Funding for Growth: Driving Towards Innovative Sources Spurs Stability

September 14, 2008

Traditional funding sources for planning and constructing transportation projects have historically come from state and federal user fees, such as tolls and fuel taxes. However, as these revenue sources diminish and competition heats up, many smaller, emerging communities are seeking ways to generate funding locally rather than contend with larger cities. Alternative funding sources and other creative solutions allow these communities more flexibility and greater control over their transportation projects.

Many communities have established system development charges intended to offset the costs of new development. As construction of new commercial, office, or residential space begins, developers are required to pay a charge calculated based on the estimated number of new vehicle trips on the transportation system. These charges are collected in a fund that is used to help finance projects that have previously been identified in the community’s transportation system plan. Since the community defines its own priorities in the plan, the roadway, bikeway, and sidewalk projects it selects are those that receive funding. Some communities even allow developers to pay for transportation improvements nearby their site instead of contributing generally to the fund.

Another innovative tool for generating transportation funding is tax increment financing. In undeveloped or redeveloping areas, municipalities will borrow against the expected increase in property value (and associated tax revenue) to construct projects that otherwise would not occur. For example, an emerging community might construct a multi-use path providing access to the city’s core which would spur demand for property nearby the path. This increased demand and development will generate tax revenue that can be used to pay off the infrastructure investment.

In some cases, the private sector is taking the initiative in emerging communities. By setting up a Local Improvement District, a group of property owners share in the cost of transportation infrastructure and build street improvements and sidewalks, which ultimately make their businesses more appealing and successful. Like the other solutions, communities are finding ways to fund transportation projects through less competitive and more flexible sources.

As smaller communities form or redefine their transportation networks to accommodate growth and change, they are finding that creative funding sources suit their needs more efficiently. There may still be a need for traditional sources given the situation, but emerging communities are learning from each other to approach common needs and find new ways of looking at funding resources.

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