Revenue and Financing

David Levinson

Logrolling• Logrolling and vote trading are

ubiquitous aspects of public financing of infrastructure. They are also essential because simple majority decisions say nothing about the intensity of preferences. Yet when allowed to proceed too far, they create other inefficiencies -- there is a finance externality.

• Logrolling is only significant when minority feelings are more intense than the majority's, otherwise the majority prevails anyway.

• Simple logrolling model

Major Road

A B C

Referenda

Imagine N farmers, each on cul-de-sac like roads A, B, and C, off of a Major Road.

1) Each referendum to repair a single road, paid by all fails, farmers on roads B and C won't vote for A, etc. --- Non-Cooperative

2) Kantian road service standards, when in need of repairs, any road below some threshold gets repaired --- Cooperative, may require a "Constitutional Arrangement"

Formula are possible in a narrow domain such as road repair, but much harder when comparing between domains (roads vs. education).

Financing Mechanisms

• Statute labor, or the corvee, working out the road tax• Donations• Private subscriptions• Assessments on adjacent property• Tolls• Fines for failure to perform statute labor• Public lotteries• Public land sales• Military Funds• Taxes

• (Railroads have financed with 3, 5, 7, 8 and some public subscription. Public land sales were particularly important)

History

• In the 1790s, Lancaster Pike was the first significant turnpike in the US

• In 1808, Gallatin posited that• It was legitimate for government to finance roads• Only roads with reasonable returns should be built• Effective transportation is vital to the national defense

• The Federal Road of Act of 1916 established formula funding, the state highway organization, and the relative roles of government.

Public Role in Private Sector

• Traditional– Private contributions - $, in kind

• Facilitator– Planning (Government coordination)– Matching private $ affect government grants– State as Broker

• Investor– Sate as stockholder in private investment– Transportation corridor development corporation– State as developer

Private Role in Public Sector

• e.g. Highways• Design • Build• Operate (Lease to city for tax

advantages?)• Transfer• Maintain

Financing

• Taxes relating to transportation– Tax increment financing

(Bonds issued against increment)

– Value Capture Districts (% increase in assessed value due to accessibility)

– Exactions and impact fees (proportionate to infrastructure or congestion created)

– Proffers – Regulation with loopholes

• Incentives to build infrastructure– Tax Exempt Bonds– Regulatory Exemptions– Government Backed

Bonds– Eminent Domain

• Alternative Private Ownership of Infrastructure– Toll Road– Local "Club"/Private

Driveways

Cost Allocation Study

• Highways• Passenger Vehicles 93% of Travel miles, 64% of costs• Combination Trucks 5% 25%• weight distance tax would improve equity in the system

and efficiency

Over Pay Under Pay

Pickups and Vans

cars, 3 axle-trucks, tractor trailers

2-axle trucks Buses

Transit Allocation

• Transit– 1997 Fares total $7.126 Billion, Total

Operating Funds, $17.931 Billion– Unlinked Trips 7.954 Billion– -> approximately $1 fare, $3 average cost,

marginal cost probably less.

Financing Local Transportation Infrastructure

David Levinson

Disbursements for highways Minnesota

($ in '000)

Category State (1997) Local (1996)Capital 558,716 724,807Maintenance 268,519 443,418Administration 146,587 220,608Interest 4,484 49,586Bond Retirement 12,785 194,313Grants in Aid to Locals/Payments to State 459,304 36,934TOTAL 1,450,395 1,669,666

Revenue for Highways in Minnesota

Category State (1997) Local (1996)Motor Fuel Taxes 519,456 0Vehicle Carrier Taxes 526,619 0Federal FHWA 304,899 0Federal Other 4,749 4,045General Fund 0 430,700Property Tax 0 399,416Miscellaneous 66,647 55,424Bond Proceeding 603 177,962Local Governments/Payment from State 29,103 604,962TOTAL 1,452,076 1,672,509

Notes:

• No local user tax, no local tolls• State doesn't use tolls or general

revenues• Local Miscellaneous much higher in

California• Vehicle Tax has gone down since

this data out (reduction in vehicle tab)

Metro Transit (1995) From National Transit Database

Revenue Category AmountOperatingFares 43,698.5Fare Revenue Returned 3.3Retired 0Other Revenue 1,324.5NonTransportation 791.0Dedicated Other 0UZA Formula 3,377.2Other Federal 238.1State General Revenue 0.0State Dedicated 206.6Local General Revenue 20,200.0Dedicated Other (Local Property Taxes) 56,095.5TOTAL 125,934.8

CapitalProperty Tax 14,203.1Gas Tax 86.4Federal Capital Grant 5,173.4UZA 13,408.9TOTAL 32,871.8

Expenses

• Operating Expenses - $125,000,000 (837 vehicles -> $149,000 / vehicle)

• Capital Expenses - #33,063,000 (Rolling Stock 23,617,000; Facilities 6,277,000; Other 3,173,000)

Cost Category Unit Costoperating cost / vehicle revenue hour $75.8operating cost / vehicle revenue mile $3.3maintenance cost / vehicle revenue mile $1.1non-vehicle maintenance / vehicle revenue mile $0.2general administration / vehicle revenue mile $0.9

Gas Tax

• Federal - 18.4 cents/gallon• State - 20.0 cents/gallon• Range: 8 cents in Alaska to 30.8

cents in Pennsylvania

Planners “Financing” Tools

• Developer Exactions• Impact Fees/Taxes

- Tend to be for basic services and infrastructure- Technically straight-forward- Legal Basis- Minimize Cost to Developers- Cost Sharing

• Negotiations and Proffers• Development Districts• Road Clubs

Transit Operators Financing Tools

• Cervero - Rail Transit and Joint Development

- Air Rights Leasing- Benefit Assessment Districts- Connection to Transit Charges

• History of railroad and checkerboard pattern of development of American West

Other Financing Tools

• Local Option Gas Tax, • Local Option Sales Tax• Toll Roads, (Orange County, CA is

building network)• VMT (Odometer) Tax• Private Roads

Why States Toll: An Empirical Model of Finance

Choice

by David Levinson

Research Questions

• States can impose tolls, yet not all do. • What are the explanatory factors?• How significantsignificant are they?• What would happen if transportation

powers were decentralized to metro areas or counties?

Hypotheses

• Share of Toll Revenue Can be Explained by:– Non-Resident Workers (+)– Neighboring States’ Policies (+)– Historical Factors (Miles of Toll Road

before Interstate Era) (+)

Perceptions of Toll Incidence

Toll IncentivesWorkplace

In (D) Out (B)

Residence In (C) Local (Resident Worker)

No incentive to toll

Exported Labor

Small incentive to toll

Out (A) Imported Labor (Non-Resident Worker)

Medium incentive to toll

Through

Large incentive to toll

Data by StatePercentage Miles

STATE Revenue fromTolls (S)

Workers WhoLive Out ofState (O)

ResidentsWho Work Outof State

FederalLand

Toll Roads in1963

Freeways,Expwy, 1995

Alabama 0.0 2.4 3.6 3.3 0 925Arizona 0.0 1.1 1.6 41.5 0 1250Arkansas 0.0 4.0 3.2 8.3 0 646California 2.1 0.5 0.4 44.6 0 3750Colorado 0.3 0.8 1.0 36.0 17 1170Connecticut 0.0 4.6 4.7 0.2 194 542Delaware 25.3 13.8 9.5 2.2 11 51Florida 7.8 0.8 1.0 7.6 207 1861Georgia 0.4 2.8 2.4 3.9 11 1413Hawaii 0.0 1.0 0.5 8.5 0 77Idaho 0.0 2.6 4.0 60.6 0 613Illinois 9.3 2.8 2.9 1.3 185 2245Indiana 4.3 3.3 4.8 1.7 157 1303Iowa 0.1 3.7 4.3 0.2 0 781Kansas 6.5 7.1 7.6 0.5 241 1008Kentucky 0.8 6.3 6.7 4.2 205 855Louisiana 2.9 2.1 1.9 2.8 0 929Maine 10.5 2.1 3.1 0.9 112 383Maryland 7.0 7.0 17.3 3.1 42 711Massachusett 10.4 5.0 3.1 1.2 124 762Michigan 0.7 0.8 1.5 10.1 0 1458Minnesota 0.0 2.3 1.8 3.1 0 1042Mississippi 0.0 3.1 5.9 4.3 0 726Missouri 0.1 7.2 4.8 3.8 0 1460Montana 0.0 0.8 1.2 27.5 0 1190Nebraska 0.2 4.3 2.3 1.2 0 497Nevada 0.0 4.3 1.2 77.1 0 586New 11.8 8.5 16.8 12.8 77 266New Jersey 27.3 7.0 11.7 3.3 309 728New Mexico 0.0 1.9 2.5 33.9 0 1003New York 33.2 5.1 2.4 0.7 629 2328North 0.1 2.2 1.8 6.9 0 1237North Dakota 0.0 5.9 3.7 4.0 0 570Ohio 3.3 2.8 2.2 1.1 241 1937Oklahoma 7.6 1.1 2.9 1.5 174 1064Oregon 0.5 3.7 2.1 51.8 0 780Pennsylvania 11.7 3.4 4.3 2.2 469 2087Rhode Island 3.7 7.6 11.9 0.7 0 137South 0.0 2.1 1.8 3.8 0 894South Dakota 0.0 3.0 4.0 5.5 0 681Tennessee 0.0 4.6 3.3 5.7 0 1176Texas 2.5 0.9 0.8 1.4 30 4474Utah 0.1 1.0 1.3 63.1 0 948Vermont 0.0 4.9 5.8 6.4 0 1329Virginia 4.7 6.5 9.3 9.4 35 339Washington 4.1 1.5 2.7 24.1 0 1079West Virginia 6.6 8.3 9.7 7.0 86 560Wisconsin 0.0 1.4 3.2 5.3 0 830Wyoming 0.0 2.6 2.0 48.5 0 916

Correlations MatrixToll

Share(S)

Population(P)

Toll Mile1963

ImportedWorkers

NeighborEffect (N)

Land Density

FederalLand(%)

Toll Share (S) 1

Population (P) 0.27 1

Toll Mile 1963 0.71 0.39 1

Imported Workers (O) 0.49 -0.27 0.16 1Neighbor Effect (N) 0.61 -0.03 0.36 0.54 1

Land -0.32 0.36 -0.22 -0.50 -0.45 1

Density 0.53 0.18 0.39 0.39 0.70 -0.48 1

Federal Land (%) -0.28 -0.07 -0.32 -0.29 -0.22 0.45 -0.32 1

Regression ResultsModel 1 Model 2

Coefficients t Stat Coefficients t StatIntercept -0.03 -2.42 ** -0.036 -2.51 **Population (P) (millions) 0.00383 3.20*** 0.00386 3.15***Mile Ratio (M) 0.30 4.13*** 0.35 5.25***Imported Workers (O) 0.85 2.92 ** 0.84 2.85 **Neighbor Effect (N) 89877 1.71 *

Regression StatisticsMultiple R 0.81 0.79R Square 0.65 0.63Adjusted R Square 0.62 0.60Standard Error 0.04 0.05Observations 49 49F 20.87 25.76Significance F 0.00 0.00

California ResultsCMSANAME Share APUMA (Counties) Share

Bakersfield 0.027 Kern 0.027

Chico 0.014 Butte 0.014

Fresno 0.025 Fresno 0.025

Los Angeles 0.027 Orange 0.125

Los Angeles 0.087

Ventura 0.048

Riverside 0.094

San Bernardino 0.117

Merced 0.049 Merced 0.049

Modesto 0.057 Stanislaus 0.057

Redding 0.075 Shasta 0.075

Sacramento 0.010 Yolo 0.274

Placer 0.272

El Dorado 0.074

Sacramento 0.094

Salinas 0.017 Monterey 0.017

San Diego 0 San Diego 0

San Francisco 0.011 Alameda 0.213

Contra Costa 0.208

Marin 0.222

San Francisco (city) 0.345

San Mateo 0.265

Santa Clara 0.115

Santa Cruz 0.076

Sonoma 0.024

Napa 0.115

Solano 0.135

Santa Barbara 0.028 Santa Barbara 0.028

Stockton 0.141 San Joaquin 0.141

Visalia 0.012 Tulare 0.012

Yuba 0.057 Sutter, Yuba 0.057

NonMetro 0.069 Del Norte, Lassen, Modoc, Siskiyou 0.107

Humboldt 0.061

Lake, Mendocino 0.066

Colusa, Glenn, Tehama, Trinity 0.198

Nevada, Plumas, Sierra 0.074

Alpine, Amador, Calaveras, Inyo, Mariposa, Mono, Tuolumne 0.035

Madera, San Benito 0.134

Kings 0.127

San Luis Obispo 0.042

Imperial 0.000

Conclusions

• Finance Choice depends on (positively) cross-border flows, neighboring state tolls, historical use of tolls, and population.

• Devolving power to metropolitan areas is insufficient to achieve significant road pricing.

• Under radical decentralization tolls may become widespread.