Innovation in Public Transport Finance

Property Value Capture

Shishir Mathur

• Publisher: Routledge
• Year: 2016
• eBook ISBN: 9781317116431
• Topic: Business
• Subtopic: Transportation Industry
• Index: Business

With all levels of governments currently, and for the foreseeable future, under significant fiscal stress, any new transit funding mechanism is to be welcomed. Value capture (VC) is one such mechanism, which involves the identification and capture of a public infrastructure-led increase in property value. This book reviews four major VC mechanisms: joint development projects; special assessment districts; impact fees; and tax increment financing; all of which are used to fund transit in the United States. Through the study of prominent examples of these VC mechanisms from across the US, this book evaluates their performance focusing on aspects such as equity, revenue-generating potential, stakeholder support, and the legal and policy environment. It also conducts a comparative assessment of VC mechanisms to help policy makers and practitioners to choose one, or a combination of VC mechanisms. Although the book focuses on the US, the use of the VC mechanisms and the urgent need for additional revenue to fund public transportation are world-wide concerns. Therefore, an overview of the VC mechanisms in use internationally is also provided.

Chapter 1
The Evolution of Public Transportation Funding in the US

Introduction

The transportation funding stew in the US is a multi-flavored concoction of public and private funding that consists of an array of federal, state and local government programs and mandates, public-private partnerships (PPPs), and private investments. Indeed, as of the year 2008, total government spending in the US on highways and public transportation exceeded $230 billion, of which $55 billion were spent on transit and $182 billion were spent on highways (FHWA, 2010; APTA, 2012). The highway system is almost entirely dependent on government funding, while transit-system-generated revenues accounted for almost a quarter (26.1 percent) of total transit revenues (FHWA, 2010).

The federal role in transportation funding is almost as old as the country itself. However, the beginnings of federal transportation funding were humble. In 1789, 13 years after the US gained independence, the US Congress authorized funds for the construction of lighthouses, beacons and buoys (USDOT, 2009). A couple of decades later, the first federal highway program, the National Road, was commissioned in 1806. Completed in 1839 (Bahadori, 2008), the 824-mile road connected Baltimore, MD and Vandalia, IL, passing through the six states of Illinois, Indiana, Ohio, Pennsylvania, Maryland and West Virginia (FHWA, 2012). The road also served as a model for federal involvement in the development of road transportation projects.

Further impetus to expand the nation’s transportation infrastructure was provided in the first half of the nineteenth century by the construction of waterways and railroads. Constructed in 1820, the 363-mile-long Erie Canal for the first time allowed movement of people and goods from the Atlantic Ocean directly to the Great Lakes. In the following decades, similar transportation accessibility was provided by the Chesapeake and Ohio Canal and the Baltimore and Ohio Railroad. Opened in 1831, the 185-mile-long Chesapeake and Ohio Canal boosted trade by linking Cumberland, MD with Washington, DC (NPS, 2011). The Baltimore & Ohio Railroad, the nation’s first common carrier railroad, heralded the era of railroads in the country. Construction on a 13-mile stretch commenced in 1828 and ended in 1874. By then, the railroad had linked 13 states through its 811-mile span from Baltimore, MD, to Chicago, IL (America-Rails.com, 2012).

While the National Road and the canals provided accessibility at the regional and inter-state levels, city transportation was dominated by horse- or mule-driven carriages and streetcars until the mid nineteenth century. The horses were given a reprieve with the advent of cable street cars in 1873, when the first cable street car began operating in San Francisco, and electric street cars, called trolley cars, which began operating for the first time in Richmond, VA in 1888 (IEEE Global History Network, 2012). The trolley cars received a big boost in 1890 when Boston decided to replace its fleet of carriages driven by 8000-plus horses with trolley cars (Turner, 2012). Thereafter, the share of trolley cars increased progressively. While in 1880, the 2,050-mile-long streetcar network was entirely horse-driven, a decade later, in 1890, of the 5,800-mile-long streetcar system, approximately 500 miles was cable operated, 1,200 miles was operated with trolley cars, and the remaining 4,100 mile network was horse driven. By 1912, almost the entire 30,000-mile-plus network was trolley-car-driven (Vuchic, 2007). The significant increase in mobility provided by trolley cars allowed people to live further away from the congested and often highly polluted urban core, while still allowing people to the urban core for work. These residential suburban developments are commonly known as streetcar suburbs. Developed all across the country, well known examples of streetcars suburbs include West Hollywood and Highland Park in the Los Angeles area, Chevy Chase in the Washington DC area, and Brighton and Dorchester in the Boston area.

The Decline of Trolley Cars and the Rise of the Automobile

Owned by private companies, several thousand street car systems operated in the country at their zenith in the decade of 1910s, with an annual ridership of approximately 12 billion trips (Schrag, 2002). Thereafter, a multitude of factors, including labor unrest, high operating cost, and competition from buses and personal automobiles, led to the demise of street cars; the age of cars had arrived. Further, it has been argued that vested interests including car, truck, tire, and oil companies, such as General Motors (GM), Mack Truck Company, Firestone Tire and Rubber Company, and Standard Oil, undermined transit companies and hastened the collapse of streetcars in the US. Indeed, in 1947 GM and a few other corporations were indicted on two counts. The first count was conspiring to “monopolize part of the interstate trade and commerce of the United States, to wit, that part consisting of the sale of busses, petroleum products, tires and tubes used by local transportation systems in those cities … in which defendants … owned, controlled or had a substantial financial interest in, or had acquired, or in the future should acquire ownership, control or a substantial financial interest in such transportation systems” (United States v. National City Lines, 1951). The second count was conspiring and conducting unlawful activities to gain control of several local transit companies. These companies were only convicted of the first count of conspiring to monopolize interstate bus market, not the second count of conspiring to gain control of local public transit companies. Conviction on the second count was essential for making the case that these companies took control of the transit companies to engineer the downfall of the transit system.

The belief that these companies conspired to affect the downfall of transit did not completely die with the 1949 court verdict. In fact, this belief gained a new lease of life with Bradford Snell’s 1974 statement before the US Senate sub-committee on anti-trust and monopoly. Snell was an anti-trust lawyer for the US Senate. His testimony accused GM of conspiring to take control of electric-street-car-based local transit systems and subsequently replace the electric street cars with diesel-based GM buses. Snell argued that the noisy and less convenient buses turned away public transit patrons and ultimately led to the demise of local transit systems across the US (US Senate, 1974). Snell’s statement was supported by the testimonies of Mayor Alieota of Los Angeles and Mayor Bradley of San Francisco. Both the mayors noted that automakers, oil companies, and tire companies colluded to eliminate electric streetcars, which were these companies’ main competitor in Los Angeles (Slater, 1997). Although the academic literature (see Adler, 1991; Post, 2003; Thompson, 1993; Slater 1997) finds little supporting evidence, this “conspiracy theory” gained the attention of popular media, including a documentary movie titled “Taken for a Ride” (Slater, 1997).

In any case, auto ownership boomed in the ensuing decades, increasing the need for building more and better roads. Road building, which had up until the beginning of the twentieth century remained a largely private enterprise,¹ received national prominence when the Good Roads Movement started in the late nineteenth century by bicycling enthusiasts who very strongly advocated for better quality roads. Soon farmers joined the movement, motivated by the need for drivable roads that would allow the farmers to take advantage of the US Government’s Rural Free Delivery (RFD) service, which began in 1896 (Weingroff, 1996b). This service allowed delivery of mail directly to the farms. Finally, the mass production of automobiles that began in the early twentieth century made cars accessible to ordinary people, not just the rich. The Good Roads Movement gathered further steam as ordinary motorists joined the movement.

Road building received a significant boost from the Federal Aid Road Act of 1916. The Act provided $75 million over five years in the form of a 50–50 federal-state match. The federal funds, not to exceed $10,000 per mile, were to be used for the construction of roads that would facilitate mail delivery to rural areas. These roads were designated “rural post roads” (Weingroff, 1996a). Furthermore, the Act required states to create highway agencies that would professionally administer this federal aid program. This Act paved the way for future federal funding for roads.

Development of the Concept of a National Highway System

The concept of a national highway system matured in the 1920s and 1930s, sharpening into focus in 1941 when President Franklin D. Roosevelt directed the National Interregional Highway Committee to develop a national system of highways to serve the needs of the military during World War II and the anticipated vehicular traffic after the war. The committee provided its recommendations in 1944, the same year the Federal-Aid Highway Act of 1944 was promulgated. The Act provided for designation of up to 40,000 miles of a National System of Interstate Highways. As a result, approximately 38,000 miles of interstate highways were identified over the next three years. However, the Act did not authorize funds for the development of an interstate system, a situation which was not rectified until almost a decade later through the Federal-Aid Highway Acts of 1952 and 1954. The 1952 Act authorized $25 million per year for the construction of interstate highways, with a federal match of 50 percent. The 1954 Act increased federal aid to $175 million per year and the federal match to 60 percent (Williamson, 2012).

Meanwhile, after World War II, government-backed low interest and low down payment home mortgages fueled a housing boom that led to further sub-urbanization (Burchell et al., 1998). Low-density suburbanization, popularly called sprawl, was further aided by local policies, such as zoning laws that necessitated the segregation of land uses and specified minimum lot and home sizes and transportation policies that gave cars supremacy over other modes of transportation. Vehicle ownership had reached 1.43 vehicles per household by 1950 (United States Department of Energy, 2012). This auto-oriented suburbanization was also aided by government-subsidized road development and in turn fueled the need for more and better quality roads. The Federal government responded, both to meet the national defense requirements as well as to connect the major regions and cities of the country.

Federal Funds for the Interstate Highway System

Then a Lt. Colonel in the US Army, President Dwight G. Eisenhower volunteered for a US Army transcontinental motor convoy sent to assess the feasibility of traversing the country on the road. In 1919, the convoy covered the 3,200-mile distance between Washington, DC and San Francisco over a period of 62 days at an average speed of six miles per hour (Weingroff, 1996b). During the trip, the convoy encountered several mechanical failures, broken bridges, muddy or non-existent roads, and personnel injuries. That trip convinced the young Lt. Colonel of the need to connect different parts of the country with better and uniform quality roads for efficient movement of people and goods. That dream was realized when as President he signed the Federal-Aid Highway Act of 1956. The Act authorized an interstate highway system of 41,000 miles and $25 billion in government funding for the period of 1957 to 1969 (United States Department of Interior, 2004) with a 90 percent federal match. The 90 percent match was a significant increase from the then prevalent norm of a 50 to 60 percent federal match.² The Act required highways to adhere to uniform design standards and to meet traffic requirement for the year of 1975 (Weingroff, 1996b).³

Equally significant from the perspective of transportation finance was the companion Highway Revenue Act of 1956 that created a dedicated revenue source for highway development through the creation of the Highway Trust Fund (HTF). This Act also authorized a one-cent-per-gallon increase to the gas tax. The entire tax increase was dedicated to funding the interstate system (Transportation for America, 2011).⁴ The Act also directed revenue from excise taxes on gasoline, tire rubber, and tube rubber and the sales tax on new trucks, buses, and trailers to the HTF (FHWA, 2011a).

The Evolution of Federal Funding for Public Transportation

While roads and highways benefitted from federal aid, federal aid for public transportation was scarce. From the horse-drawn carriages of the eighteenth and nineteenth century to the trolley ways of the late nineteenth and early twentieth century, public transportation had historically relied on private investments. The rapid rise of automobiles in the first half of the twentieth century sent many transit companies out of business, and except for a brief period during the austere World War II period, transit ridership declined from the mid-1920s to the mid-1970s (see Figure 1.1, p.6). At its lowest, only 6.6 billion transit trips were undertaken in 1973. This dip coincided with the heydays of highway building. Since then transit has witnessed a bit of a revival, with 10.2 billion trips undertaken in the year 2010 (APTA, 2012).

Up until the 1960s, public transportation was viewed by most as a local issue, not a national issue. Hence, transit funding was deemed not worthy of federal aid. This line of thought is being refined for three key reasons.

First, public transportation is advocated as key to inner city revitalization. The rapid sub-urbanization after World War II was aided by highway development that opened vast rural hinterland for urban development and that provided an opportunity for households to move out from the congested and polluted urban cores of cities. Often, people with the financial means were the first to move out, leaving the poor behind. Furthermore, government policies and private sector activities led to racial and economic segregation (Schill and Wachter, 1995). As a result, the urban cores of major cities found themselves in a downward spiral of decreasing revenues, high crime and poverty, and abandonment. Furthermore, amid declining city population and strong competition from automobiles, private transit companies were either bankrupt or were on the verge of bankruptcy in many large cities, such as Chicago and New York. Such companies were often acquired by the city governments. For example, in 1947, the City of Chicago consolidated two privately-held companies, the Chicago Surface Lines (the trolley car operator) and the Chicago Rapid Transit Company (the elevated rail service operator) into the city’s public transit agency, the Chicago Transit Authority (CTA, 2011). Sim...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• Dedication
• List of Figures
• List of Tables
• List of Abbreviations
• Preface
• 1 The Evolution of Public Transportation Funding in the US
• 2 Basis of Value Capture: Value Creation through Public Action
• 3 Use of Value Capture Internationally
• 4 Use of Property Value Capture in the US
• 5 Special Assessment District
• 6 Joint Development Projects
• 7 Tax Increment Financing
• 8 Transit Impact Fees
• 9 Application of Case Study Findings
• 10 The Way Forward
• Index