LAND’S VALUE FOR TRANSPORTATION: Why Cities and Counties Should Use Land-Based Taxes and Fees to Pay for Transportation

BTC Reports; Vol 15, No 2; March 2009

by Steve Jackson, Public Policy Analyst

Executive Summary

Local governments will likely face the need to significantly increase their transportation budgets in the not-so-distant future because of increased demands for better public transportation services and through the state government either ceding authority or vacating responsibility for local roads.

As a consequence, local governments are currently examining new sources of revenue to meet future transportation challenges.

Sales taxes earmarked for transportation expenditure are not the answer. Unless the tax base is reformed, sales tax revenue is too volatile and may not be able to meet transportation demands. The tax is regressive and the tax responsibility overly reliant on individuals rather than business and other organizations.

By contrast, property taxation is less regressive than sales taxation, the revenue less volatile and the tax responsibility more evenly spread throughout the community.

Local governments should focus on land-based taxes and fees as the primary means by which to generate new revenue for transportation. The authority for these taxes and fees largely exists but some reforms are necessary to improve existing revenue options and give local governments a more diverse menu of fair and adequate revenue sources.

While the property tax is the most important and viable local transportation budget revenue source, the state should enable new local transportation impact fees and fees on land based on traffic counts to augment and support property tax revenues. The state should also act to allow research and production districts such as the Research Triangle Park, to assess an earmarked transportation property tax.

Overview

Whether through neglect or conscious design by the state, it is clear that counties and municipalities will need to take responsibility for more lane miles in their jurisdictions in the near future. In addition, the intensifying calls for better public transportation necessitate more local public transportation expenditures.

The prospect of growing local responsibility opens the questions: How will the new requirements be funded? What will the new sources of revenue be?

This report argues that local governments should focus on land-based taxes and fees for transportation, rather than sales taxes, to meet their growing responsibilities. These landbased fees and taxes include three forms: Property taxes; So-called “value capture” approaches such as tax increment financing and special assessments which focuses on taxing some of the new land value that transportation infrastructure improvements create, and; Land-use-based fees, based on the traffic each parcel of land generates.

Local governments already have most of the taxation authority they need but some enabling legislation for land-use-based fees is required. Using a mix of these forms will result in revenue growth more likely to meet public transportation service and road and bike and pedestrian facility needs. Sales tax revenue growth does not hold the same promise.

The land-based forms favored here distribute the tax burden more fairly between all parts of the local community – individuals, business and other organizations. Adopting a blend of them would enable local governments to meet their new obligations and new service demands and to do so in an equitable way.