Transportation Funding

Key Concepts in Transportation Funding

  • Capital Expenditure – Expenditure on new infrastructure & equipment
  • Operation & Maintenance Expenditure – Recurring payments to cover the cost of administration, operation, and normal maintenance and repair
  • Discretionary Grants – Grants from government that are discretionary based on benefits
  • Transportation Improvement Program (TIP) – A capital program listing the committed investments for 4 or 5 years
  • Impact Fees – Fees charged to developers related to the infrastructure improvements
  • Public/Private Partnerships – Formal or informal relationships among government agencies and private entities
  • Risk Analysis – A systematic process to understand the nature of and deduce the level of risk
  • Trust Funds – An account established by law in a treasury department to hold tax receipts
  • Year of Expenditure Revenues – Dollar values that have been escalated to the year that dollars are expended or generated

Tranportation Fund Sources & Expenditures


Motor Fuel Taxes

  • In the United States, motor fuel taxes are the primary source of funds for transportation investment.
  • Interstate system was constructed majorly funded with these and they are in place since mid-1950s

Highway Trust Fund

  • The gas tax receipts were to be deposited in the U.S. Treasury in a special account
  • These are dedicated to construction of mostly highways not other modes
  • For example, the Michigan Transportation Fund (MTF) is contributed by gas tax and vehicle registration fee
  • These funds are distributed to the Michigan DOT (39.1 percent), counties (39.1 percent), and cities and villages (21.8 percent)
  • Federal and state gas tax revenues are spent to achieve specific program goals, such as safety, economic development, congestion relief, air quality improvement etc.

VMT Mileage Based Fee

  • If the consumption of motor fuel will decline, then motor fuel tax revenues also diminish
  • Charging vehicles for the use of the highway network, most often defined as a VMT fee
  • Use GPS or some other means to identify how vehicles traveled
  • Pilot studies are conducted in Oregon and other countries like UK especially trucks. Caveat: People may complain about the privacy issues


  • High Occupancy Tolls (HOT)
    • Single occupant vehicles can use the managed lane during peak periods for a price that often varies by the level of congestion in the lane.
    • Prices can be variable
    • Debatable concept as higher income people afford and transportation equity
  • Express Tolls
    • Similar to HOT lane concept , whereas this lane can be used by all automobiles
    • No revenue loss due to violations
  • Truck Only Tolls (TOT)
    • Similar to HOT lane concept, but are dedicated to commercial vehicles.
    • Most proposals have the lanes next to regular freeway lanes, but separated with some form of barrier.
    • E.g. Port of Long Beach, Port of LA

Cordon Pricing & Parking Charges

  • Cordon pricing
    • The basic concept is that vehicles are charged a fee to enter a highly congested area.
    • London and Singapore has successful cordon pricing models
    • Requires technical infrastructure
    • Eg. New York City was considering a congestion charging scheme as part of a federal demonstration program, but political considerations stopped the initiative
  • Parking Charges
    • This helps to reduce congestion in central business district (CBD)
    • It is easy to implement and can change driving behavior
    • Different cities use this strategy to reduce congestion E.g. San Francisco adds 25% extra fee for commercial vehicles, Boston freezes parking in certain neighborhoods in CBD, few California cities have “cash out “ program

Value Capture & Other Income

  • Impact Fees—One-time charges collected by local governments from developers to finance new infrastructure and services associated with the new development.
  • Special Assessment District—An additional fee assessed on properties near a new highway or transit facility that is expected to benefit from such proximity.
  • Sales Tax District—Similar in concept to a special assessment district, the sales tax district requires those benefiting from a transportation investment to pay a limited sales tax instead of a property tax.
  • Land Value Tax—A tax imposed on the value of land benefiting from transportation infrastructure.
  • Transportation Utility Fees—Utility fees assessed on the basis of characteristics of travel demand, such as traffic volumes.
  • Negotiated Exaction—A negotiated, one-time charge similar to impact fees, but not determined a priori by a formula or impact ratios.
  • California is using a carbon-based tax to raise revenues for some transportation projects.
  • Vehicle license/registration fees, weight fees/taxes, fines and forfeitures, property leases and air rights, advertising (for transit, mainly), and development agreements.

Transportation Finance Strategies

  • Transportation Financing
    • The mechanism by which funds are made available for transportation investment.
    • It describe the combination of different funding sources that together represent the investment strategy for a region or state.
  • Debt financing
    • Very similar to a homeowner’s mortgage policy.
    • The government borrows money from the municipal bond market at very low interest rates, and then has to pay back the principal with interest over a set number of years.
    • The advantage the large investment gaps can filled up with the influx of capital funds
    • The major disadvantage is, the principal and interest have to be paid back over many years.
  • Following criteria has to be considered
    • Debt per capita, Debt as a percent of taxable property, Ratio of debt service expenditures to total revenues.
    • Ratio of debt service expenditures to all expenditures, Debt service coverage by pledged revenues.
    • Another strategy being used by state DOTs is advance construction. This allows a state or local agency to initiate a project using nonfederal funds while preserving the eligibility for future federal aid.


Public Private Partnerships


A public-private partnership is a contractual agreement formed between public and private sector partners that allows more private sector participation than traditional setup.

Investment Programming and Planning

  • Transportation Improvement Program (STIP/TIP)
  • Serve as a short-range implementation tool to address the goals of the regional long-range transportation plan.
  • Provide continuity of current transportation improvement projects with those identified in previous TIPs.
  • Identify transportation projects recommended for implementation by transportation mode, type of improvement, funding source(s), and geographic area.
  • Estimate the costs of projects proposed for federal funding.
  • Establish a prioritization of projects to effectively utilize federal funds as they become available.


Estimating Revenues and Costs

  • Revenues
    • Planners must know the underlying funding sources and the factors that influence the amount of revenue generated.
    • Revenues depend upon demographics, vehicle registration, fuel consumption, vehicle sales and retail sales etc.
    • Forecasting indirect revenues is also important i.e. penalties, tolls, traffic violations, interest on cash balances etc. Costs
    • Capital project costs and O&M costs
    • Project cost estimation responsibilities vary by agency role in project development
    • Typically State DOTs are responsible for these costs, not MPOs
    • Most estimates of future O&M costs are simply escalations of historic trends


Future Challenges

  • The Future of Fuel Taxes – going to be lesser
  • Bond Financing – Repayment eats up all the revenue
  • Reliance on Non-Transportation-Related Tax Sources – Due to uncertainty in economy, may be lesser revenue in future
  • Geographic Equity for Statewide and Regional Sources — More funds are spent on bigger cities
  • Connected and Autonomous Vehicles – Lesser drivers and more infrastructure needs
  • Cost Burden across User Groups — Trucks vs Cars, cost burden is not same