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A tale of four cities:Exploring innovation in infrastructure financing

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Calgary needs to explore predictable and efficient alternative sources of revenue that may equip it to address critical needs and begin to invest in both critical and non-critical infrastructure.

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In a world where cities drive the global economy, it is more important than ever for Canadian cities to maintain their ability to compete as the driving force of our economy. To do so, cities need to focus on the core building blocks of a successful economy. According to the World Economic Forum’s Global Competitiveness Report, one of those building blocks is infrastructure, which they identified as the second most significant pillar of economic competitiveness.

Canadian cities are facing rapid growth, and in order for them to remain competitive, they need the ability to build infrastructure in an effective and sustainable way. As populations expand and stress existing infrastructure, cities are forced to do more with less, and this has resulted in a growing infrastructure deficit across the nation. This inability to successfully maintain our roads, buildings, public transportation, and utilities, as well as provide new facilities to accommodate our increasing population, has resulted in a wide gap between what we need and what we can afford.

The Federation of Canadian Municipalities predicts that Canada needs $172 billion in replacement costs alone, accounting for almost 10 percent of our GDP. In Calgary, we face a 10 year infrastructure gap of $7.04 billion – and growing.

The current model of infrastructure funding on which Calgary depends is inadequate and unable to address our

city’s looming infrastructure gap. This is because municipalities are required to handle an ever numerous set of responsibilities with only a minute share of the tax base. Under the current structure, Canadian municipalities over contribute tax revenues to provincial and federal governments. There is a fundamental mismatch in revenue sources and responsibilities among the three levels of government. More than 80 percent of Canada’s population is urbanized, and so cities are bearing the burden of the country’s area of fastest economic growth.

How does our city currently fund infrastructure? The primary tools available to Calgary are the property tax and intergovernmental transfers from the province and Ottawa. Our over-reliance on property tax revenue, as well as intergovernmental transfers and grants, is ill-suited to address these critical needs.

Property tax is the predominant taxing mechanism a municipal government uses to raise funds, however reliance on this tax as a way to fund our infrastructure is not sustainable nor is it efficient. Property tax is an essential source of income for funding infrastructure in cities, and will remain so, but it is not adequate alone. The tax is volatile and unpredictable since it operates based on market value; when property values fall, so does the tax base.

Furthermore, Calgary’s spending needs amount to more than it receives from Calgarians, so it increasingly depends on intergovernmental transfers to make up for the shortfall. Unfortunately, intergovernmental transfers create a dependence on an unstable and unpredictable revenue source. Intergovernmental transfers are important, but in an effective system they should play a limited role, with a solid local tax base acting as the foundation that transfers can contribute to. They should contribute to a city’s revenue, but a city should not be wholly dependent on them.

Calgary needs to explore predictable and efficient alternative sources of revenue that may equip it to address critical needs and begin to invest in both critical and non-critical infrastructure. The Calgary Chamber has explored municipal funding structures from around the world, and has assessed the benefits, challenges, and frameworks for some of the best models globally as a way to begin exploring alternative funding mechanisms to address Calgary’s infrastructure deficit.

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With a city in dire straits, thought leaders in Oklahoma City were compelled to explore a new opportunity to invest in their community. Through a partnership between the Mayor’s Office and the Greater Oklahoma City Chamber of Commerce, Metropolitan Area Projects (MAPS) was born as a new method to encourage private investment in infrastructure, create jobs and incentivize population growth. MAPS is a program that seeks to improve civic infrastructure through a penny tax implemented by public referendum for specific, ballot-named projects with a fixed sunset clause.

Metropolitan Area Projects (MAPS)Oklahoma City, United States

The ProblemIn the mid-1980s, Oklahoma City was a city devastated by economic recession. It was losing major bids for business, including a United Airlines maintenance facility. As a city whose economy lives and breathes the oil and gas industry, Oklahoma City was reeling from the oil bust of 1982, which spurred the loss of over 100,000 jobs and billions of dollars. In the wake of the bust, the City was ill-equipped and unable to create and boost new business development, attract or retain labour, or spur economic development. Oklahoma City’s municipal infrastructure was on the verge of crumbling. Opportunities for welcoming new business were thwarted by the perception that Oklahoma City was not an ideal place to live or invest.

The ContextIn the state of Oklahoma, taxes are broken down at the state, county, municipal, and school district level. Since statehood, the municipality of Oklahoma City has had taxation powers, however it is limited to sales and property taxes, as well as municipal bonds, which must be voter approved. The city primarily finances its infrastructure through these taxation tools.

MAPS is used as a tool for infrastructure investment based on predetermined, conceptual projects where a tax is implemented with a sunset clause, however each renewal is different in terms of the length of time. Since the projects are approved as conceptual, no architecture work or land purchasing can be conducted prior to the referendum. As a result, educated guesses as to the costs and timelines of the project are used as the basis of the information provided to citizens at the time of the referendum. This is where the MAPS model can get messy; voting on conceptual projects can complicate the sunset clause as well as project costs once ground breaks on each project. This is because if additional public consultation or additional referenda are necessary, it can delay the project.

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To remedy this, The City of Oklahoma, in partnership with the Greater Oklahoma City Chamber of Commerce, introduced a penny tax, the funds of which would be earmarked for pre-determined infrastructure projects around the city. The central piece to the program is citizen engagement and approval. While the tax is levied by the city, and council statutorily makes all decisions pertaining to the program, the implementation of the tax on a project-by-project basis is dependent on a civic referendum. If the tax passes, a citizen oversight committee is appointed that makes recommendations to city council. While the specific makeup of that committee varies throughout each installment of MAPS, its existence is a central feature to the operating structure. Projects have included everything from convention centers, stadiums, and libraries to public parks and transit investment.

It’s important to note that Oklahoma City, as a municipality with its own taxation powers, has the ability to levy a sales tax, property tax and issue bonds to fund its critical infrastructure. MAPS was never designed to fund Oklahoma City’s roads or utilities, but was implemented as a way to source income for surplus infrastructure

that would drive private investment, improve quality of life, and attract and retain labour.

While this option can get complicated because of its conceptual nature, its pay-as-you-go, no debt incurred design is attractive to citizens. It is also attractive politically, since this model allows policymakers to address only operational costs in government budgets, since the development costs are covered by the tax

The Concept

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Project identificationThree to five years before the ground is to break on a MAPS project, the identification process begins through project identification and recommendations by the City and the Chamber, along with consultation with the public and business community. The goal is to facilitate enough analysis and discussion that by the time the vote is held, enough awareness has been created over the city’s most critical infrastructure needs that it is absolutely obvious to the entire community which project should receive the focus.

GovernanceFollowing the vote, a citizen oversight committee is created to help govern and guide the project, but the makeup, size, and structure is specific to each program. In the inaugural MAPS program, a 1 cent penny tax was implemented for a period of 5 years, that was ultimately extended for an additional 6 months, and featured a appointed citizen oversight committee of 25 individuals.

MAPS for Kids (the second installment of the program, geared towards infrastructure upgrades in public schools) was, because of its inherent differences from the inaugural MAPS, structured as a trust of the city made up of 9 citizens – a chairperson, 4 city appointees, and 4 school board appointees. While the committee was still made up of citizens with diverse backgrounds, in the case of MAPS for Kids, the committee did have the authority to approve or reject recommendations without council support.

MAPS 3, which is currently underway, evolved the original citizen oversight committee into a broader structure that includes a separate committee for each project for a total of 7. While the process was by appointment, citizens could publicly apply if they felt that they had some special standing to serve on the committee

of a specific project, at which point council could vote to have them included. For the most part, the citizens on each of the project-specific committees are stakeholders. For example, the committee dedicated to making recommendations on the expo building includes citizens from the State Fair Board and an operator from the fairgrounds. Each committee reports to a larger oversight committee that in turn makes recommendations to council. This oversight committee, the citizen’s advisory board, is made up of one citizen from each ward for a total of 11 citizens, based on councillor recommendations. The advisory board also includes a councillor, a position that rotates annually, and a chairman that is selected by city council. Ultimately, the entire body is made up of approximately 80 citizens.

City Council While citizen oversight is central to MAPS, the committee has no statutory authority and the projects must still go to city council for a vote. However, council does work closely with citizen advisory committees and leans on their recommendations when making decisions. While it is inevitable that the recommendations of the committee will not always align with the opinions of council, Oklahoma City has structured a process of consistent informational meetings throughout the process to ensure good communication is maintained and that both Council and the committee are kept abreast of developments in both groups.

CostsThe administrative costs for the physical implementation of the tax are low, since it piggy backs off of existing taxes, however the campaigns and elections that are so integral to the civic engagement of MAPS do incur marketing and administrative costs.

Metropolitan Area Projects (MAPS)Oklahoma City, United States

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The publicMAPS as a model for infrastructure financing would not have happened without significant community and public buy-in. Aside from public engagement through the establishment of citizen oversight and advisory committees, Oklahoma City holds frequent public hearings and meetings on different elements of the projects, such as preliminary design, creating opportunities for engagement for all citizens, not only those on the committees. Allowing the public to voice their opinion and be a legitimate part of the process creates a level of transparency that helps to overcome mistrust of civic government. While the first referendum on MAPS passed by only 4 percentage points, when the city came through on its promises of accountable spending by staying within budget, citizens were able to see tangible and positive benefits that helped build the political capital that MAPS still depends on today. While public support has grown, it is still a challenge to pass each MAPS installment because of divided opinions on project priorities and general hesitation and opposition to any new forms of taxation.

The public engagement component of MAPS, which is its central feature, is a double-edged sword, responsible both for creating legitimacy and creating friction. While it generates a transparent decision-making process, it can slow down an already slow process wherein everyone is able to have an opinion, everyone sees their opinion as being equal, and not every opinion is informed. This is heightened by a MAPS program that now operates in the 21st century where social media allows for everyone to have a public platform for their opinion. While this is great for breeding innovation, it can complicate and slow down the process.

It is also a transformative entity – while the City was clamouring for public engagement during the initial MAPS, MAPS 3 shows some signs of over-engagement with an influx of opinions and an

overreaching structure of numerous committees. In future MAPS endeavours, there appears to be a need for a more balanced civic engagement approach somewhere between what was implemented in the initial MAPS and MAPS 3.

The business community and the ChamberBy the Chamber’s estimate, the program has generated $3.1 billion in private investment. While MAPS ultimately spurred significant levels of private investment in an indirect way, the project did not garner much in the way of explicit private sector support. The private sector investment that does exist is not integrated in the projects put forward through MAPS, but occurs around those developments. Often times they benefit from those completed projects, without contributing to their development. It’s also challenging to change government perceptions on the role of industry in municipal infrastructure as a partner integrated into the process instead of a separate entity.

Currently, Oklahoma City is working on strategies to increase the business community’s role in MAPS, through encouraging greater private sector involvement in the development of a new convention centre and hotel.

Legislation in Oklahoma City prevents a municipality from active and partisan campaigning for projects such as MAPS, and so the city turned to the Greater Oklahoma City Chamber (GOCC) as a partner in advocacy and community leadership. GOCC has held a longstanding and historic leadership role in its municipal community, leading campaigns and advocacy efforts since statehood. The Chamber also served a large role in helping identify what the initial projects would be through a series of 4 studies assessing Oklahoma City’s most critical needs.

By the Greater Oklahoma City Chamber’s estimate, the program has generated $3.1 billion in private investment.

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The outcome

20 years later...... Oklahoma City has gone from having some of the highest rates of unemployment in the U.S, and limited economic development prospects to a ‘big league city’ with a robust economy and employment rates that are among the best in the country. The city has been recognized as one of the best places to live in the United States, and is serving as a model of investment for surrounding states like Kentucky. Through MAPS, Oklahoma City has invested millions in new and upgraded sports, recreation, entertainment, cultural, and convention facilities. The revenue generated from the tax paid for:

• The Bricktown Ballpark, which became home to an AAA baseball team

• The Cox Convention Center

• Improvements at the state fairgrounds

• The Bricktown Canal

• A new library and learning center

• New trolleys

• The partial rebuilding of the Civic Center Music Hall

• Improvements to the North Canadian river

• The construction of the Ford Center

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20 years later...

$777 millionThe city is currently completing MAPS 3, a $777 million 10-year construction program that includes:

• A new downtown convention center

• A new downtown public park

• Modern streetcar/transit program

• River and fairgrounds improvements

• Senior health and wellness centers

• New rails and sidewalks

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READING

HILLINGDON

EALING

HAMM

ERSMITH &

FULHAM

WINDSOR & MAIDENHEAD

SLOUGH

SOUTH BUCKSISLINGTON

CAMDEN

WESTMINSTER

KENSINGTON &

CHELSEA

BEXLEY

BRENTWOOD

HAVERING

BARKING & DAGENHAM

REDBRIDGE

GREENWICH

NEWHAM

TOWER HAMLETS

CITY OF LONDON

WOKINGHAM

T1,2,3

T4

SouthallHanwell

West Ealing

Ealing BroadwayWest

DraytonHayes & Harlington Acton

Main LineTottenham Court Road

Canary Wharf

Abbey Wood

Custom House

Bond Street

Forest Gate

Manor Park

Seven Kings

Paddington

Farringdon

Iver

Heathrow

Langley

Slough

BurnhamTaplow

Maidenhead

Reading

Twyford

Whitechapel

Woolwich

IlfordGoodmayes

Chadwell Heath

Gidea Park

Harold Wood

Romford

Brentwood

Shenfield

Maryland

Stratford

Liverpool Street

DistrictOverground

Hammersmith& City

CentralJubilee

Hammersmith& City

MetropolitanCircle

LutonGatwick

DLRCentralNorthern

DistrictCentral

OvergroundDLRJubileeCentral

Hammersmith& CityBakerloo

Circle

District NorthernCentral

Stansted

Hammersmith& City

Southend

MetropolitanCircle

PiccadillyHeathrow

DLRDLR

DLRJubilee

Crossrail is a new high frequency, high capacity railway for London, currently entering its second phase featuring a new south-west to north-east rail line that aims to connect more areas of London, including Hertfordshire and parts of Surrey and Middlesex through the creation of a new tunnel that extends beneath central London between Wimbledon and Tottenham. Not only would it improve interconnectedness, but it would also relieve some of London’s significant congestion issues by adding to the city’s transport capacity by 10 percent. The project is estimated to cost between £12 billion and £20 billion. Financing for the project is being completed through an innovative cost-sharing structure between the Mayor, the central government, and London’s business community, a project originally driven by London First, a business membership organization that represents the city’s leading employers.

CrossrailLondon, United Kingdom

The ProblemThe population of London is growing rapidly, and is estimated to reach 10.1 million by 2036 and 11.3 million by 2050. Within the next 20 years, job growth in Central London is estimated to grow by 700,000 with the majority of jobs located in the city’s Central Activities Zone (CAZ). As a result, the city is facing significant pressure in terms of securing adequate transportation infrastructure to handle the ever increasing movement of its citizens. A failure to invest in transportation infrastructure could impede London’s economic growth and hamper the quality of life of Londoners.

The ContextSimilarly to Calgary, London is subject to major funding constraints despite being an economic powerhouse. It lacks the fiscal autonomy that is necessary for adequate investment in the city’s infrastructure. A recent report of the London Finance Commission, chaired by Professor Tony Travers of the London School of Economics, revealed that London retains only 7 cents for every dollar in taxes paid by Londoners, while the remaining tax base is funneled to the central government.

As a result, the municipality is reliant on unpredictable grants and transfers from the central government to address infrastructure issues, and civic leadership is unable to implement detailed, long-term funding plans because of this uncertainty. In the UK, 61 percent of GDP growth is attributable to cities. Despite being active drivers of economic growth, UK cities, like Canadian cities, are at the mercy of national and provincial governments concerning their ability to adequately address current and future economic and social needs. In order to bridge the gap between London’s transportation infrastructure needs and available funding, the city, in partnership with the business community, explored a new option for funding in Crossrail 2.

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READING

HILLINGDON

EALING

HAMM

ERSMITH &

FULHAM

WINDSOR & MAIDENHEAD

SLOUGH

SOUTH BUCKSISLINGTON

CAMDEN

WESTMINSTER

KENSINGTON &

CHELSEA

BEXLEY

BRENTWOOD

HAVERING

BARKING & DAGENHAM

REDBRIDGE

GREENWICH

NEWHAM

TOWER HAMLETS

CITY OF LONDON

WOKINGHAM

T1,2,3

T4

SouthallHanwell

West Ealing

Ealing BroadwayWest

DraytonHayes & Harlington Acton

Main LineTottenham Court Road

Canary Wharf

Abbey Wood

Custom House

Bond Street

Forest Gate

Manor Park

Seven Kings

Paddington

Farringdon

Iver

Heathrow

Langley

Slough

BurnhamTaplow

Maidenhead

Reading

Twyford

Whitechapel

Woolwich

IlfordGoodmayes

Chadwell Heath

Gidea Park

Harold Wood

Romford

Brentwood

Shenfield

Maryland

Stratford

Liverpool Street

DistrictOverground

Hammersmith& City

CentralJubilee

Hammersmith& City

MetropolitanCircle

LutonGatwick

DLRCentralNorthern

DistrictCentral

OvergroundDLRJubileeCentral

Hammersmith& CityBakerloo

Circle

District NorthernCentral

Stansted

Hammersmith& City

Southend

MetropolitanCircle

PiccadillyHeathrow

DLRDLR

DLRJubilee

From 2001 to 2007 the UK Treasury insisted that the project was unaffordable, despite agreeing that the transportation infrastructure situation in London was increasingly grim and that Crossrail was a good solution to the problem. Several studies were commissioned to assess if there were any smaller scale projects that could be completed as a cheaper alternative to Crossrail. The reports concluded that while Crossrail would be an expensive and large-scale endeavour, all other options did not yield benefits that would outweigh the costs. There were no viable alternatives to solve London’s transport problems.

The commissioned studies emphasized the economic benefits of the Crossrail project and reinforced its numerous positive benefits, including increased transportation capacity and greater connectivity, but also identified that the costs would be too much for the private sector to bear independently.

Emerging from the recognition that Crossrail was the only viable solution for London, the debate on how to pay for Crossrail began, begging the questions of who would benefit from the investment

and should they, or could they, contribute to the costs? It was determined that there were three main beneficiary groups: users, who would see improved service and increase connectivity, employers, who would see an increase in land value and a shorter commute for employees, and the government, who would see increases in economic activity, social inclusion, and tax revenues.

The funding mechanisms that ultimately financed Crossrail emerged from exploring how these three groups could contribute in tandem with one another.

Crossrail 1, which is currently under construction and is set to begin service in 2018, was funded through a coalition between the government, the mayor of London, and the business community. The central government contributed a grant through the Department of Transport of £4.7 billion, while the mayor’s office contributed £1.9 billion through Transport for London (TfL). The London business community contributed £5.2 billion through three different revenue streams: £4.1 billion through the Crossrail Business Rate Supplement (BRS), the bulk of which is

The Concept

Route Map, Crossrail, 2014

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debt financed for construction to be repaid by the late 2030s; £600 million of developer contributions through the Mayoral Community Infrastructure Levy (a charge on all new development city wide); and £500 million from key beneficiaries including the City of London Corporation and Heathrow Airport. By TfL’s estimate, more than 60 percent of Crossrail 1’s funding came directly from Londoners and the London business community.

Business Rates Supplement (BRS)The BRS is a supplement to the business property tax that is used solely as a finance mechanism for Crossrail, and will contribute £4.1 billion of the Greater London Authority’s contribution to the entire project. It generates a stable level of income through rateable values that are re-assessed every 5 years, reducing volatility, and maintains tax revenue even through economic downturns by stipulating that unoccupied properties are still subject to the BRS. It will be levied at 2 pence of the each pound of the rateable value on non-domestic properties in London, only applying to properties with a rateable value of over £55,000, with the intent of insulating small business from the tax increase. The levy will only apply to an estimated one in five London businesses, and 70 percent of the Crossrail funds raised by the BRS will come from businesses in neighbourhoods with a station on the Crossrail route, and in London’s primary employment centres.

The challenge, however, in applying this mechanism to Crossrail 2, is legislative. The current BRS is earmarked entirely for Crossrail 1 by legislation, so without legislative change, a BRS for Crossrail 2 would not be able to come into effect until the BRS for Crossrail 1 is complete.

Mayoral Community Infrastructure Levy (Mayoral CIL)On the other hand, the Mayoral Community Infrastructure Levy (Mayoral CIL) is an organic fit for Crossrail 2 since the mechanisms for the program are already in place. While the fund must be used

for strategic transportation investment, only the first £300 million is earmarked for Crossrail 1. Any surplus, assuming the municipal government continues the policy, could be allocated to Crossrail 2. The biggest challenge with the Mayoral CIL is that its funding structure is volatile: because it is tied to new developments in London, the income is tied to the strength of the economy, making predictions of its volume difficult.

It is estimated that the combined contributions of the Mayoral CIL and the BRS, if applied in the context of Crossrail 2, could contribute 5.8 percent and 15 percent respectively. Ultimately, applying existing Crossrail funding mechanisms could account for a maximum of 43 percent of Crossrail 2’s project costs.

Fiscal devolutionThe starting point for this cross-sector funding model is the concept of fiscal devolution of tax revenues. Fiscal devolution is the transfer of particular powers and responsibilities from the national or central government to a local government. London’s inability to levy taxes for infrastructure investments leaves it vulnerable to unpredictable transfers from the central government, with only a guarantee of 7 percent of tax revenues remaining in the capital city. As a result, the London First working group has advocated for the devolution of property taxes to the London city government. This would provide the city with a more dependable stream of income that would allow for more significant long term infrastructure investment. Fiscal devolution would provide consistency and predictability to infrastructure funding in London in general. While fiscal devolution is an important part of the conversation about municipal powers in an increasingly urban centric world, it is not integral to the success of Crossrail 2.

Project generated revenuesExisting passenger revenue could serve as a critical component of Crossrail 2 operational funding, however the surplus that passenger revenue generates would only fund a minority of the capital project

CrossrailLondon, United Kingdom

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costs. Since a majority of TfL funding comes from transit fares, a city-wide increase in fares could contribute to Crossrail 2 beyond operational funding. It is estimated that an additional annual increase in fares by 1 percent, above fare increases due to inflation, would contribute to 8 percent of project funding.

Station Zone Value Capture (Tax Increment Financing)Tax increment financing (TIF), as we’ve seen with Calgary’s East Village development, is an increasingly prominent form of infrastructure investment. TIF attempts to isolate property value increases that arise from a specific project development as a way to direct that revenue as a funding contribution. Station zone value capture is a form of tax increment financing that uses sources of taxation already in existence instead of applying a new tax. The benefit of a station zone value capture is that it does not levy a new tax, nor does it require tax rate increases – it simply harnesses the uplift in value created around new development. The challenge is that its dependence on property value makes it vulnerable to economic downturns, and there is the risk that it may distort behaviour and incentivize movements outside of the station zone. Two models of station zone value capture have been considered in the context of London’s Crossrail: incremental business rate income (IBRI) and borough community infrastructure levy (Borough CIL).

Incremental Business Rate Income (IBRI)The purpose of the IBRI is to capture future increases in business tax rates occurring within zones that are consequences of the Crossrail project, and apply these funds to the project costs. Since the IBRI only extracts incremental business rates, the national treasury would suffer no real loss of business rate income.

Borough Community Infrastructure Levy (Borough CIL)The Borough CIL is very similar in nature to the Mayoral CIL, however the revenues are not required to be applied to strategic transportation infrastructure, and instead are intended for funding of new infrastructure improvements of new developments that result from Crossrail, such as office, retail, hotels and residential development. The rates vary between boroughs depending on type of development, with a range of £10 per square metre and £750 per square metre. Although the Borough CIL encountered some legislative hurdles initially, it is now regarded as common tool for funding local infrastructure projects.

Political will and public engagementWhile Crossrail, a business driven initiative, had the support of the mayor’s office from the start, the project needed the support of the central government in order to proceed. The central government was initially concerned about the timeliness and financial costs associated with the project, and sought proof that Crossrail was the best route compared to numerous other transportation projects. After commissioning several studies, the central government became convinced of the value and feasibility of Crossrail, but still was unable to commit to the project financially. It did commit, however, to introducing legislation that would enable financial support of Crossrail which was ultimately accomplished in 2008, and finally the partnership between Transport for London, the business community, the central government and the mayor’s office was forged.

Public support for Crossrail is consistently strong. In October 2013, a public consultation revealed that 96 percent of public respondents strongly supported the project. This is in large part due to a general recognition among Londoners of the value of a robust transportation system and its role as an economic enabler.

London’s inability to levy taxes for infrastructure investments leaves it vulnerable to unpredictable transfers from the central government, with only a guarantee of 7 percent of tax revenues remaining in the capital city.

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The outcome

Once complete, Crossrail will improve connectivity and increase transportation capacity. London’s city centre will be better integrated internationally as journey time between London Heathrow to the city centre is reduced from 55 to 32 minutes. Additionally, as Crossrail incorporates more London communities to its public transportation line, Londoners will have greater access to employment centres city-wide, which also enables businesses to access people with the skills that they seek. Over 35 percent of future employment growth within the city will be located along Crossrail’s route. Ultimately, the project will bring 1.5 million people within a 45 minute commute of London’s most significant employment areas, and is expected to create over 100,000 jobs. The project is also estimated to increase the city’s transport capacity by 10 percent, which will be the largest increase since the Second World War, helping to reduce congestion.

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55 minutes

+100,000 jobs

32 minutes

London Heathrow to city centre

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In 2007, Stockholm implemented a congestion tax (trängselskatt) through a pricing system that levies a tax on vehicles entering and exiting the city, after a seven month trial period in 2006 that proved the program to be a success. This made Stockholm the third major city to employ a congestion charge next only to London and Singapore. Its primary purpose initially was to reduce congestion and reduce carbon emissions within the capital, however the charge has been so successful that it now serves as one of the primary tools for investing in infrastructure within Stockholm, primarily for road construction. In 2013, Gothenburg, Sweden’s second largest city, implemented the congestion charge, using the Stockholm congestion tax as its model. The charge was initially contentious, however after its official launch in 2007, support among the business community and the public at large has becoming increasingly broad.

Trängselskatt Gothenburg and Stockholm, Sweden

The ProblemPrior to implementing the congestion charge, congestion in Stockholm in the 1990s was a growing problem. The geography of Stockholm, which is built on a series of islands, necessitates the use of a limited number of routes to access the core, often resulting in bottlenecks during peak travel times. With the geographical makeup of the capital limiting Stockholm’s options for recourse, the government decided to move forward with a congestion tax plan aimed at encouraging public transit use.

The ContextHistorically speaking, the role of the central Swedish government has been dominant in infrastructure financing, bearing the ownership and financing responsibilities for major roads and railroads since the nationalization process began at the end of the 1930s. Since the 1980s, the responsibility of planning and investment in road infrastructure has transferred in some part to municipal and regional governments.

In Sweden, the state and the municipality have a shared responsibility for public roads, financing highway infrastructure through both municipal and state taxes. The national government finances and manages national roads, but municipalities now partially manage and finance their own roads. The state collects revenue from the taxation of vehicles and fuels, and since 2007, through congestion fees as well. Additionally, there are two international toll bridges. Trafikverket (the Swedish Transportation Administration) is the governing body for transportation infrastructure funding. There is no private funding of highways in Sweden; all funding comes from the state or municipality coffers.

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Municipalities in Sweden also have the ability to contribute to infrastructure financing in neighbouring municipalities, in such cases where investing in a project in another jurisdiction would have a positive impact on both municipalities, such as public transportation or road development. There are limitations, however, including the rule that the contributing jurisdiction cannot provide the lion’s share of the financing.

Ultimately, the majority of road infrastructure financing comes from municipal and state taxes and appropriation funds, and Sweden has only begun to explore alternative financing in the form of user fees like congestion charges.

There are three primary objectives for the congestion tax: reducing congestion, increasing accessibility, and improving the environment. Automatic toll stations are placed at entry points around the city, and through license plate recognition technology, drivers are billed monthly. The goal of the initiative is to ease congestion by strategically encouraging the use of public transportation at key points during the day. Both Swedish and foreign registered vehicles are required to pay the tax.

The introduction of the charge has led to a 20 percent drop in the total flow of traffic in and out of the inner city and a reduction of CO2 emissions by 10-14 percent in the inner city.

Control points and identificationVehicles are automatically identified by license plate recognition technology at automatic toll stations (‘Betalstation’/control points) which are placed at entry points around the city.

The Concept

Stockholm congestion tax cordon map, The European Commission DG Environment, 2012

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Trängselskatt Gothenburg and Stockholm, Sweden

Periods and pricingThe congestion tax ranges by time of day to accommodate for peak periods. During peak periods, which are identified as 7:30 am to 8:30am and 4 to 5:30 pm, the congestion tax is SEK 20 (CAD $3). During semi-peak periods, which are identified as 7:00 am – 7:30 am, 8:30 am to 9:00 am, 3:30 pm to 4 pm, and 5:30 pm to 6:00 pm, the tax is SEK 15 (CAD $2.20). During medium volume periods, which are identified as 6:30 am to 7:00 am, 9:00 am to 3:30 pm, and 6:00 pm to 6:30 pm, the tax is SEK 10 (CAD $1.50). The congestion charge also has a maximum daily limit of SEK 60 (CAD $8.80), and there is no charge for evening, weekend, and holiday travel.

International toll bridgesIn addition to the congestion charges, Sweden implemented a toll for the use of two international bridges: Öresundsbron (which connects Sweden to Denmark) and Svinesundsförbindelsen (which connects Sweden to Norway). These user fees are collected to cover costs related to the maintenance of the bridges. In the case of Öresundsbron, Sweden and Denmark divide the revenue collected equally, while at Svinesundsförbindelsen, Sweden and Norway collect the revenue generated by vehicles entering their respective territory. Ambulances, fire trucks, public buses, motorcycles, and mopeds are all exempt from paying the tax. To help shoulder associated administrative costs, electronic payments are encouraged by providing patrons with a 13 percent reduction in the toll when the electronic system is used.

Trial period Prior to legal implementation, the Stockholm congestion tax underwent a trial from January 2006 to July 2006. The aim was to determine if the tax could reach the city’s goal of reducing peak period traffic by 10-15 percent to improve accessibility. Not only did the trial reduce congestion by 22 percent, a greater amount than anticipated, the decline proved to be stable and took into consideration seasonal variations. Accessibility improved with a reduction in queue times by 30-50 percent, and emissions also decreased by 14 percent in the inner city and 2.5 percent in the total county. During the trial period, it was estimated that the existence of the tax, on an average day, generated over SEK 3 million (CAD $440,800).

GothenburgIn the wake of the successful congestion charge in Stockholm, Gothenburg decided to implement the tax in 2013 following Stockholm as a model. Congestion taxes are still relatively new worldwide, with existing programs typically focused on large urban areas such as Singapore, London and Milan. This feature makes Gothenburg’s successful adoption of the program, as a city with a population under 500,000 and modest transit coverage, particularly interesting. Since implementation, congestion in Gothenburg has been reduced by 12 percent, suggesting that congestion charges can be effective in municipalities with a range of densities and transit coverage. Despite having a less robust transit system than Stockholm, similar effects in terms of traffic reduction and accessibility exist in the case of both cities. In its first year of existence, the tax generated €72 million, which is nearly equal to Stockholm’s €76 million during its inaugural year, despite Gothenburg’s smaller population, although it must be noted that Gothenburg also has fewer public transit options than the capital.

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The public: StockholmWhen the concept was first introduced, it faced opposition both on a political and a public level. In 2012, the Stockholm Social Democrats promised the public that there would be no congestion charges introduced in Stockholm. However after the next general election the Green Party was able to employ the trial for the charge as a condition for their support of a Social-Democratic National government. At this point, the national Social-Democrats depended upon the Stockholm Social Democrats to support the trial in order to secure the national election. While this cleared the path for the program in the political landscape, the retracted promise of the Stockholm Social Democrats further soured the public.

The government undertook extensive public consultations, in order to guarantee a public mandate for the tax. To counter the stigma around implementing new taxes, the City of Stockholm provided education and outreach sessions to eliminate fears around congestion taxes. While the project was controversial upon the implementation of the trial, Swedish citizens eventually warmed to the idea once they saw the net positive impact of the tax on congestion and municipal accessibility.

Prior to the start of the trial, a poll was taken in autumn 2005 to measure public opinion on considering a congestion charge. At the time, 55 percent of respondents believed it was a “rather/very bad decision” to conduct the trial. Following the trial and after the implementation of the tax, a second poll was taken in May 2006 which indicated that 53 percent believed the congestion tax was a “rather/very good decision”. The shift was in large part due to the benefits being larger than anticipated, but also because the fears associated with the charge, including increased travel costs and the need to change travel behaviour, turned out not to affect citizens on an individual level to the extent that had been anticipated.

Aside from the general public, the business community has seen the benefits of the congestion charge as well. While the business community still remains opposed to some elements, such as the administrative costs of the charge, fewer businesses viewed the tax as a deterrent to growth and economic development than had prior to the trial. Stockholm’s at-first controversial congestion tax is now considered an unobtrusive part of life, popular enough to spur its adoption in Gothenburg. In fact, there are now proposals for all major Swedish cities to adopt the Stockholm model of congestion charges. In the majority of these cases, the cities considering the tax are not even grappling with congestion. Instead, they view the model applied in Stockholm as a favourable method of financing general municipal infrastructure needs.

The public: GothenburgThe most interesting contrast between the Stockholm model and the Gothenburg model is the absence of public support in Gothenburg’s successful program. In a non-binding referendum in 2014, 57 percent of Gothenburg residents voted not to extend the program, yet the government decided to continue with the congestion tax despite the results of the referendum, largely because of the positive impacts seen in Stockholm and the fact that most of the opposition occurred outside of the inner city. Support is slowly increasing in Gothenburg however, with support reaching 55 percent in fall 2014.

While the project was controversial upon the implementation of the trial, Swedish citizens eventually warmed to the idea once they saw the net positive impact of the tax on congestion and municipal accessibility.

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The outcome

Since implementing the congestion charge, Stockholm is regarded as the most advanced nation in traffic management. The pilot project was successful enough to gain momentum as the public saw how the extent to which the positive benefits outweighed the effect of the charge. Ultimately, the program has driven a 25 percent reduction in car use and a 14 percent reduction in emissions. The congestion charge has become part of a greater holistic transportation plan that increases public transit services, parking facilities, and an integrated ticketing system that links all modes of transport in Sweden.

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While dense inner Paris has an efficient public transport system, the suburbs remain largely inaccessible. Additionally, congestion is an emergent problem.

Creation of 4 new lines and 2 extensions through a partnership between Société du Grand Paris and government transportation agencies. Sources of funding include tax revenues, government subsidies, and local authority subsidies. Part of the funding will come from the Special Infrastructure Tax (TSE).

MODERATE: Initially, the central government was pushing for a concept called Metro Grand Paris, while the regional government was countering that project with its own Arc Express project. After years of political debate, the final agreement combined the two routes into 1 system. The central government is also considering a grant of €1 billion, and regional municipal governments are considering contributing €225 million.

STRONG: In 2010-2011, almost 20,000 Parisians attended 67 public debates, and almost 200,000 engaged online to debate the project. The results were compiled and made publicly available online.

STRONG: The Paris business community has been an active driver of the Grand Paris Express initiative. The Chamber of Commerce and Industry for the Greater Paris Region (CCIP) evaluated the initiative and determined that it would generate a GDP surplus of €140 billion, or an additional €60 billion in additional tax revenues. The business community has contributed to capital investment, and will also contribute approximately 50% of the annual operating costs

ONGOING: The project is estimated to increase capacity by 21 percent over 10 years, remove about 150,000 cars from the roads of Paris, enable direct travel between the suburbs without having to transit through city centre, linking business and residential centres in a greater capacity, and connecting transport hubs with new districts.

The Grand Paris Express

An estimated 1 million people moving to Vancouver in coming decades means a need for improved transit infrastructure. Crippling congestion, increased air pollution, and lost economic opportunities as a result.

Increase to PST by 0.5%, generating an estimated annual revenue of $250 million, earmarked for an $8 billion, 10-year transit plan. Only applicable to Metro Vancouver.

STRONG: The initiative was proposed by the British Columbia Mayors Council, made up of mayoral representatives from 21 municipalities. Vancouver Mayor Gregor Robertson was elected by the council to lead the initiative.

WEAK: The referendum was given the green light only after renaming the tax as the “Metro Vancouver Congestion Improvement Tax” instead of a regional PST. The referendum results, released in July 2015, revealed that 61 percent opposed the tax.

STRONG: The referendum was supported by a number of business groups, including the BC Chamber of Commerce, the BC Business Council, and the Vancouver Board of Trade (VBOT). VBOT, the largest private sector union in Canada, has partnered with the David Suzuki Foundation, the BC Chamber of Commerce, and Unifor, groups that are usually at odds with each other, to create the Better Transit and Transportation Coalition calling for support of the congestion charge by referendum.

ONGOING: Introduction of the tax was rested on the referendum results, and ultimately the Vancouver public rejected the idea of the tax, with 61 percent voting against it. An estimated annual revenue of $250 million was to be generated from the tax, to be used for the $8 billion 10-year transit plan.

Metro Vancouver Congestion Improvement Tax

Paris Vancouver

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Envision Utah

In response to rapid growth in the late 1990s in the Great Wasatch region of Utah (including Salt Lake City and Provo) Envision Utah was created in 1997, a public-private partnership to help with increased population and congestion.

A $0.25 sales tax increase to fund infrastructure and to accelerate the construction of a light rail line.

STRONG: Envision Utah has significant support from both state government entities and the broad community, and was successful in regional collaboration despite its voluntary nature.

STRONG: After years of hesitation, voters overwhelmingly approved the tax in 2006. The U.S. Department of Housing and Urban Development has called “broad buy-in and significant public engagement” a key pillar of Envision Utah’s success.

STRONG: There was strong consensus in the business community that infrastructure as the region’s number one issue. President of the Salt Lake City Area Chamber of Commerce, Lane Beattie, articulated that missing this opportunity would be “economic suicide”. The business community, through the Chamber, drove the effort for commuter rail, light rail, and road development.

ONGOING: 89 percent of working age residents in the region have access to public transit and almost 60 percent of transit commutes take less than 90 minutes. Salt Lake City also has some of the lowest congestion rates in North America.

Iowa Gas Tax Increase

The 2008 recession caused a decline in transportation rates that never truly recovered, leaving fuel tax revenues low and harming Iowa’s ability to address road repairs. As a result, Iowa’s infrastructure deficit continues to grow.

By legislation, Iowa’s gas tax was increased by 10 cents per gallon. The bill also imposes restrictions on future debt and bonding for local government road projects.

STRONG: Iowa House and Senate approved the increase on the ground that the funds are earmarked for infrastructure repair on bridges and roads.

WEAK: Iowans are sharply divided on the increase, according to the recent polls. 50 percent of respondents opposed the hike, while 48 percent were in favor.

STRONG: There is broad support from business interest groups including the Iowa Farm Bureau, the Chambers of Commerce, and Iowa’s trucking industry, recognizing the importance of immediate action on transportation infrastructure funding.

The Big Move

Population in the GTHA grew by nearly 9 percent between 2006 and 2011, and is now over 6.5 million. Aside from the increased pressure this growth places on transportation infrastructure, the GTHA continues to urbanize, creating greater need for implementing an integrated-multi modal transport network.

A 25 year, $50 billion capital expansion plan that will create a regional transportation network across the GTHA using multiple transport modes. It will be funded by a suite of new revenue tools, including a one percent increase in HST with a mobility tax credit, a regional fuel and gasoline consumption tax, a business parking levy, and development charge amendments.

STRONG: Metrolinx, the governing body of The Big Move, is an entity of the Ontario Provincial Government, however the project has the support of the Toronto municipal government who will participate in planning and decision making on the project.

MODERATE: Despite collective cynicism in the GTHA due to broken transit promises, intensive public consultation and collaboration with key stakeholders, municipal leaders and professionals, and stakeholder input used to help determine KPIs, has improved public support.

MODERATE: The Ontario Chamber of Commerce conducted a study surveying Ontario business through their respective chambers and boards of trade to determine support for the revenue tools outlined in The Big Move. While there were some concerns about the specifics of some projects, overall support was broad.

ONGOING: By the Toronto Board of Trade’s estimate, the taxes will annually raise: $1.6 (regional sales tax); $1 per parking space levy ($1.6 billion); 10 cent per litre regional fuel tax ($840 million); a road toll (maximum of $45 million).

PENDING: Iowa’s Legislative Services Agency estimates that the increase will generate $1.6 billion over nine years for infrastructure investment.

Salt Lake City Toronto Iowa

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While different in scope and purpose, the examples of Oklahoma City, London, and Sweden have several common features that contributed to their success: project-specific versus abstract concepts, public engagement and outreach, political cover, and a crisis in infrastructure.

Project-specific versus abstract conceptsA common public fear that emerges when discussing municipal financing tools is the fear that the governing body will take advantage of new tax tools as a general funding instrument that they will increase at will. In the case of Oklahoma City, not only was project specificity central to MAPS, with the electorate able to vote on precisely which projects the penny tax would be earmarked for, but the focus on transparency in the initial MAPS, and the kept promises of maintaining the revenue stream only for those projects, led to the success of subsequent referendums. In the cases of London and Sweden as well, there was no attempt to garner funding for general infrastructure needs, but for clearly defined projects.

Public engagement and outreachPublic engagement was another feature common to all three case studies. Oklahoma City implemented several levels of public approval into their MAPS program, beginning with holding a referendum on the inaugural implementation of the penny tax, a mandatory feature to all subsequent projects that allowed citizens to vote not only on the tax as new way to finance infrastructure, but also on which projects the revenue would be directed towards. Furthermore, they established citizen oversight and advisory committees, in addition to regularly holding public

hearings, in order to ensure a continual public mandate for the initiative. In London, public consultations underscored that citizens recognized the value of investing in municipal infrastructure through projects such as Crossrail, with public support consistent at over 90 percent. While Stockholm’s congestion tax faced early criticism, the government undertook significant public consultation educating citizens on the benefits and deconstructing public fears, and following the trial period public support reached a majority. While the case of Gothenburg is less grounded in public buy-in, support is slowly increasing and reached 55 percent in 2014. As evidenced in MAPS, however, public engagement is a double-edged sword that, while integral to these projects, can also cause friction and some delay.

Political coverPolitical will, as well as political cover to implement a new financing mechanism, is necessary to make the concept a reality. In the case of Oklahoma City, the initiative was driven by the mayor’s office in partnership with the Greater Oklahoma City Chamber of Commerce, an institution with a long history of community trust. Since the political will was already in existence, the municipal government depended on public engagement to successfully provide the political cover to implement MAPS. While Crossrail had the support of the Mayor’s Office from the start, the central government had to commission studies and introduce legislation to allow for their support of Crossrail, completing the funding partnership between the central government, the mayor’s office, and the London business community. In the case of Stockholm, the proposal faced heavy political opposition, and was only able to be introduced amidst the perfect storm of coalition building during an election.

Without this environment, the congestion charge would not have been successfully introduced.

A crisis in infrastructure The most important feature across all examples, however, is the existence of a specific situation that breeds a civic appreciation for the need to pay for the city that you want. Oklahoma City was desperate for investment, the ability to attract and retain labour, and a strong commercial core. As citizens began to recognize this, with the promotion of the Greater Oklahoma City Chamber of Commerce, the general population became more willing to experiment with a new and innovative way to fund their infrastructure, which was ultimately successful in building a vibrant community. As congestion and restricted movement loomed over London, the business community, the government, and the general population banded together to combat it through a joint funding effort to build Crossrail, and is still depending on this model to alleviate the pressures of a growing city on their infrastructure. Stockholm and Gothenburg explored a controversial way to address both the costly issues of congestion and innovation in infrastructure development through introducing a congestion tax, which ultimately reaped public approval and has become a standard tool in Sweden’s municipal tool box.

As Calgary continues to grow, it is important to consider examples of how other jurisdictions mitigated the issues that accompany economic growth, such as deteriorating infrastructure, and begin to explore what our city is willing to do to safeguard our future.

Conclusion

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