Local revenue sources have been playing an increasingly important role in funding transportation improvements. They represented about 38 percent of all funds spent on highway improvements in 2007. Traditional sources of local revenue include property taxes and use of the general fund. A variety of other taxes and fees, including the expanded use of the local option sales tax, land value capture strategies and other revenue sources such as advertisements and fares, are used to varying degrees by many municipalities. Information on value capture and transit-oriented development are available on separate webpages.
Local Option Taxes and Fees
A variety of local funding options involving taxes or fees are often options that are either authorized at the state level or approved by voters and levied at the county or municipal level. The local option taxes and fees discussed below include: local option fuel taxes, local option sales taxes, vehicle registration fees, income/payroll/employer taxes, local severance taxes, and hotel taxes.
- Local Option Sales Taxes - Local option sales taxes have become increasingly popular to support transportation investment, especially for transit projects. These sales taxes are typically levied at the local level, although some exist at the state level, and devote a percentage of a local sales tax to transportation purposes generally or to a prescribed program of projects with a defined expenditure plan.
View more information at the National Conference of State Legislators.
The examples below provide a sample of public agencies that use local options sales tax to fund transportation projects.
Examples:
- Vehicle Registration Fees - Many states authorize local governments to levy local vehicle registration fees that can be used for local transportation needs.
View more information at the National Conference on State Legislatures
- Income/Payroll/Employer Taxes - A few states provide authority to local governments to levy income, payroll, or employer taxes specifically dedicated to transportation.
Below are examples of local jurisdictions and enabling legislation that utilize payroll and income taxes for transportation.
Examples:
- Property Taxes - Dedicated property taxes are generally used for local road and street capital and maintenance needs, although some states have authorized dedicated property taxes for transit. The following examples are links to case studies of cities that use property taxes to fund transportation projects.
Examples:
- Tempe, Arizona
- Ann Arbor, Michigan
- Madison, Wisconsin
A fourth example is the Reedy Creek Improvement District in Orange and Osceola Counties, Florida. The Reedy Creek Improvement District is a special taxing district with the same authority and responsibility as a county government. The district is solely responsible for paying the cost of providing typical municipal services such as roads. Approximately two-thirds of the district's land is owned by wholly owned by affiliates of the Walt Disney Company.
The district can issue bonds backed by an ad valorem tax (property tax millage) to finance various transportation improvement projects. For example in 2016, the district issued $165.1 million in bonds to finance various improvements to local highways and streets, interchanges, bridges, bus transit facilities, and ancillary structures and equipment. The State of Florida grants the district the power to issue ad valorem tax bonds so long as the aggregate principal amount of the bonds outstanding at one time is not in excess of 50 percent of the assessed valuation of taxable property within the district.
Other Local Revenue Sources
Other local non-road sources of funding for transportation improvement projects include fares, advertising, naming rights, shared resources, concessions, and transportation utility fees.
- Fares - Fares are a user charge for public transit exclusively collected at the local level. As a revenue source, they are primarily used to fund the ongoing operations and maintenance of the transit system. To leverage future collections of transit fares, revenue bonds are often issued as a finance mechanism against farebox receipts.
View more information at the BATIC Institute: An AASHTO Center for Excellence
- Advertising - Advertising revenue can be derived by selling space on transportation facility assets; for example, inside transit vehicles, at transit stations or bus stops, or on billboards along highways. Most transit agencies currently have advertising programs that generate revenue for their systems. The revenue from transit advertising as a percent of the operating budget is small, but the total dollars are significant. The four largest transit agencies in the U.S., not including New York, average $6.1 million a year.
Further discussion of advertising is available through the following Transportation Research Board and Transportation Cooperative Research Program Reports:
The examples below provide links to transit agency advertising revenue programs and state DOT billboard/outdoor advertising programs.
Examples:
- Naming Rights - Revenue from naming rights is derived from selling to the private sector the right to name a transportation resource such as a toll road or transit station.
View more information at the BATIC Institute: An AASHTO Center for Excellence
The links below are examples of local agencies that have programs to sell naming rights to transportation facilities.
Examples:
- Shared Resources - Shared resources are private donations of telecommunications technology (principally fiber optic communications), and sometimes cash, granted in exchange for access to public rights-of-way. The use of shared resources is an invaluable tool for states seeking to build a technological backbone for intelligent transportation systems (ITS). In addition to obtaining increased access to telecommunications technology, states can credit the value of the private donations toward their matching share of project costs associated with the deployment of ITS projects utilizing the donated technologies.
View more information at the AASHTO Center for Excellence in Project Finance
