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This chapter provides an overview of transportation utility fees that can fund operations and maintenance.
Agencies may consider transportation utility fees to fund road maintenance and where property owners accept the cost calculation formula. Opportunities: Transportation utility fees may be more equitable and economically efficient than funding maintenance through property taxes. Challenges: Transportation utility fees may face a significant administrative burden up front and may struggle to garner political support.
Definition: Transportation utility fees (TUFs) are periodic fees paid by a property owner or a building occupant to a municipality based on use of the transportation system. TUFs treat the transportation system like a utility, charging property owners or occupants for their share of transportation costs based on system use. "Use" is defined as the generation of trips, estimated by the Institute of Transportation Engineers, 51 and fees are based on an estimated number of trips generated by different land uses. 52
Alternative Terms: TUFs are also referred to as transportation maintenance fees, street maintenance fees, road use fees, pavement maintenance utility fees, or street utility fees. 53
Highways and Roads: TUFs are typically used to fund road maintenance, especially for local roads that are ineligible for Federal-aid highway funding. For example, the city of Newberg, OR, adopted a TUF in 2017 to close a $1.9 million annual funding gap to maintain its streets. 54 In May 2017, Highland City, UT, created a transportation utility fund dedicated to the operation, improvement, maintenance, and rehabilitation of roads. 55
Transit: TUFs can be used along transit corridors to fund O&M expenses. In 2011, Corvallis, OR, passed a transit operations fee, eliminating fares. It added $2.75 to single-family residential customers' bills each month. 56
Other Sectors: TUFs are not used in sectors beyond roads and transit.
Structure and Timing of Funds: TUFs are paid on an ongoing basis, often monthly. 57 58 They are imposed on an entire area and continue in perpetuity. 59 Fees are determined by the number of parking spaces, square footage, or gross floor area.
Source and Use of Funds: TUFs are levied on property owners or occupants of the property, including renters. They are intended to fund O&M expenses.
Management of Funds: TUFs should be dedicated to the purpose for which they were established and cannot be considered general revenue. They are generally collected with other utility fees, unless the municipality decides to set up a different administrative system. One of the benefits of collecting a TUF with other utility fees is that municipalities can discontinue water and other utility services for failure to pay the full utility bill, which is a very strong enforcement mechanism. 60
In Clackamas County, OR, officials initially decided to establish a countywide tax billing system for their proposed transportation maintenance fee. However, municipalities were not satisfied with the central management of the system. As a result, they used existing, local utility billing systems to administer the TUF. 61
Ease of Implementation: When existing billing systems are used, local governments theoretically incur no additional costs beyond initial costs associated with classifying land uses and, in some cases, establishing accounts for properties that do not yet receive services. 62 Experience shows that local governments may still suffer an administrative burden. Clackamas County undertook a large number of surveys and data collection to effectively define land usage at parcel levels so that they could be applied to the data categories reported by the Institute of Transportation Engineers. 63
Enabling Legislation: Although some States may uphold local governments' ability to charge fees, in most, State enabling legislation is required.
Legal Basis: Some courts have upheld the TUF as a fee and not a tax. 64 A good practice is to draft a TUF to be reasonably related to use of the service and dedicated to the specific purpose for which the charges were levied. As with all value capture techniques, practitioners are advised to consult with legal counsel familiar with the case law in their State.
Challenges: TUFs require broad stakeholder acceptance of the methodology for pricing and assessing fees. In cases where stakeholders have challenged the pricing methodology, the fees have had to be rolled back.
Opportunities: By linking fees to transportation system usage, a TUF may avoid the market distortions that using property taxes for transportation create. 65
Challenges: TUFs may be subject to political resistance. First, because fee schedules group land-use codes into broad categories, inequities can arise in fee categories (see the case of Tualatin, OR, in Example 4). Fee payers may also appeal fee calculations. 66 Second, other levels or government or institutions such as schools may resist a TUF, arguing that they are a disguised tax or that they should be exempt from such fees. 67 Third, disagreements may arise over which maintenance elements can be funded by the fee. In Portland, OR, a TUF program adopted in 2001 was withdrawn the same year after a successful voter referendum petition. One of the criticisms was that some activities, such as tow charges for abandoned vehicles, were not directly related to road maintenance. 68
TUFs may be perceived by residents as just another tax. For a TUF to be successful, public outreach and acceptance is critical. This is particularly the case in States where local residents can refer actions to a general vote. Two larger jurisdictions in Oregon (Eugene and Springfield) withdrew TUF ordinances the same year they were adopted following referenda. 69
Opportunities: Because TUFs can be considered relatively equitable, as discussed in the following Section 5.7, this may help create public support for the technique.
Challenges: TUFs may be considered inequitable, because 1) road use is estimated rather than metered and 2) estimates are based on averages for broad property classes. 70 Use can be difficult to estimate and justify, particularly for different income levels.
Opportunities: TUFs may be considered more equitable than property taxes. With a property tax, a percentage of road users do not pay due to tax-exempt status, while every local traffic generator contributes to supporting the road system through TUFs. They may also advance economic efficiency by linking the cost of maintaining transportation with the derived benefits. 71
Example 4 highlights two Oregon local governments' struggles to apply TUFs and the public resistance to fee setting.
Example 4: Oregon Transportation Utility Fees Offset Funding Shortfalls in Gas Taxes
Oregon was the first State to adopt a gas tax in 1918. By 1984, the gas tax was 8 cents per gallon, increasing to 24 cents by 1993. The rapid rise in gas tax in the late 1980s and early 1990s may have adversely affected the public's perception of equity. The gas tax rate remained unchanged for almost 25 years, despite numerous attempts to raise it. In 2017, it was raised by 10 cents over a period of several years.
During a period of several decades, the State suffered from decreasing maintenance revenues and increasing maintenance needs. Between 1993 and 2003, revenues from the gas tax grew by 13 percent, while vehicle miles traveled increased by 21 percent. Oregon cities and counties responded by either attempting to raise their local share of gas taxes - in most cases, unsuccessfully - or by enacting a TUF. Initially, TUFs were implemented by small cities with populations between 2,000 and 10,000. Eventually, larger jurisdictions followed.
Case 1: Clackamas County struggles to build public support for the transportation maintenance fee.
Clackamas County, OR, is a county the size of the State of Delaware, with a population of 345,000. In 1995 and 1997, voters rejected increasing the gas tax. Seeking other means to close the funding gap in road maintenance, in 2002 Clackamas County officials began working together with five municipalities to develop a transportation maintenance fee. The process included three stages: 1) screening whether existing maintenance activities would be eligible for funding through the fee, 2) estimating the number of average weekday trips for each development, and 3) establishing fee categories to facilitate implementation. Fee revenues required to eliminate the maintenance funding gap were estimated to be $20 million. With maintenance expected to be funded by maintenance fee revenues, a portion of the gas tax revenue was to be redirected toward deferred capital projects or other high-priority capital investments. Although the proposal was defeated in a 2004 ballot, support for the transportation maintenance fee was still significantly higher than for increases in gas taxes, signaling a small victory for winning public support for transportation funding. 73
The experience of Clackamas County resulted in some lessons learned with regard to building public outreach for transportation maintenance fees, namely: 1) the purpose and need for a TUF can be a somewhat complex message to convey to the average potential user, 2) the most challenging groups to educate are usually those that will pay the highest fees, specifically larger retail and business centers, and 3) education campaigns may be complicated by a diversity in maintenance needs and fees when there are several participating cities. 74
Case 2: In Tualatin, OR, a TUF creates resistance over inequities in fee categories.
Tualatin created six non-residential groups, plus an all-encompassing group, and applied the average trip-generation rate to various uses that fell within a broad range. A shopping center of 10,000 to 20,000 square feet was included in Group 4 and expected to pay a monthly fee of $11.08 per 1,000 square feet. A center of 5,000 to 10,000 square feet was part of Group 5 and expected to pay a monthly fee of $29.51 per 1,000 square feet. According to the Institute of Transportation Engineers' Trip Generation Manual, centers of the latter size generate approximately 27 percent more trips per 1,000 square feet. However, in this case, they were asked to pay almost three times as much.
Wholesalers in Medford, OR, rejected a new TUF, arguing that they should not have been lumped into a commercial land-use category with retailers that generate many more trips. A few weeks after its TUF was implemented, Medford had to add new land-use categories to its fee schedule. 75
As a result of such inequities, some jurisdictions have somewhat arbitrarily capped commercial fees. For example, Austin, TX, capped its "traffic generation factor" at five times the residential rate. Food stores and healthcare facilities were charged equal amounts per acre of development, despite food stores generating almost four times as many trips per acre. An arbitrary cap or allocation may reduce political pressure, but it also jeopardizes the fact that a fee should be reasonably related to the payer's use of city streets. Some jurisdictions in other States have dealt with this issue by setting fees differently based on the type of road, e.g., arterials, collectors, local roads. Port Orange, FL, distinguishes among the different functions of roads and allocates costs separately. 76
51 "Transportation Utility Fees," Federal Highway Administration, Center for Innovative Finance Support, www.fhwa.dot.gov/ipd/value_capture/defined/transportation_utility_fees.aspx.
52 Carole Turkley, "Promises and Pitfalls of Transportation Utility Fees," Presentation to the TRB 5th International Conference on Surface Transportation Financing, July 11, 2014, onlinepubs.trb.org/onlinepubs/conferences/2014/Finance/30.Turley,Carole.pdf.
53 Turkley, "Promises and Pitfalls of Transportation Utility Fees."
54 FHWA, "Transportation Utility Fees."
55 For more information, refer to the website of Highland City, UT: www.highlandcity.org/index.aspx?NID=399.
56 National Academies of Sciences, Engineering, and Medicine, Implementation and Outcomes of Fare-Free Transit Systems. Transportation Research Board, 2012, Washington, DC, www.nap.edu/catalog/22753.
57 FHWA, "Transportation Utility Fees."
58 Turkley, "Promises and Pitfalls of Transportation Utility Fees."
59 Reid Ewing, "Transportation Utility Fees," Government Finance Review, 1994, www.thefreelibrary.com/Transportation+utility+fees.-a016086832.
60 Ewing, "Transportation Utility Fees."
61 Carl Springer and John Ghilarducci, "Transportation Utility Fee: Oregon Experience," Transportation Research Record: Journal of the Transportation Research Board, vol. 1895, no. 1, January 2004, pp. 15-24.
62 Ewing, "Transportation Utility Fees."
63 Springer and Ghilarducci, "Transportation Utility Fee: Oregon Experience."
64 Ewing, "Transportation Utility Fees."
65 Deven Carlon et al., "Transportation Utility Fees: Possibilities for the City of Milwaukee," Public Affairs Workshop, Domestic Issues, Public Affairs 869, Spring 2007. The use of property taxes to fund transportation is often seen to create a market distortion by not linking the tax paid with the actual usage of the system. In cities where residential properties account for the vast majority of all properties, for example, residents may pay a greater share of transportation funding via property taxes than warranted by their infrastructure use, which could discourage home ownership in the city.
66 Ewing, "Transportation Utility Fees." In Tualatin, OR, payers of fees may appeal the land-use classification or square footage assigned to a property. In Austin, TX, they may appeal on various bases, including "actual traffic counts" that contradict the city's estimates. Port Orange, FL, also includes various bases for appeals.
67 Ewing, "Transportation Utility Fees."
68 Ewing, "Transportation Utility Fees."
69 Ewing, "Transportation Utility Fees."
70 Ewing, "Transportation Utility Fees."
71 FHWA, "Transportation Utility Fees."
72 For example, properties owned by religious institutions or governments are exempt from paying property tax.
73 Springer and Ghilarducci, "Transportation Utility Fee: Oregon Experience."
74 Ewing, "Transportation Utility Fees."
75 Ewing, "Transportation Utility Fees."
76 Ewing, "Transportation Utility Fees."
