chapter 5: Policy Recommendations and Conclusions 11
Based on a personal communication held with Jonathan Davis. The four agencies within the OCD structure are: the Executive Office of Environmental Affairs (EOEA), Executive Office of Transportation and Construction (EOTC), Department of Housing and Community Development (DHCD) and the Division of Energy Resources (DOER) For more information see the OCD website at http://commpres.env.state.ma.us/content/ocd.htm. 13 The remaining principles are: restore and enhance the environment, conserve natural resources, expand housing opportunities and foster sustainable business. For more information see the OCD website at http://commpres.env.state.ma.us/content/ocd.htm. 14 Based on a conversation with Scott Darling, CLF Staff Attorney and Community Organizer, long-involved in the Urban Ring project. 12
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List of Acronyms APTA ACE BART BRT BSDA BVG CMHC CA/T CFO CIP CLF CNG CNYRTA DB DBB DBOM DIF EECA EOTC FTA HOV HOT MAPC MARTA MBTA MDTA MEPA MPO MTC MTF MTR NJT OCD PILOT PMT MIS MTA RFP ROW RTD RTP SEPTA SIP TCRP
American Public Transportation Association Alternatives for Community and Environment San Francisco Bay Area Rapid Transit District Bus Rapid Transit Bi-State Development Agency Berlin's public transportation enterprise Canada Mortgage and Housing Corporation Central Artery / Tunnel Chief Financial Officer Capital Investment Program Conservation Law Foundation Compressed Natural Gas Central New York Regional Transportation Authority Design-Build Design-Bid-Build Design-Build-Operate-Maintain District Tax Financing New Zealand Energy Efficiency Conservation Authority Massachusetts Executive Office of Transportation and Construction Federal Transit Administration High Occupancy Vehicle High Occupancy Toll Metropolitan Area Planning Council Metropolitan Atlanta Rapid Transit Authority Massachusetts Bay Transportation Authority Miami Dade Transit Agency Massachusetts Environmental Policy Act Metropolitan Planning Organization Metropolitan Transportation Commission (for the San Francisco Bay Area) Massachusetts Taxpayers Foundation Mass Transit Rail Corporation New Jersey Public Transportation Corporation Office for Commonwealth Development Payment in lieu of taxes Program for Mass Transportation Major Investment Study Metropolitan Transportation Authority Request for Proposal Right of Way Regional Transportation District Regional Transportation Plan Southeast Pennsylvania Transportation Authority State Implementation Plan Transit Cooperative Research Program
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TIF TOD TRTA VTA WMATA
Tax Increment Financing Transit Oriented Development Teito Rapid Transit Authority Santa Clara Valley Transportation Agency Washington Metropolitan Area Transportation Authority
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APPENDICES
Appendix I: List of Personal Communications Informal Communications 1. Peter C. Calcaterra Project Manager Massachusetts Bay Transportation Authority 2. Toni Hicks
Staff Attorney Conservation Law Foundation
3. Scott Darling
Staff Attorney and Community Organizer Conservation Law Foundation
4. Bennet Heart
Senior Advocate and Communities Project Director Conservation Law Foundation
5. Jon Witten
Core Faculty Lecturer Department of Urban and Environmental Policy and Planning Tufts University
6. Michael Mulhern
General Manager Massachusetts Bay Transportation Authority Informal question during a presentation “The Future of the MBTA”. February 24, 2004 - Harvard University
7. Oscar E. Diaz
Former advisor on foreign affairs to the former Mayor of Bogotá, Enrique Peñalosa Informal conversation during and after his presentation “For the City We Want:” Bogotá, Colombia’s Transformation into a Livable City through Sustainable Transportation Efforts. January 30, 2004 – Tufts University
Appendix I: List of Personal Communications Semi-structured Interviews 1. Jonathan R. Davis
Deputy General Manager and Chief Financial Officer Massachusetts Bay Transportation Authority March 10, 2004
2. Charlie Passanisi
Federal Program Manager Massachusetts Bay Transportation Authority March 10, 2004
3. Marzie Galazka
Community Development Department City of Everett March 12, 2004
4. Robert Duffy
Director Planning and Community Development Department Town of Brookline March 15, 2004
5. Ron Farrar
Project Manager / Planner Office of Housing and Community Development City of Somerville March 24, 2004
Appendix II: The MBTA’s Budget for Fiscal Year 2004 and Historical Statements (1994-2003) MBTA's Historical Budgets 1994-2003
YEARS
1994
1995
1996
REVENUES Dedicated Revenue Stream Funds from Local Governments $124,648,231 $127,764,437 Revenue Receipts from State Sources $481,213,484 $429,672,522 Total Dedicated Revenue Stream $605,861,715 $557,436,959 Fare Revenue Rapid transit revenue $106,743,817 $103,679,267 Commuter rail transit revenue $42,602,734 $45,079,659 Surface transit revenue $33,031,411 $38,825,042 School, senior and paratransit revenue $2,543,547 $2,529,952 Total Revenues from Fares $184,921,509 $190,113,920 Other Revenues Advertising and concession revenue $7,036,811 $5,813,074 Revenue from real estate operations $7,395,430 $9,721,873 Interest Income $2,503,273 $3,420,427 Non-Operating Income $3,225,579 $2,779,843 Funds from Federal Government $17,229,943 $15,216,023 1 Utility Reimbursements $0 $0 Total Other Revenues $37,391,036 $36,951,240
1997
1998
1999
2000
2001
2002
2003
$130,958,548 $134,232,512 $137,588,326 $433,451,501 $483,134,528 $515,870,434 $564,410,049 $617,367,040 $653,458,760
$141,028,033 $577,629,697 $718,657,730
$144,553,734 $587,504,666 $732,058,400
$144,553,734 $590,772,447 $735,326,181
$142,872,642 $664,350,000 $807,222,642
$141,142,768 $682,094,554 $823,237,322
$97,830,213 $100,033,769 $103,466,441 $42,707,370 $47,653,409 $58,005,408 $48,452,635 $47,064,891 $49,753,560 $2,824,403 $2,983,030 $3,099,076 $191,814,621 $197,735,099 $214,324,485
$102,248,635 $65,378,414 $51,949,067 $2,858,044 $222,434,160
$107,788,759 $67,535,442 $52,791,159 $2,859,236 $230,974,596
$122,304,902 $85,223,784 $69,950,773 $3,503,448 $280,982,907
$121,522,567 $85,144,093 $72,115,128 $4,505,779 $283,287,567
$117,016,379 $84,853,863 $69,081,005 $3,254,543 $274,205,790
$6,887,406 $17,805,311 $4,032,175 $25,270,242 $6,500,000 $3,246,011 $63,741,145
$9,406,861 $18,944,959 $5,346,197 $9,154,919 $6,453,228 $5,110,331 $54,416,495
$15,536,844 $22,185,007 $10,686,563 $8,331,503 $6,500,000 $2,221,903 $65,461,820
$15,095,457 $22,735,730 $5,563,211 $5,368,605 $2,224,876 $1,850,821 $52,838,700
$17,116,931 $26,244,143 $2,587,324 $6,962,483 $1,140,131 $1,996,312 $56,047,324
$6,954,795 $12,223,721 $5,248,348 $14,008,906 $12,804,006 $0 $51,239,776
$8,334,637 $13,104,828 $5,914,913 $3,167,844 $6,316,525 $0 $36,838,747
$5,421,114 $19,578,039 $6,303,305 $17,389,124 $2,927,123 $89,277 $51,707,982
TOTAL REVENUES $828,174,260 $784,502,119 $807,464,446 $851,940,886 $919,491,227 $1,004,833,035 $1,017,449,491 $1,081,770,908 $1,143,348,909 $1,153,490,436 EXPENSES Operating Expenses Wages $265,971,128 $238,107,551 Fringe Benefits $102,058,362 $87,032,361 Payroll Taxes $23,901,613 $19,802,579 Materials, Supplies and Services $89,332,780 $76,177,202 Casualty & Liability $12,000,000 $13,191,440 Purchased Commuter Rail Expenses $108,377,012 $106,268,070 Purchased Local Service Expenses $15,985,342 $17,146,104 Financial Service Charges $3,525,554 $3,435,558 Total Operating Expenses $621,151,791 $561,160,865 Debt Service Expenses Interest $129,185,075 $139,986,352 Principal Payments $55,133,561 $60,802,667 Lease Payments $22,703,833 $22,552,234 Total Debt Service Expenses $207,022,469 $223,341,253
$240,328,601 $242,549,744 $247,641,361 $78,965,914 $83,027,817 $91,083,910 $19,097,646 $19,609,759 $19,455,266 $73,848,592 $78,657,736 $82,135,375 $10,739,030 $11,115,020 $11,434,824 $105,044,469 $111,816,757 $139,469,905 $18,113,604 $22,149,924 $23,812,753 $3,213,997 $3,279,199 $3,355,630 $549,351,853 $572,205,956 $618,389,024
$281,339,617 $91,729,346 $21,714,920 $100,055,308 $10,496,940 $160,856,086 $24,766,569 $3,117,467 $694,076,253
$283,120,856 $96,735,355 $23,233,260 $101,024,633 $10,212,363 $167,978,611 $25,251,475 $3,064,715 $710,621,268
$291,092,991 $99,401,191 $22,387,234 $110,677,687 $10,239,156 $172,540,450 $28,996,629 $1,504,828 $736,840,166
$307,843,432 $97,520,302 $23,190,933 $111,318,591 $13,361,808 $185,824,276 $32,131,530 $1,544,492 $772,735,364
$311,714,068 $103,997,754 $23,552,709 $118,917,517 $13,281,755 $192,605,170 $35,172,502 $1,546,016 $800,787,491
$164,632,160 $174,661,166 $187,795,839 $79,424,477 $88,563,667 $97,927,056 $14,055,957 $16,510,095 $15,379,309 $258,112,594 $279,734,928 $301,102,204
$194,598,408 $101,471,536 $14,686,838 $310,756,782
$187,027,313 $104,534,949 $15,265,959 $306,828,221
$164,976,429 $111,645,667 $14,918,033 $291,540,129
$193,845,930 $131,959,750 $15,261,176 $341,066,856
$216,966,041 $110,349,327 $15,908,155 $343,223,523
TOTAL EXPENSES $828,174,260 $784,502,118 $807,464,447 $851,940,884 $919,491,228 $1,004,833,035 $1,017,449,489 $1,028,380,295 $1,113,802,220 $1,144,011,014 2
Deficiency Fund 3 Capital Maintenance Fund
NET SURPLUS/(DEFICIT) 1 2 3
$0
$1
-$1
$2
-$1
$0
$2
(13,130,183) (36,583,800)
(1,075,047) (24,116,436)
(5,363,232)
$3,676,630
$4,355,206
$4,116,190
Utility Reimbursements are payments made by vendors using power generated by the MBTA (e.g., South Station vendors) Pledged to bondholders: To support the issuance of debt, debt service or unforseen events and is funded at the discretion of the CFO. It is allowed but not mandated by the "Forward Funding" legislation. The Fund is also allowed by the "Forward Funding" legislation and is used for capital program to maintain the state of good repair
Source: MBTA
Appendix II: The MBTA’s Budget for Fiscal Year 2004 and Historical Statements (1994-2003) MBTA's Operating Budget FY 2004 FY 2004
(in $)
REVENUES Dedicated Revenue Stream Funds from Local Governments Revenue Receipts from State Sources Total Dedicated Revenue Stream Fare Revenue Rapid transit revenue Commuter rail transit revenue Surface transit revenue School, senior and paratransit revenue Total Revenues from Fares Other Revenues Advertising and concession revenue Revenue from real estate operations Interest Income Non-Operating Income Funds from Federal Government Utility Reimbursements Total Other Revenues TOTAL REVENUES
% of Total Revenues / Expenses
139,437,615 684,280,500 823,718,115
12 58 69
129,777,087 93,686,220 76,266,203 4,177,495 303,907,005
11 8 6 0 26
19,563,500 31,498,512 2,200,000 3,750,000 400,000 2,446,210 59,858,222
2 3 0 0 0 0 5
1,187,483,342
100
EXPENSES Operating Expenses Wages Fringe Benefits Payroll Taxes Materials, Supplies and Services Casualty & Liability Purchased Commuter Rail Expenses Purchased Local Service Expenses Financial Service Charges Total Operating Expenses Debt Service Expenses Interest Principal Payments Lease Payments Total Debt Service Expenses
313,924,451 108,152,183 24,896,700 119,688,954 16,191,336 206,920,278 36,118,097 1,801,000 827,692,999
27 9 2 10 1 18 3 0 70
228,920,283 103,699,161 16,424,716 349,044,160
19 9 1 30
TOTAL EXPENSES
1,176,737,159
100
Deficiency Fund Capital Maintenance Fund
NET SURPLUS/(DEFICIT)
Source: MBTA
(6,627,592)
4,118,591
Appendix III: Federal Programs for Public Transportation Federal Programs for Public Transportation The Federal government, through the Federal Transit Administration (FTA), provides financial assistance to develop new transit systems and improve, maintain, and operate existing ones. Federal support includes revenue from motor fuel taxes (from the Mass Transit Account of the Highway Trust Fund) and general fund appropriations. The Taxpayer Relief Act of 1997 increased the amount dedicated for transit in the Mass Transit Account to a total of 2.86 cents per gallon. The MBTA receives funds from the following programs: 49 U.S.C. 5307 Urbanized Area Formula Program, 49 U.S.C. 5309 Capital Investment Program through Rail Modernization Funds, Bus Discretionary Funds and New Starts grants, TIFIA funds (Transportation Infrastructure Finance and Innovation Act of 1998) and Grant Anticipation Notes (GANS) (MBTA 2003c). MAJOR ASSISTANCE PROGRAMS FTA has several major assistance programs. Funds are provided through legislative formulas or discretionary authority, usually on an 80/20 Federal/local funding match basis, unless otherwise specified. 1- URBANIZED AREA FORMULA PROGRAM - (49 U.S.C. 5307) Appropriation: Funded under Formula Grants Description: Grants to urbanized areas and states for transit-related purposes Eligible Recipients: Public bodies with legal authority to receive and dispense Federal funds. Governors, responsible local officials and publicly owned operators of transit services are to designate a recipient to apply for, receive, and dispense funds for transportation management areas. Generally, a transportation management area is an urbanized area with a population of 200,000 or over. The Governor or Governor’s designee is the designated recipient for urbanized areas between 50,000 and 200,000. Eligible Purposes: • Planning, engineering design and evaluation of transit projects and other technical transportation-related studies; • capital investments in bus and bus-related activities such as replacement of buses, overhaul of buses, rebuilding of buses, crime prevention and security equipment and construction of maintenance and passenger facilities; • capital investments in new and existing fixed guideway systems including rolling stock, overhaul and rebuilding of vehicles, track, signals, communications, and computer hardware and software. All preventive
Appendix III: Federal Programs for Public Transportation maintenance and some Americans With Disabilities Act complementary paratransit service are considered capital costs. Allocation of Funding: legislative formulas. Match: The Federal share is not to exceed 80 percent of the net project cost. The Federal share may be 90 percent for the cost of vehicle-related equipment attributable to compliance with the Americans With Disabilities Act and the Clean Air Act. The Federal share may also be 90 percent for projects or portions of projects related to bicycles. The Federal share may not exceed 50 percent of the net project cost of operating assistance. Funding Availability: Year appropriated plus three years (total of four years) For urbanized areas with 200,000 population and over: o funds are apportioned and flow directly to a designated recipient o operating assistance is not an eligible expense o at least one percent must be used for transit enhancement activities such as historic preservation, landscaping, public art, pedestrian access, bicycle access, and enhanced access for persons with disabilities For urbanized areas under 200,000 in population: o funds are apportioned to the Governor of each state for distribution o Some designated TMA (Transportation Mgmt areas) receive funds directly 2- NONURBANIZED AREA FORMULA PROGRAM - (49 U.S.C. 5311) Appropriation: Funded under Formula Grants The Goals are to: 1. enhance the access of people in nonurbanized areas to health care, shopping, education, employment, pubic services, and recreation; 2. assist in the maintenance, development, improvement, and use of public transportation systems in rural and small urban areas; 3. encourage and facilitate the most efficient use of all Federal funds used to provide passenger transportation in nonurbanized areas through the coordination of programs and services; 4. assist in the development and support of intercity bus transportation; and 5. provide for the participation of private transportation providers in nonurbanized transportation to the maximum extent feasible. Eligible Recipients: State and local governments, non-profit organizations (including Indian tribes and groups), and public transit operators. Eligible Purposes: Funds may be used for capital, operating, and administrative purposes.
Appendix III: Federal Programs for Public Transportation Allocation of Funding: Funding is apportioned by a statutory formula that is based on the latest U.S. Census figures of areas with a population less than 50,000. The amount that the state may use for state administration, planning, and technical assistance activities is limited to 15 percent of the annual apportionment. States must spend 15 percent of the apportionment to support rural intercity bus service unless the Governor certifies that the intercity bus needs of the state are adequately met. Match: The maximum Federal share for capital and project administration is 80 percent (except for projects to meet the requirement of the Americans with Disabilities Act (ADA), the Clean Air Act, or bicycle access projects, which may be funded at 90 percent.) The maximum Federal share for operating assistance is 50 percent of the net operating costs. The local share is 50 percent, which shall come from an undistributed cash surplus, a replacement or depreciation cash fund or reserve, or new capital. Funding Availability: Year appropriated plus two years (total of three years). 3- ELDERLY AND PERSONS WITH DISABILITIES - (49 U.S.C. 5310) Appropriation: Funded under Formula Grants Description: To provide transportation services to meet the special needs of the elderly and persons with disabilities. Eligible Recipients: States apply for funds on behalf of local private non-profit agencies and certain public bodies. Eligible Purposes: Capital projects. Most funds are used to purchase vehicles, but acquisition of transportation services under contract, lease or other arrangements and state program administration are also eligible expenses. Allocation of Funding: By a formula that considers the number of elderly individuals and individuals with disabilities in each State. Match: 80 percent Federal and 20 percent local Funding Availability: Year of appropriation (one year). 4- CAPITAL INVESTMENT PROGRAM - (49 U.S.C. 5309) Appropriation: Is funded under Capital Investment Grants Description: Provides capital assistance for o new and replacement buses and facilities, o modernization of existing rail systems, o new fixed guideway systems.
Appendix III: Federal Programs for Public Transportation Eligible recipients: public bodies and agencies (transit authorities and other state and local public bodies and agencies thereof) Buses: Acquisition of buses for fleet and service expansion, bus maintenance and administrative facilities, transfer facilities, bus malls, transportation centers, intermodal terminals, park-and-ride stations, acquisition of replacement vehicles, bus rebuilds, bus preventive maintenance, passenger amenities such as passenger shelters and bus stop signs, accessory and miscellaneous equipment such as mobile radio units, supervisory vehicles, fareboxes, computers, shop and garage equipment, and costs incurred in arranging innovative financing for eligible projects. Allocation of Funding: At the discretion of the Secretary although Congress fully earmarks all available funding. Match: 80 percent Federal, 20 percent local Funding Availability: Year appropriated plus two years (total of three years) Fixed Guideway Modernization: Capital projects to modernize or improve existing fixed guideway systems, including purchase and rehabilitation of rolling stock, track, line equipment, structures, signals and communications, power equipment and substations, passenger stations and terminals, security equipment and systems, maintenance facilities and equipment, operational support equipment including computer hardware and software, system extensions, and preventive maintenance. A fixed guideway is any transit service that uses exclusive or controlled rights-of-way or rails, entirely or in part. The term includes heavy rail, commuter rail, light rail, monorail, trolleybus, aerial tramway, inclined plane, cable car, automated guideway transit, ferryboats, that portion of motor bus service operated on exclusive or controlled rightsof-way, and high-occupancy-vehicle (HOV) lanes. Allocation of Funding: statutory formula to urbanized areas containing seven tiers. A threshold level of more than one mile of fixed guideway is required to receive these funds. New Starts: funds for construction of new fixed guideway systems or extensions to existing fixed guideway systems. Eligible purposes: light rail, rapid rail (heavy rail), commuter rail, monorail, automated fixed guideway system (such as a “people mover”), or a busway/high occupancy vehicle (HOV) facility, or an extension of any of these. Allocation of Funding: At the discretion of the Secretary although Congress fully earmarks all available funding.
Appendix III: Federal Programs for Public Transportation Match: The statutory match for New Starts funding is 80 percent Federal, 20 percent local. However, FTA continues to encourage project sponsors to request a Federal New Starts funding share that is as low as possible. The Congressional Conference Report that accompanied the FY 2002 Department of Transportation Appropriations Act instructs “FTA not to sign any new full funding grant agreements after September 30, 2002 that have a maximum Federal share of higher than 60 percent.” The share is now 50%. Funding Availability: Year appropriated plus two years (total of three years) 5- FLEXIBLE FUNDING PROGRAM FHWA program funds can be transferred to FTA for transit projects. - Surface Transportation Program - (23 U.S.C. 133): greatest flexibility. For public transportation capital improvements, car and vanpool projects, fringe and corridor parking facilities, bicycle and pedestrian facilities, and intercity or intracity bus terminals and bus facilities. As funding for planning, these funds can be used for surface transportation planning activities, wetland mitigation, transit research and development, and environmental analysis. Other eligible projects under STP include transit safety improvements and most transportation control measures -
The Congestion Mitigation and Air Quality Improvement Program - (CMAQ) (23 U.S.C. 149) Transit system capital expansion and improvements that are projected to realize an increase in ridership; travel demand management strategies and shared ride services; pedestrian and bicycle facilities and promotional activities that encourage bicycle commuting. Programs and projects are funded in air quality nonattainment and maintenance areas for ozone, carbon monoxide (CO), and small particulate matter (PM10) that reduce transportation-related emissions. - The National Highway System (NHS) - (23 U.S.C. 103(b)). Fringe and corridor parking facilities, bicycle and pedestrian facilities, carpool and vanpool projects, and public transportation facilities in NHS corridors, where they would be cost effective and improve the level of service on a particular NHS limited access facility. 6- JOB ACCESS AND REVERSE COMMUTE PROGRAM – (TEA-21, Section 3037) Appropriation: Has a separate appropriation entitled Job Access and Reverse Commute Description: Job Access grants are intended to provide new transit service to assist welfare recipients and other low-income individuals in getting to jobs, training, and child care. Reverse Commute grants are designed to develop transit services to transport workers to suburban job sites.
Appendix III: Federal Programs for Public Transportation Eligible Recipients: Local governmental authorities and agencies and non-profit entities. Eligible Purposes: capital and operating costs of equipment, facilities, and associated capital maintenance items related to providing access to jobs. Also included are the costs of promoting the use of transit by workers with nontraditional work schedules, promoting the use of transit vouchers, and promoting the use of employer-provided transportation including the transit benefits. For Reverse Commute grants, the following activities are eligible—operating costs, capital costs and other costs associated with reverse commute by bus, train, carpool, vans or other transit service. Allocation of Funding: To be allocated by the Secretary based on legislative criteria identified in Section 3037. Not more than $10 million per year may be made available for reverse commute projects. Match: Not to exceed 50 percent in Department of Transportation funding. Other 50 percent may be derived from other Federal programs where eligible, states, and localities. The share of funding not derived from Section 3037 shall be provided in cash from sources other than revenues from providing mass transportation service, but may include amounts received under a service agreement. Funding Availability: Year appropriated plus two years (total of three years) 7- CLEAN FUELS FORMULA GRANT PROGRAM - (49 U.S.C. 5308) Appropriation: Half of the program is funded under Formula and Half under Capital Investment Grants Description: The Clean Fuels Formula Grant Program is designed to accelerate the deployment of advanced bus technologies. The program offers an opportunity to incorporate low-emission vehicles into the mainstream of the nation’s transit fleets and supports FTA’s efforts to advance emerging clean-fuel technologies. Additionally, this program was developed to assist transit systems in purchasing low emissions buses and related equipment, constructing alternative fuel fueling facilities, modifying existing garage facilities to accommodate clean fuel vehicles and assisting in the utilization of biodiesel fuel. Eligible Recipients: Public transit operators in clean air non-attainment or maintenance areas, both urbanized and nonurbanized, may apply. Eligible Purposes: Purchase or lease of clean fuel buses, the construction or lease of clean fuel electrical recharging facilities, improvement of existing facilities to accommodate clean fuel buses, the re-power of pre-1993 engines with clean fuel technology and the retrofit or rebuild of pre-1993 engines if before a mid-life rebuild.
Appendix III: Federal Programs for Public Transportation Allocation of Funding: According to a legislative formula based on the number of vehicles in the bus fleet and the number of bus passenger miles as weighted by severity of nonattainment for either ozone or carbon monoxide. Match: 80 percent Federal and 20 percent local Funding Availability: Year appropriated plus one year (total of two years) INITIATIVES AND OTHER PROGRAMS 1. INNOVATIVE FINANCING The Innovative Financing program involves the application of a wide variety of established and newly emerging financing techniques, commonly used in other sectors of the economy, to transit. Effective use of these techniques can reduce the financing costs of transit infrastructure and therefore reduce the overall cost of providing transit service. Additionally, they provide opportunities for transit systems and private sector firms to develop mutually beneficial partnerships for infrastructure investment. These financing techniques include certificates of participation, cross border leases, domestic leases, joint development, turnkey, and state infrastructure banks. 2. TRANSPORTATION INFRASTRUCTURE FINANCE AND INNOVATION The Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA) (TEA-21, Sections 1501-1504) will provide Federal credit assistance for major transportation investments of critical national importance, such as intermodal facilities, border crossing infrastructure, expansion of multi-State highway trade corridors, and other investments with regional and national benefits. The TIFIA credit program is designed to fill market gaps and leverage substantial private co-investment by providing supplemental and subordinate capital. The TIFIA credit program consists of secured loans, loan guarantees, and standby lines of credit designed to address projects’ varying requirements throughout their life cycles. Any type of project that is eligible for Federal assistance through surface transportation programs under Title 23 or chapter 53 of Title 49 U.S.C. (highway projects and transit capital projects) is eligible for the TIFIA credit program. In addition, the following types of projects are eligible: international bridges and tunnels; inter-city passenger bus and rail facilities and vehicles (including Amtrak and magnetic levitation systems); and publicly owned intermodal freight transfer facilities (except seaports or airports) on or adjacent to the National Highway System. 3. JOINT DEVELOPMENT Joint development involves the common use of property for transit and non-transit purposes. FTA policy, published in March 1997, indicated that transit operators were expected to generate revenue from land around their transit facilities. Under TEA-21, transit operators are allowed to sell excess land and retain all of the proceeds to defray the capital costs of a transit project. Proximity to rail transit enhances the value of residential property and increases the opportunity for fostering community and development partnerships.
Appendix III: Federal Programs for Public Transportation
FTA grantees may use FTA financial assistance for joint development projects that are physically or functionally related to transit or that increase transit ridership in a corridor. Such projects may include disposing of land for nearby real estate development, preparing land for development, providing enhanced access, and developing on-site community services such as dependent care, health care, public safety, or commercial conveniences. The eight factors that grantees should address for joint development projects are: -
establishing the physical or functional relationship to transit; coordinating the site and functional plans to avoid non-incidental use; existence of program income to recover the cost of the project; designing transit and related services in an integrated manner; determining the market and financial feasibility of the transit-related components; producing supportive land use policies, urban design guidelines, and transportation management strategies to increase transit ridership; development of a joint development agreement; and compliance with cross-cutting Federal requirements and executive orders.
4. OTHER Many of the resources used in preparing this report, were conducted by the Transit Cooperative Research Program (TCRP) (49 U.S.C. 5313(a)(2)) This program promotes operating effectiveness and efficiency by assisting the industry in developing and applying the latest in technology and operating techniques designed to improve mobility and accessibility. TCRP is sponsored by FTA and carried out under a three-way agreement among the National Academy of Sciences, acting through the Transportation Research Board; the Transit Development Corporation, the educational and research component of the American Public Transportation Association; and FTA. Funds are allocated by transit industry consensus through TRB. The Transportation Research Board (TRB), which administers the TCRP, maintains a publications list and description of all TCRP projects on its website (http://www.tcrponline.org) Source: Federal Transit Administration (http://www.fta.dot.gov) – almost a direct extract.
Appendix IV: List of Legal Commitments under SIP and CA/T
Source: MBTA’s Program for Mass Transportation, 2003 – Executive summary p.15
Appendix IV: List of Legal Commitments under SIP and CA/T
Source: 2003-2025 Regional Transportation Plan
Appendix IV: List of Legal Commitments under SIP and CA/T
Source: 2003-2025 Regional Transportation Plan
Appendix IV: List of Legal Commitments under SIP and CA/T
Source: 2003-2025 Regional Transportation Plan
Appendix V: Additional Information on Examples Strategies Implemented by Local Governments ROAD VALUE PRICING The main aim was to include examples where a portion of the revenues generated by the application of the technique, were dedicated to support public transportation. Nevertheless, some examples that implemented the technique purely to manage traffic congestion or finance road projects have also been included to illustrate the application of the strategy and its potential to generate revenues for public transportation. Areawide Value Pricing -
Norway o Bergen o Oslo o Trondheim
-
Sweden o Stockholm – Dennis Package
-
United Kingdom o Durham o London
-
Singapore
-
A Failed Attempt o
United States – Boulder, Colorado
On Single or Multiple Lanes -
United States o California City of San Diego Orange County o Texas o New Jersey
On a Single Facility -
Canada
-
Korea
Vehicle Use Pricing Programs -
Switzerland
Appendix V: Additional Information on Examples Areawide Value Pricing Norway: The Toll Ring The cities of Bergen (1986), Oslo (1990), Trondheim (1991) and recently Stavanger, implemented a cordon toll system, charging all vehicles (except public transportation) entering the city center. The primary motive behind the implementation was revenue generation, rather than congestion management, to be assigned to both road and public transportation infrastructure. In general, fees are relatively low and do not vary much according to the time of day. All cities have limited access corridors facilitating implementation (Ubbels and Nijkamp 2002; Farrell 1999; TCRP 2003d). Bergen The system at Bergen is the simplest of all. The geography allows access to be controlled by six tolls, lowering administration costs. It has achieved a reduction in traffic, although no substantial investments in public transportation or increased ridership levels (Farrell 1999). Oslo In Oslo, 20 % of the toll revenues have been assigned to public transportation investments. Nevertheless, as its implementation coincided with a large expenditure on cross-city rail links, the revenues have not been sufficient to cover all of the investment needs (Farrell 1999). The improvements in public transportation coupled with the toll scheme have not produced a significant impact on modal split. This led the city to approach new methods of financing. Among them, the use of National Highways Administration funds to finance a metro extension (i.e., flexing of funds) (Farrell 1999). Trondheim Trondheim was the least successful in generating revenues for public transportation, originally intended to fund additional roads around the city. Traffic diversion effects were underestimated and the use of extensive season tickets diluted the yields (Farrell 1999). An interesting finding in Trondheim, was how public attitudes towards the pricing scheme changed according to the way the project was presented. When the project was presented only as a toll scheme, 20% were in favor and 48% against. These percentages shifted to 32% in favor and only 23% against the project, when the project was presented as a package to finance public transportation improvements (both cases, after implementation) (TCRP 2003d). The toll system could be removed by 2005, when the initial aim of building and improving the city’s ring roads will have been completed (BBC London).
Appendix V: Additional Information on Examples Sweden (Stockholm) – The Dennis Package The Dennis package was agreed to in 1992, as a road and public transportation program to improve the environment, increase accessibility and improve the conditions for economic development. Road pricing was among the policy measures. While tolls would finance the road component, public transportation would be funded by a mixture of national1 and local government grants. As toll revenues would ease the pressure on the government budget, additional funds could be released for public transportation (representing 25% of the total public transportation investment included in the packet). The package was criticized because of the lack of priority assigned to public transportation: (1) it relied on tolls rather than investment in public transportation to produce a modal split, (2) no provisions were made for the support of operating deficits except from local taxation, (3) rather than tackle environmental issues by promoting public transportation it increased the use of road tunneling and stricter vehicle emission standards and (4) the implementation arrangements – unlike the road project – were not organized by a special unit (Farrell 1999).
Appendix V: Additional Information on Examples United Kingdom: Congestion Pricing Durham Durham was the first city in the United Kingdom to introduce an areawide road pricing in its shopping and historic area, in 2002. There is only one access road to the center so an “exit fee” is charged between 10.00 a.m. and 4.00 p.m. on Monday through Saturday. A rising bollard is linked to a ticket machine monitored by cameras and linked to an intercom system. Residents and their visitors, as well as mopeds and disabled drivers are exempted. Drivers, who do not pay or have no exemption permits, must pay a fine. The aim was to raise money to fund a new bus service to the cathedral and a Shopmobility project providing scooters for disabled people (BBC London). The project is considered a money loser although it did achieve a reduction in traffic into the area by approximately 90% (TCRP 2003d). London The City of London implemented “congestion pricing” on February, 2003 charging approximately $8 for entering the 8 square mile (21 square Km) city center between 7 a.m. and 6.30 p.m. each weekday, excluding holidays. London, the largest city in the European Union, suffered from chronic traffic congestion. The charge was therefore aimed to encourage people to use public transportation, bicycles or walk, instead of driving or use alternative fuels (ELTIS). Vehicle number plates are registered on a database and approximately 230 cameras record vehicles entering, exiting and moving within the area. An Automatic Number Plate Recognition (ANPR) system matches vehicles with the database of registrations. Payment can be made weekly, monthly or annually through various modes and outlets. Exempted from the scheme are disabled persons, motorcycles, taxis, public transportation vehicles, emergency and alternative fuel vehicles and certain public service workers/vehicles. Residents receive a 90% discount and non- payers are applied penalties (ELTIS). The scheme was accompanied by the addition of 300 buses (a 7% increase) and other public transportation enhancements. The reduction in traffic entering the area has stabilized at approximately 20%. Peak hour bus patronage has increased by 14% and public transportation has been able to absorb the shift of people from automobiles (TCRP 2003d). According to ELTIS2, traffic levels were reduced by 16% and congestion by 32% (ELTIS). The revenues raised must by law, be spent on transportation improvements in London for the next 10 years. Initial obstacles were public aversion to the scheme, protests by freight transport operators and insufficient enforcement (which affected its credibility). Nevertheless public information, extensive stakeholder consultation and public hearings are cited as factors for the scheme's success, together with bus service enhancements. The charging zone may be extended to include areas in west London (ELTIS). “Other cities in Britain said they were "monitoring developments closely" and could follow London if the scheme succeeded in cutting car use and raising revenue” (BBC London).
Appendix V: Additional Information on Examples Singapore: Electronic Road Pricing An areawide value pricing scheme has been implemented since 1975, charging motorists entering a restricted zone in the central area of the city. It began as a manual system, known as the Area License Scheme, and was later modified in 1998, to an electronic payment system currently known as “Electronic Road Pricing”. The system uses in-vehicle transponder units that accept stored-value Cashcards for payments (the cards are also accepted as means of payment in stores, government agencies and internet sites). Fees are charged on weekdays, according to the time of day and enforcement is managed through video cameras. The original area (2.4 square miles) has now been expanded to other radial and peripheral highways in the metropolitan region. Parking rates in government owned lots were increased, and a supplemental shuttle bus service was introduced. Originally the shuttle service served 10,000 park and ride lots outside the restricted area, but due to its initial lack of popularity it was later expanded to adjacent housing areas. Conventional bus transit use increased immediately by 15% three months after the scheme was implemented, as compared to the three months previous to its implementation. It continued to grow over the long term too. Before the scheme, the mode share of commuters to the restricted area was 56% by automobile, 33% on bus, 7% on motorcycle and 4% on other modes. By 1988, the automobile share had dropped to 23%, the bus share had increased to 55%, the share of rail transit (introduced between 1987 and 1990) was 11%, motorcycle use increased slightly to 8% and the remaining 3% corresponded to other modes (TCRP 2003d). The revenues are assigned to improve public transportation (Ubbels and Nijkamp 2002) although the Land Trust Authority (LTA) intends the system to be a traffic management tool rather than a revenue generator (TCRP 2003d). It cost approximately $110 million on the basis of the 2002 exchange rates, half of which was spent on fitting the in-vehicle transponders, provided free of charge to vehicles that came forward at the time requested (TCRP 2003d). Singapore has recently introduced a 20-km (approx. 12 miles) automated heavy rail commuter train - the first in the country and in the world. The North East Line (NEL) opened in June 2003, cost $2.6 billion and was financed by the LTA. The government of Singapore pays for all the transportation infrastructure costs and then outsources the operations to private operators. The private operator for the NEL is SBS Transit, which currently operates taxi and bus services in the city. Profits are made entirely on farebox recovery.3 While the government owns the system and the assets, the operator will have the option to buy the assets after several years. The system, consisting of 16 stations and 25 trains, can carry 40,000 people per hour in each direction without the need of a person operating the vehicles or opening the doors at stations. It is expected to have over 40 trains operating in the future (Penshorn 2004, 2/18/2004).4
Appendix V: Additional Information on Examples On Single or Multiple Highway Lanes United States of America State of California: City of San Diego: I-15 In 1996, the City of San Diego implemented a demonstration project on I-15, using High Occupancy Vehicle (HOV) lanes5 created in 1988. Although the main reason was congestion and air pollution, an additional impetus was the desire to finance an express bus service along the in I-15 corridor linking an enroute community to downtown San Diego. During a first phase, a monthly fee was charged for an unlimited use of the HOV lanes by permit holders (carpools, vanpools and buses continued to have a free use). The second phase “Fastrak”, introduced in-vehicle transponders and variable pricing for use of the HOV lanes by single occupant vehicles (SOVs), related to the quality of traffic flow in the HOV lanes. The fee is displayed at a point where the motorist can decide whether to pay and use the HOV lanes or continue along the free general purpose lanes. Due to the success of the program, the State Legislature approved its continuation. The project generates $1.2 million a year, half of which is allocated to support public transportation along the corridor. The demonstration project was funded through ISTEA of 19916 (Ubbels and Nijkamp 2002; TCRP 2003d). State of New Jersey: Newark City Subway LRT New Jersey’s public transportation corporation (NJT) used toll credits to cover the non-federal share of the project costs for a one-mile extension of the Newark City Subway light rail line, connecting Newark and Elizabeth (TCRP 2003c). State of California: Orange County Riverside Freeway In Orange County, a hybrid scheme of HOV pricing differentiated from non-HOV pricing was implemented in 1995 on the Riverside freeway (SR 91).The project is a private, for profit investment authorized by the State Legislature due to the inability to fund improvements faster through the public sector. A variable fee is charged for the use of the express lanes according to the time of day and weekday, published in a schedule by the private operator (TCRP 2003d). California enables a local options sales tax. After several attempts to propose a local sales tax for the construction of new freeways and repeated voter rejection, the County decided to combine the use of toll-financed bonds and development fees to finance the project (Goldman et al 2001). State of Texas: Katy Freeway Houston implemented a pricing demonstration project in 1998 on an HOV lane on Katy Freeway. This lane was initially restricted to HOV of three or more people (3+) during certain hours. As a result of excess lane capacity, a scheme was implemented whereby use of the lane by two-occupant vehicles during the restriction period was allowed for a fee. The system continues and uses transponders and electronic toll collection. Due to the program’s success, the scope may be expanded to include other HOV facilities in the area (TCRP 2003d). In general, Texas relies heavily on the use of local option sales taxes to fund major public transportation systems. Both Houston and Dallas have incorporated rail projects and investments in HOV lanes and busways among the allowed uses to be given to the tax revenues (Goldman et al 2001).
Appendix V: Additional Information on Examples A Failed Attempt Boulder, Colorado In the mid 1990s the City of Boulder, Colorado embarked on a pilot project simulating an area-wide pricing scheme in one of its neighborhoods. The project was modeled after the Stuttgart simulation in Germany. Nevertheless, as plans to install the equipment began, a fierce media campaign was launched and the city council members failed to express support. The transportation agency decided to abandon the project. The following lessons were presented for the project failure: 1- Internal acceptance and support in the transportation agency is needed – need for strong advocacy from within, to voice the support. 2- Public outreach and education are essential – positive media coverage. The project was not able to recover after the negative media coverage. 3- Frequent discussions with elected officials – especially when the topic is increasing user fees. 4- Role played by the area in the region and the possible effects by implementing the scheme. (TCRP 2003d).
On a single facility Canada: Route 407 In Toronto, an “open road tolling” system – without the need for toll booths – has been implemented on Route 407. The system is based on the use of transponders, charging a flat rate per kilometer at all times. Cars without transponders are charged an added fixed charge per trip (besides the flat rate). Cars without transponders are tracked through their license plates using a digital-video based technology, and receive monthly bills (TCRP 2003d). Korea: Seoul The City of Seoul implemented congestion pricing in 1996 on two downtown tunnels. One and twooccupant vehicles were charged a higher fee. This not only reduced vehicular volume but traffic composition too (i.e. carpool alternatives, bus use) (TCRP 2003d).
Appendix V: Additional Information on Examples Vehicle Use Pricing Programs Switzerland: Car-Sharing Switzerland has led the development of Vehicle Use Pricing Programs through car-sharing. The City of Zurich presents one of the most mature programs in Western Europe. The innovative program, launched in 1987 is organized as a membership cooperative, which enables short-term car rental. The fleets are based at rail stations and customers may make reservations through interactive voiceresponse telephone systems (TCRP 2003d). Car-sharing spread over much of Europe, and gained acceptance in Canada and the United States.7 Currently Zipcar, is one of the most commonly known programs in the Northeastern United States. The founders copied the concept from what was being applied in Berlin, where cars were parked around the city for members to rent by the hour instead of owning their own vehicles. They decided to bring the idea to the United States, introducing an innovative spin to the payment and reservation system, with the use of the internet and wireless data transmission systems (http://www.zipcar.com/about/).
State of Texas: Houston’s Autograph Program Houston was also home to the variable insurance project, “Autograph”, implemented by the Progressive insurance company in 1998. Insurance billings were calculated based on time, speed and location of miles driven tracked by GPS units in cars. The project proved the technology could work, the variable component of the insurance cost motivated people to reduce their mileage, and accept the idea at least as an opt-in program (TCRP 2003d).
Appendix V: Additional Information on Examples LOCAL MOTORING TAXES Colombia: The “Transmilenio” – Bus Rapid Transit in the City of Bogotá8 The City of Bogota has recently developed a rapid bus transit service (BRT) – TransMilenio – utilizing exclusive segregated bus lanes. The model was developed based on the system in Curitiba, Brazil, and is now second to it in size.9 The service, which began at the end of the year 2000, is a public-private partnership, operated by private contractors and supervised by the local government agency (TrasMilenio S.A.) in charge of managing the bidding process. Efforts were made to include traditional bus operators into the new system, by requiring bidders to include bus operators with a significant ownership rate. The operators are therefore consortium of traditional bus operators in association with national and international investors. They are in charge of purchasing the vehicles and of all the operational and maintenance costs – except road and station infrastructure. A private firm selected through an open bid process, has the concession for the advanced fare collection system and is in charge of distributing the revenues to operators and the municipal agency. As concessionaire, the firm is responsible for producing and selling the contact-less electronic cards, acquiring, installing and maintaining the fare collection equipment, processing the information and managing the money (deposited daily in a trust fund). The system operates without any subsidy from public authorities. The fare revenues cover all capital investment, operation, maintenance and profits for the bus operators (65%) and the fare-collection company (11%), as well as covering for the supervision and control of the system provided by the local agency (4%), the administrative costs of the trust fund (0.4%) and the cleaning and maintenance of stations. The remaining 20% is provided to operators of buses feeding into the system. Operators are paid on the basis of kilometers served rather than ridership levels. The municipal agency also depends on other nonfare revenues to support its operations (advertising and technical assistance services). The national and city governments cover the capital investments. The construction of corridors, stations and maintenance facilities was conducted by the City’s Institute for Urban Development, who also built pedestrian overpasses, plazas and sidewalks. The initial investment ($213 million) was funded through a local fuel surcharge tax (46%), general local revenues (mainly from capital obtained from the partial privatization of a power company (28%), a loan from the World Bank (6%) and grants from the national government (20%). Fifteen percent of the local 25% tax on gasoline is dedicated to support the system’s future expansion. The national government is also contributing funds and is promoting similar systems in other Colombian cities. In the following expansion phase, responsibility for the cleaning and safety of the new stations will be assigned to the new operators and the municipal agency is expected to receive a higher percentage of the revenues. The advantages of the system are its lower investment and operational costs compared to subway lines10, and its potential to receive private investment and also attract the private sector into the operation. While the labor intensiveness of the system may be a disadvantage in some countries, it is actually considered a benefit in a developing country as Colombia. Also, it is important to have a flexible and more adjustable system, where routes may be shifted according to the dynamics of the developing city. This case also provides an example of a successful public-private partnership. An innovative aspect is the contracting out of fare collection to a private firm. This strategy may help decrease fare evasion as well as provide customer convenience.
Appendix V: Additional Information on Examples EMPLOYER / EMPLOYEE TAXES France – “Versement Transport” Scheme The French “Versement Transport” (VT) scheme is a dedicated local employment tax, where employers with more than nine employees, pay a fixed percentage of wages as a tax, in support of urban public transportation (Ubbels and Nijkamp 2002; Farrell 1999; Brittain 2002, 552-575). It was first introduced in Paris in 1971 and was later extended to other provincial cities. The tax is now being collected by all urban areas with populations over 100,000 and by 80% of urban areas with populations between 20,000 and 100,000. The tax rate is determined by each local authority (Autorité Organisatrice)11, within a range established by the national government. The rates vary between 2.2% in central areas of Paris to 0.55% in provincial cities with populations under 100,000. The funds are used for capital projects, service enhancement or to subsidize fares. Nevertheless, the amount used to finance capital projects has fallen to 40% in provinces and to 15% in the City of Paris (Farrell 1999). Public companies, hospitals, colleges, public administrations and welfare funds must also pay the VT (ELTIS). National government funding for capital investments in urban public transportation has been reduced and is mainly assigned to fixed track, not including rolling stock, land acquisition or design and supervision fees. Government subsidies for operating deficits have been virtually eliminated (Farrell 1999). The main sources of French public transportation are farebox revenues (~30%), the versement transport funds (~40%), grants from the national government (~5%), regions, departments and communes (in the provinces) (20-25%), self-financing, loans and other income (ELTIS ).
DEVELOPMENT CHARGES United States of America State of California: San Francisco’s Transport Impact Development Fee The City and County of San Francisco enacted an ordinance in 1981, which created a “Transport Impact Development Fee” to recover the operating subsidy and capital expansion costs of the San Francisco Municipal Railway (Muni). The fee is applied only to office development in a clearly defined district to offset the cost of increased ridership during peak hours. The fee was structured as a one-time fee to cover the cost of providing transport over a period of 45-years (considered the useful life of a building), based on (1) the marginal effect on transit ridership of new downtown office space, and (2) the marginal cost to the transit agency per square foot of development to serve this increase in ridership. The developer therefore pays according to the new office space built on the site. By charging a fee exclusively for office space, it encourages mixed use developments (residential, retail, and office mix). Although designed to cover the full incremental cost from each new facility, the fee only covers a portion of it. This technique was challenged in court and although it withstood the legal challenges, it took six years (in court) before San Francisco could start to collect funds. This experience illustrates the legal challenges presented by the use of impact fees. The ordinances must be appropriate to stand up against class action suits, have to be based on extensive studies and public involvement and use appropriate language. It is also important to have a mechanism built into the ordinance to make collection enforceable, if necessary (TCRP 1998a).
Appendix V: Additional Information on Examples PARKING SURCHARES AND FINES European Examples France has earmarked fines and driving offenses to pay for public transportation infrastructure since 1973 (Ubbels and Nijkamp 2002). In Milan (Italy), rail infrastructure has been partially funded by revenues from city parking lots and suburban park-and ride schemes, as well as property development at key interchanges (Farrell 1999). In Amsterdam, Netherlands revenues from a city center parking are being used to partly finance a new tramline (Ubbels and Nijkamp 2002). In the small City of Radolfzell, (Germany) public transportation services are integrated with the public and private parking system in the city. The city increased the parking fees, as a way of reducing automobile use and increasing the use of public transportation. This strategy not only achieved the goal of reducing vehicles but saved on the cost of providing additional parking as well as creating additional revenues for the city. These additional revenues, together with city general funds are used to subsidize the city’s bus system {{(TCRP 1997)}. The City of Brugge (Belgium) provides an example were a park-and-ride facility is used to encourage the use of public transportation. Users of the parking area pay a flat rate and the occupants of a vehicle (up to five) ride to and from the downtown area for free. Coupled with other strategies and improvements, this has also achieved a reduction in automobile traffic and parking in the city, enhancing the city’s urban center (TCRP 1997). Other examples in Europe include the Milton Keynes and Heathrow Airport in the United Kingdom (Ubbels and Nijkamp 2002).
Appendix V: Additional Information on Examples CROSS-UTILITY FINANCING United States of America State of Washington: Pullman Transit In Pullman, WA the scarce amount of retail establishments in the city would not generate sufficient revenues from a sales tax, to support the public transportation system. The city decided to levy a tax on utility use, which would generate a dedicated revenue stream as a sales or employer tax (Ubbels and Nijkamp 2002). The tax is levied on the use of telephone, water and sewer (owned by the city), electric, gas, and garbage utilities. While cable TV was recently classified as a utility, the tax is not yet levied on its use. The utility companies are in charge of collecting the tax and the city then transfers the funds to the public transportation agency (Pullman Transit). The tax was first levied in 1979 after the measure was approved by a ballot. State permission was required to conduct the ballot and significant community outreach was needed to raise support for the measure. As the State matches dedicated funding sources 1:1 with revenues from the State's Motor Vehicle Excise Tax (MVET), Pullman Transit receives twice the revenue generated by the tax. Two incidents tainted the success of this mechanism. First, in 1980 the telephone company mistakenly charged prefixes to people outside the city and the agency had to pay back the revenues to the non residents (as well as the associated MVET funds). This could have been avoided with clear instructions and information on the tax. Then, in 1984 due to citizen pressure, the city lowered the utility rate. As this measure led to important service cuts, the city consequent reestablished the original rate. Nevertheless, it took the agency until 1992 to recover financially from the tax cut and return to pre-1984 service levels (TCRP 1998a). The State of Washington enables a local options sales tax (Goldman et al 2001) The agency’s main sources of operating revenues are the utility tax, the State MVET, transit sales tax equity distribution, a state bridge allocation, fares, federal grants and other. 12
Appendix V: Additional Information on Examples Germany: The “Stadtwerke” The German “Stadtwerke” (municipal public utility) is a government corporation owned by a city, a region (or both) that may generate profits from its operations and use them to finance public services – public transportation among them. As gas, electricity, water and sewer services tend to be profitable, the German government taxes these profits. Many municipalities have therefore decided to fund public transportation deficits with these profits, as a way of reducing their federal taxes (TCRP 1997). Approximately 57% of the public transportation agencies in Germany currently are still in charge of supplying other municipal services too. In the early 1990s, 18% of the operating costs were covered by profits generated from these other activities (Farrell 1999). In the City of Wuppertal, loss-making public transportation department is cross-subsidized by a profitable utility department (Ubbels and Nijkamp 2002). In the cities of Liepzig and Ravensburg, the transportation provider also administers and finances several municipal services – among them electricity, sewer and water. The annual shortfall in the operating budget (expenses not covered by farebox revenues) is covered with the profits generated by these utilities (TCRP 1997; TCRP 2003, 1-26). In the City of Lemgo, the public transportation system is owned by the city but services are operated by a private provider under contract with the city. The city also uses the revenues from other utilities to cross-subsidize public transportation (TCRP 1997). In cities where revenues from cross-utility financing became insufficient, local tax revenues were sought. Other sources of funding come from a Federal fuel-oil tax, distributed to local authorities through the regional authority (Länder). The Länder acts as intermediary between the local authority and the national government, negotiating the levels of investment and subsidy (Farrell 1999). Investment grants financed from the national budget have been authorized since 1975 and have been used mainly for railway infrastructure, transport interchanges, park-and-ride schemes and computerized information systems (Farrell 1999).
Appendix V: Additional Information on Examples OTHER FINDINGS: PUBLIC-PRIVATE PARTNERSHIPS Europe Spain There have been three landmark projects in Spain involving urban redevelopment in the cities of Madrid, Oviedo and Bilbao, which included rehabilitation of run-down areas, along the transportation routes and commercial development at the terminals/stations. They were public-sector led and returns were high due to their proximity to city centers. Commercial loans were easier to obtain, than for stand-alone projects (Farrell 1999). France Local authorities in France have a common practice of setting up comprehensive development areas around major urban transportation nodes, with formal agreements for the sharing of infrastructure costs and betterment values between private developers and the public authorities. Very few station redevelopment projects have generated substantial property revenues (Montparnasse and Lille). The causes reside in the failure to reach satisfactory partnership agreements and because banks were reluctant to use property redevelopment as security for infrastructure loans (Farrell 1999). More recently, in cities with large infrastructure requirements, a specific type of concession (affermage contracts) is being developed where the private operator is allowed to exploit an existing public network in exchange for funding new infrastructure and services (Farrell 1999). Denmark In Denmark, a three-line mini metro system was funded in the City of Copenhagen through the sale of parcels located in a vacant 790-acre lot close to the city center. The lot was co-owned by the Copenhagen Municipality and the national government since 1963. A new company with a 55:45 share split between the Municipality and the national government was set up to develop the land. The development surrounding the Light Rail Transit (LRT) line was focused primarily on residential units. An important aspect of the project was its heavy reliance on outsourcing (Farrell 1999). Italy In the City of Turin private funding was unsuccessfully sought to finance the construction of a LRT network. Public-private partnerships have also been sought for funding the Rome metro extension (Farrell 1999).
Appendix V: Additional Information on Examples Japan Tokyo: Waterfront Yurikamome Transit Line A $1.65 billion13 new transit line was co-funded by the Tokyo metropolitan government (66.7%) and a private sector-consortium made up of 17 banks (33.3%). The private sector was willing to share the costs of construction since the transit line constituted the primary means of access to a redevelopment project they were financing (Rainbow Town) located on an island. The transit line was therefore essential for the success of the project. The transit line itself proved to be a success, as ridership surpassed the projected levels even though the real estate development was slowed by recession. It also operates at a profit (TCRP 2001). Tokyo: Teito Rapid Transit Authority (TRTA) Subway The subway agency – publicly owned and operated – partnered with other largely private commuter rail operators to share tracks and enhance ridership. The TRTA needed to enhance ridership to amortize the high investments required to build a new transit line. The agency decided to improve suburban commuting, and avoid the required transfers between commuter rail and subway, by connecting several city subway lines directly to the suburban commuter railways. This way, passengers are no longer required to change trains. The TRTA drivers exit the trains once the line reaches the subway stations and the commuter rail personnel takes over (TCRP 2001). Nagoya: JR Central Towers The JR Central Group – a private company operating rail – has a subsidiary company dedicated to real estate development and management, generating a quarter of the group’s revenues. The group developed a real estate project over the Nagoya rail station, which presents an example of joint development of air rights. It is expected to generate significant profits for JR Central. The project brings together rail, bus, pedestrian and automobile traffic proving not only that transportation may be successfully combined with other commercial uses but that the different travel modes may be successfully integrated too (TCRP 2001). Nagoya: Shidami Bus Line The construction of a new guideway bus system was divided between the city (77%) and a private company (Nagoya Guideway Bus Company) created to build and operate the system (23%). The private investors include the Toyota Motor Corporation, banks, the city’s electric power company and private railroads. The company is responsible for the vehicles, bus station interior finishes, station equipment, administrative buildings, among other “noninfrastructure” components and for maintenance activities. The company will operate the line for a profit and will obtain additional revenues from parking activities, real estate development and management and other commercial activities related to the transit line (TCRP 2001).
Appendix V: Additional Information on Examples Hong Kong Mass Transit Rail Corporation (MTR) The public corporation managed to raise over $516 million dollars in profit from joint development of 18 property complexes above or next to its stations, representing 6.6% of the entire system construction cost ($ 7.8 billion). The MTR is also undertaking property developments in five new stations along the Airport Express Line. Private developers are responsible for all the costs (including the land premium and construction) and the MTR benefits from up-front cash payments and sharing of profits and assets. The total investment is estimated at $25.8 billion, and the project will include residential, retail, commercial, recreational and cultural facilities. In general, MTR requires the private sector to undertake most of the risks, while sharing in the profits. The agency is also likely to manage the development (some exceptions apply if the project is not contiguous to the station). As ridership has remained flat since 1995, the agency derives most of its profits from property. The MTR has plans to expand service in 21 miles by 2008 and estimates it can obtain an 11.5% rate of return on investment, primarily from development returns (TCRP 2001, p. 22). The government in 2001 privatized the MTR, to make the agency more market sensitive and include private equity and to obtain revenues for additional expansion projects. The government sold off less than 50 % of the MTRC and retained the majority shares over the following 20 years. The government retained control of routes and fares. The authorities aimed at realizing approximately about US$3.8 billion (2001) from the sale of MTRC shares on the stock market during the two years following the privatization (APTA 2000). The company is expected to maximize the rate of return on the assets, cover operating costs and reserve funds for future expansions (TCRP 2001).
Appendix V: Additional Information on Examples Strategies Implemented by Public Transportation Agencies Partnerships with the Private Sector PROGRESS PAYMENTS State of New York The Central New York Regional Transportation Authority (CNYRTA) saved 4% of the purchase price for buses by implementing progress payments, instead of the traditional method of paying a lump sum upon delivery. CNYRTA paid invoices as they were received, and was reimbursed by the FTA for 80% of the cost. Upon completion of the buses, the State of New York reimbursed the agency for its 10% share of the cost. A lesson from CNYRTA’s experience is that the success of the method will depend upon the documentation of the costs by the supplier before payments are made and that the costs for paperwork, administration, and FTA grants have to be included in net present value calculations. Furthermore, the purchase price discount preserves any FTA grant and associated local matches, for other agency uses (TCRP 1998a). CROSS BORDER LEASING State of Washington (Seattle) In 1996, the transit division of the King County Department of Transportation, responsible for bus services in the metropolitan area, entered into a cross border bus lease with Japanese investors (lessors). The lessors retained title to the buses over eight years, while the transit agency retained use and control. The acquisition was funded with FTA section 9 Capital grants (currently the Urbanized Area Formula Program - (49 U.S.C. 5307)), depositing the total lease amount in low risk securities. Level payments are made from these deposits. A firm was hired to arrange the lease. It determined Japan was the best country to enter into lease arrangements for buses, as Europe and North American investors were more interested in longer term assets as railcars. As the agency is part of the county government, county council approval for the transaction was required. King County also discovered that the state statute required the county to pass an ordinance in order to complete the dollar investment portion of the lease structure. FTA approval was also necessary14 (TCRP 1998a). The agency’s main sources of operating revenues are the sales tax dedicated stream, the State MVET, a state bridge allocation, fares, vanpooling, federal grants and other.15
Appendix V: Additional Information on Examples TURNKEY PROCUREMENT Thailand: Bangkok Sky Train The Sky Train cost $1.7 billion (year 2000) and was funded through a combination of equity and international and domestic loans. The government did not want to invest any tax money into the project so in 1992 it made a call to the private sector. Siemens approached Kreidtanstalt fur Wiederaufbau (KfW) to support them for the bid. When Siemens won the bid, KfW structured the financing. The city entered into a contract with the company (Bangkok Transit System Corporation, Ltd. (BTSC)) providing no direct subsidies, other than providing the land free of charge. The cost of land acquisition would have otherwise been very high. The concession is over a 30-year period, at the end of which the system will be handed to the Bangkok Metropolitan Administration (BMA) and the company will receive income from farebox revenues and other related activities. The financing structure was adapted to the cash flow requirements. To assure reserve funding, BTSC insisted that a big Thai banking company join the package and made their participation a condition. Finally, as a way of getting contractors involved, they were asked to share the financial risk by joining in the post-completion financing – to guarantee some of the obligation of the equity. Siemens and Italian-Thai (the civil construction firm) agreed. Construction began in 1996 and the project had to subsist through the Asian economic crisis of 1997. Although many financial backers (syndicated banks) panicked and wanted out, KfW and the International Finance Corporation (IFC) increased their loans and Siam Commercial bank took over some of the obligations of the syndicate. Another challenge was coordinating construction with the public utilities. The service was finally initiated in the year 2000, facing the real challenge of operating and successfully repaying the investors. The cost depends on the length of travel and ranges between twice and ten times the cost of the bus. The company expects that time will be the essence of ridership and a strong advertising campaign was launched to draw riders to the system. According to the Siemens Transportation Systems group vice president some of the points proved by the success of this project were that: (i) private initiative pays, (ii) professionals are needed to guarantee success, (iii) personal contacts are crucial and (iv) a project of this magnitude can only succeed with cooperation between the government and the private sector (Strandberg 2000).
Appendix V: Additional Information on Examples State of Washington (Snohomish County) Community Transit entered into a design-build procurement to construct a new bus facility to house the buses required by its growing local service and meet the needs of its commuter service contractor. Building the new base would require a process which could take up to five years, between the search for land, the design, construction and the related equipment procurements. When a site was found, the owner made an unexpected proposal. Aside from selling the land, the owner also proposed to design and build the base, offices, and the maintenance facilities. After some consideration, the agency realized that the proposal met all of its needs: site selection, fast completion and lower cost. The project was funded by a local sales tax and matching Motor Vehicle Excise Tax (MVET) from the State of Washington. No federal funds were used. The total project cost turned out to be half of the expected cost, had it been built through the traditional procurement process. Furthermore the completion only took 18 months. A lesson based on the agency’s experience is the importance of negotiating the project price in a fairly advanced design stage. The agency negotiated the project price too early in the design stage (10%) and requested this maximum amount to its board. When the design stage reached 30% changes had to be introduced, which increased the total project price. The agency was placed in the uncomfortable situation of having to justify the increase before its board and obtain a new approval (TCRP 1998a).
JOINT DEVELOPMENT OF FACILITY State of Georgia (Metropolitan Atlanta Rapid Transit Authority, Atlanta) and State of New York (Central New York Regional Transportation Authority, Syracuse) Both these agencies, benefited from partnering with local natural gas companies to build fueling stations and purchase CNG fuel buses, needed to comply with the Clean Air Act Amendment of 1990. In return, the private companies received tax credits for their investment under the Energy Policy Act of 1992 as well as a large new customer for their natural gas. A partnership of this type requires a long-term commitment and frequent communications between the partners. In some cases, the private partner may require a fuel purchase guarantee and this could lead to higher gas prices (TCRP 1998a).
Appendix V: Additional Information on Examples Partnerships with the Community United States In the United States examples were found in Pullman (Washington), Lubbock (Texas) and (Iowa City, Iowa) and Berkeley (California). The Pullman Transit agency partnered with the school district to increase ridership and revenues. The school district issues ID for students and the agency provides stickers to the district for students who ride the buses. Based on the amount of stickers, the district pays the agency a monthly lump sum. For the 1996-1997 year, the sum received by the agency represented 3% of its operating budget (TCRP 1998a). In Lubbock, Citibus partnered with the Texas Tech University student body for service of a campus shuttle. The student body pays Citibus a fee for the complete cost of the shuttle, including operation, schedules and maps. Students and community residents ride for free and Citibus uses the payment from the university as a local match for federal assistance (TCRP 1998a). Iowa City Transit partnered with downtown businesses in a “Park and Shop and Bus and Shop” program. Customers obtain a parking validation or a free transit ride for a purchase above a certain amount. The City gives the agency the vouchers and collects the necessary revenues from the participating businesses. Businesses also pay for the marketing and advertising of the program (TCRP 1998a). State of California: AC Transit / UC Berkeley Pass In the fall of 1998, the increasing traffic congestion and the parking limitations around the Berkeley campus of the University of California, led student leaders to look to public transportation as a solution. Negotiations were conducted between AC Transit (the public transportation provider), the university officials and the City of Berkeley and the solution considered was adding an $18-persemester surcharge to all students' tuition bills. This would pay for unlimited AC Transit service (bus lines including transbay routes). This proposal was put on a student government ballot measure, for approval by the student body. Student outreach and communication efforts were conducted by the Associated Students of the University of California and the Graduate Assembly and the vote resulted in a 'yes' vote from over 88 percent of student voters. The “Class” pass (a sticker on student ID cards) came into use in the fall semester of 1999 with the following successful benefits: 1. Students who never used public transportation before became regular riders. 2. AC Transit added buses and new routes around the campus to meet the increased demand. Before the Class Pass, AC Transit sold about 1,600 AC Transit passes. Once the pass was implemented, the number of stickers rose to 22,000 (approximately 14 times the original amount). The AC Transit's director of Marketing and Communications sees the pass as a mutually beneficial
Appendix V: Additional Information on Examples partnership: "The City of Berkeley has an interest in ways to reduce congestion; we have an objective of getting more people on our buses; and the university has to deal with parking and congestion as well. So frankly, we have a great mix here of self-interested parties who can work together towards a common solution." Extract from the Website of the Metropolitan Transportation Commission (transportation planning, financing and coordinating agency for the San Francisco Bay Area) (MTC 2000)
Canada In Canada, examples were found in Quebec, Calgary, Ottawa and Victoria. In Quebec the public transportation provider is working collaboratively with small community stores, shopping centers and churches to establish small park-and-ride facilities throughout its service area. Property owners offer free parking to public transportation passengers at no cost for the transportation agency, in exchange for the potential increase in customers and churchgoers (TCRP 1997). The City of Calgary has developed a partnership with local school bus service providers. The Calgary Transit agency schedules services and supervises them, while the school system purchases and operates the vehicles. This way supervisory staff at the school system is eliminated, benefiting the public from the elimination of duplicated functions between two public institutions (TCRP 1997). The City of Ottawa implemented the Communbus program, as a response to funding limitations. The bus provider (OC Transpo) assessed its different routes to identify and eliminate poor-performing ones. In some cases it decided to include the community in the decision and gave it an opportunity to “save” its route. Under “use it or lose it” notices in local papers, it notified the community that its route was in jeopardy and gave it a limited period to improve the performance. Several communities coordinated efforts and organized support to increase the ridership and avoid the service cut (TCRP 1997). The City of Victoria, Canada the university raised tuition costs to help subsidize a student bus pass program (TCRP 1997).
Appendix V: Additional Information on Examples Creative Use of Assets ADVERTISING Canada During the past years STCUM – Societe de Transport de la Communuate Urbaine de Montreal has tried to expand the revenues generated by rental income and advertising. Among the usual advertising strategies, the agency has used bus wraps, bus and train advertising panels and station advertisements. It has also used more creative advertising through bus handstraps shaped like soft drink bottles and has wrapped subways trains (Two ad campaigns generated more than $1.5 million each per year (TCRP 1997). The agency also explored the possibility of commercializing entire subway stations, which would involve turning an entire station over to a company. The company would be able to paint the entire station with its logo, add stores, demonstrate products and distribute information. For this it developed demographic profiles of the users for each station and met with representatives from top companies in Montreal to determine the level of interest. Its aim was to find a commercial partner for each of its 65 stations (TCRP 1997).
STATIONS FOR JOINT DEVELOPMENT Washington D.C.: WMATA The agency is undertaking joint development projects since the 1970s (TCRP 1998a) and serves as an example for other agencies.16 The WMATA is an agency with value capturing among its core principals: as of 1999, 24 joint development projects generated approximately $6 million in annual revenues and $20 million in increased property taxes to localities (TCRP 2002c). Its joint development project of Bethesda Station is considered one of the most financially remunerative transit-joint development projects to date. An office-retail-hotel complex was built on top of the Bethesda Metrorail station in Maryland, generating approximately $1.6 million annually in air right rent for the WMATA (TCRP 2002c). The agency has also applied “Equity Participation”, whereby the agency writes down land costs in return for future cash flow. The WMATA decided to forgo the collection of a fair market rent for land near the Ballston’s Metro Center, and instead accepted from the developer, a percentage of future gross proceeds from the condominium sales (TCRP 2002c). State of Florida: Dadeland North Station in Miami The Miami Dade Transit Agency (MDTA) completed a retail joint development project on a 9.2 acre park-and-ride lot adjacent to one of its heavy rail transit stations (Dadeland North Station). The $40 million project involved a vertical mall, held under a 90-year lease by the developer. The arrangement guaranteed the agency a minimum annual rent for use of the site and a 5% of the gross revenues from the operation of the mall. The project encountered two main problems worth taking into account. First, the negotiations with
Appendix V: Additional Information on Examples the elected developers under the RFP, took twelve years. Then, as the land had been purchased with a federal capital grant, the federal government retained an interest in the site. The FTA regional office disapproved the project, on the basis it would no longer serve a transit use and therefore requiring the agency to buy out the FTA’s interest in the property. Miami Dade appealed the decision to the FTA headquarters, claiming the project would increase ridership and that the revenues would be used fully for public transportation purposes. In June, 1994 the FTA finally granted a formal approval to the project (TCRP 1999). State of California (San Jose) In 1998, the Santa Clara Valley Transportation Agency (VTA) completed a high density rental community development on a 5.4 acres VTA-owned park-and-ride lot, on the Guadalupe light rail system. This was the first residential transit-joint development project in the country. Its main purposes were to generate revenues to cover operating and other expenses, gain new riders for the system and enhance the environment in and around the lot, to provide a sense of place and community. The $32 million project was financed entirely by the project developer, in return for the land over a 75-year lease. The rental of the land is the direct monetary benefit received by the agency. After analyzing several options, the project was financed through the issuance of tax exempt bonds as a multifamily housing project, containing 20% low-income units. The city was instrumental in providing the bond financing, which requires an allocation of the State’s volume cap for private activity bonds. An advantage of this project over the Miami Dade’s was that the land had not been purchased with federal money and therefore did not require federal approval. An important legal aspect to consider from this case was the bidding process used to choose the developer. The RFP process, was a modified public bidding process allowed by state law (TCRP 1999). Commonwealth of Massachusetts (Belmont): MBTA The MBTA’s transit-oriented development project on the deck of one of its commuter rail stations (Waverly Square) in Belmont, would consist of a five-story retail and housing complex on land owned by the MBTA. In this case the asset offered to the developer by the agency, is the air rights over the station. This project would allow the agency to exploit its real estate holdings, stimulate an increase in ridership while contributing to transit-oriented development. Among the factors to consider are zoning changes to allow development over the tracks, as well as residents’ responses and input. Density generating projects like this one are sometimes resisted by “suburban neighborhoods”. The development rights would ultimately be priced according to the type of development (Cole 2004). State of Oregon (Portland): Airport MAX Portland, Oregon (Portland’s Airport MAX extension) presents an example of how private investors also aim at value-capturing. The developer Bechtel Enterprises contributed over $28 million for a $125 million light rail project, hoping to recoup this investment through the development of Cascade Station, a 120-acre site with office, retail and hotel uses at the entrance to the airport (TCRP 2002c).
Appendix V: Additional Information on Examples LEASING RIGHTS-OF-WAY State of California (San Francisco) In 1994, the San Francisco Bay Area Rapid Transit District (BART) entered into a long-term license agreement for the installation, maintenance, management and marketing of a fiber optic telecommunications system, which would meet the agency’s telecommunication needs as well as provide revenue sharing to the agency. In this case, the asset offered by BART was the right-of-way (ROW) upon which to install the network. The developer owns and operates the system during a 15 year equipment-lease-purchase agreement, granting a portion of the revenues to BART (generated from the portion of the system not required for the agency’s system needs). At the end of the term BART will reassume the ownership. Among the issues, the agency had to look into were: (1) the State’s public bidding requirements as established by the California Public Code, (2) the fact that part of the ROW had been purchased with State money through the Department of Transportation (DOT), required a consent from the DOT. A legal concern arose from the fact that portions of the ROW had been purchased with tax-exempt bond proceeds, so it had to be determined whether any existing bond covenant prohibited the use of the ROW by the private developer. In the end it was determined that the use by the fiber optic system in the ROW was incidental, (3) the environmental effects of the project had to be assessed to determine the approval by the California Environmental Quality Act. BART undertook a financial risk by assuming the revenues generated by the commercial use of the system, would offset the cost of financing its portion of the telecommunications system (TCRP 1999). State of Missouri (St. Louis) Bi-State Development Agency (BSDA) also offered a ROW for the installation of a fiber optic telecommunications system and receives a payment, while also benefiting from construction cost reductions, by using the fiber-optic cable for its own command and control systems. Furthermore, the agency has saved money from the FTA capital grants and the associated 20% match, to be used for other capital expenses (TCRP 1998a).
1
Many countries use the word “State” to refer to the federal or central government. To avoid the confusion with the concept of “State” as applied in the United States, the term “national” is used instead to refer to federal or central governments in other countries. 2 European Local Transport Information. ELTIS is an initiative of the European Commission's Directorate General for Energy and Transport, Clean Transport Unit (http://www.eltis.org/en/index.htm) 3 Rail and bus fares are similar to rates in the USA (Penshorn 2004). 4 According to the LTA Senior Director for Projects and Engineering, there are three benefits related to automation: safety – the technology eliminates repetitive tasks which can sometimes cause humans to make mistakes, availability of human resources – the driver may conduct other useful tasks, and service can be provided independent of a driver (who can sometimes be unavailable) (Penshorn 2004). 5 Exclusive or controlled access right-of-way that is restricted to high occupancy vehicles (buses, passenger vans and cars carrying one or more passengers) for a portion or all of a day (FTA – Glossary of National Transit Database terms). 6 The Intermodal Surface Transportation Efficiency Act (ISTEA) was the Federal Transportation Bill for fiscal years 1992 through 1997. 7 Verified through “google” searches on-line.
Appendix V: Additional Information on Examples 8
This information was obtained from the Testimony of Oscar Edmundo Diaz to the Senate Committee on Banking, Housing, and Urban Affairs on June 24, 2003. Mr. Diaz is the former advisor on foreign affairs to the former Mayor of Bogotá, Enrique Penalosa. 9 The busways introduced in the city of Nagoya in the 1980s are also based on the Curitiba model of BRT. Other cities used as models are Porto Alegre, and Goiania in Brazil and Quito in Ecuador. 10 According to the information provided by Oscar Edmundo Diaz, the cost for building the Metro system in Washington, D.C. was about $72 million per kilometer compared to $5 million per kilometer in the case of the BRT system. 11 Public transport is a local government responsibility, but due to the fragmentation in local governments, communes or cities have grouped voluntarily into “local agencies” or “Autorités Organisatrices”, receiving financial assistance for infrastructure investment from the national government (Farrell 1999) 12 Information obtained from the “2002 Summary of Public Transportation Systems in Washington State” available at http://www.wsdot.wa.gov/transit/library/2002_summary/29-Pullman.pdf 13 Calculated by the TCRP research team at an exchange rate of 119 Yen = U$S 1 (TCRP 2001). 14 According to the TCRP Report, the County feels that FTA accepts this kind of leases as long as the net benefit is higher than the transaction cost (TCRP 1998a) 15 Information obtained from the “2002 Summary of Public Transportation Systems in Washington State” http://www.wsdot.wa.gov/transit/library/2002_summary/08-King.pdf 16 According to an article in Mass Transit magazine, the Miami-Dade Transit director changed the agency’s approach to joint development, based on WMATA’s strategies (Duffy 2001).
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