Papers of the Day

Posted by on . 3 comments.

Two by the same authors, Jason Junge and David Levinson. First up, “Economic and equity effects of transportation utility fees.”

Transportation utility fees are a financing mechanism for transportation that treats the network as a utility and bills properties in proportion to their use, rather than their value as with the property tax. This connects the costs of maintaining the infrastructure more directly to the benefits received from mobility and access to the system. The fees are based on trips generated and vary with land use. This paper evaluates the fees as an alternative funding source in terms of economic, equity and administrative effects. The experiences of cities currently using utility fees for transportation are discussed. Calculations are included to determine the fee levels necessary for transportation maintenance budget needs in three sample cities and a county in the Twin Cities metropolitan area. Proposed fees for each property type are compared to current property tax contributions toward transportation. The regressive effects of the fees and the effect of adjusting for the length of trips generated are also quantified.

Next, “Financing transportation with land value taxes: Effects on development intensity.”

A significant portion of local transportation funding comes from the property tax. The tax is conventionally assessed on both land and buildings, but transportation increases only the value of the land. A more direct, efficient way to fund transportation projects is to tax land at a higher rate than buildings. The lower tax on buildings would allow owners to retain more of the profits of their investment in construction, and have the expected side effect of increased development intensity. A partial equilibrium simulation is created for three sample cities to determine the magnitude of the intensity increase for both residential and nonresidential development if various levels of split rate property taxes were enacted.

Always nice to think about different approaches to transportation finance, and the ways in which incentives might be tweaked to generate better outcomes.

Comments

  1. Ben Ross says:
    November 8, 2009 at 5:41 pm

    The “transportation utility fee” as described in the paper is not assessed on the actual amount of travel that a project generates. Rather, it is assessed on the amount of travel that a type of building generates if built in a suburban sprawl environment. It fails to create the incentives that a user fee should create, since you have to pay the same fee no matter how much use you actually make of the resource.

  2. OGT says:
    November 8, 2009 at 9:08 pm

    I found the second paper interesting. I definitely think differentiated tax rates could play a role in special districts where there is a consensus that development or redevelopment is desirable.

    In areas where reinvestment in residential real estate is robust and/or the zoning laws don’t allow for much more density you may just end up subsidizing yuppies to do kitchen remodels they were already planning.

    In areas where there isn’t a solid consensus about increasing density I could see the differentiated tax rates being a political obstacle. If a significant portion of the community views the added development as a cost to them getting a smaller return to the tax coffers would make it harder to overcome opposition.

    All that said, in areas where an incentive is needed to reinvest in the building stock or in a place with a significant transportation investment and community support for development it’s definitely worth looking at.

  3. Richard Layman says:
    November 9, 2009 at 6:45 pm

    Uhh, while I am not an economist and haven’t read either paper (yet) it is obvious that transportation access increases value of the location, and therefore the value of the use of the land–to wit, the buildings therein.

    Property, including buildings, costs more to buy or to rent when it is proximate to quality transit.

    So charging less property tax for improvements doesn’t make sense as the property owner gets additional value (“rent”) for building use because of the transit benefits.