Transportation, Federal Government, Government
Ground Zero: Los Angeles Region Takes the Reins to Fund its Mobility
Funding Future Mobility: Exit 3B (Case Study)
June 08, 2012
As part of the third stop in our transportation infrastructure thought leadership series, we take a slight detour to explore how the Los Angeles, California, USA urban area is taking steps to fund its own mobility. If you missed it, be sure to read Exit 3A.
Funding Locally in California
A good example of the trend toward local infrastructure funding can be seen in the latest 25-year regional transportation plan approved by the Southern California Association of Governments (SCAG)—the regional planning organization for the six-county greater Los Angeles region. The new plan, which covers transportation needs through 2035, anticipates that more than $300 billion of capital investment (including debt service) will be needed in transportation, with more than $100 billion planned for public transit. In addition, operating and maintaining the transportation network will cost $217 billion over the next 25 years, bringing the total funding need for this vast and vital region to more than half a trillion dollars!
In preparing the plan, SCAG identified $305.3 billion in core revenues expected over the 25-year projection period, leaving a funding gap of more than $200 billion to be covered by innovative financing and new revenue sources—most coming from local sources. The plan assumes that more than half the funding gap will be filled by establishing a “vehicle miles travelled” fee on travel in the region—something the plan assumes will be implemented nationally by about 2025. Let’s take a look at the rest of the price tag.
Picking Up the Bill
Almost three-fourths of the $305 billion in core revenue to be used for transportation in the SCAG region comes from local sources. Only 15 percent comes from state funding and a surprisingly small 11 percent from federal sources—including the federal gas tax and all federal transit capital funding. While I’m sure officials in the Los Angeles region are grateful for the state and federal contributions, it is quite obvious that they have come to accept that if the mobility challenges of the future are to be overcome, they will likely need to pay most of the bill themselves.
The local share of funding includes about $27 billion in expected transit fare collections and $11 billion in highway tolls, but the bulk of local funding will come from local option sales taxes. These taxes are forecast to provide about $120 billion of local funding for transportation, which accounts for about 40 percent of all core transportation funding in the entire region. A portion of the proposed sales tax revenue supports transit, but a sizable part will also be used for highway and roadway improvements.
Good News and Bad News on Taxes
There are benefits and drawbacks to funding infrastructure improvements through local sales taxes. The good news is that these taxes have a surprisingly good rate of success, even in an age of outrage against taxation, and have typically been authorized through public referendums. About 70 percent of referenda for local sales tax measures tend to be supported by the public, almost all of which take place in major urban areas. The biggest reason for this success seems to be that the tax measures are usually dedicated to specific transportation improvement programs, where voters can readily see benefits and demonstrate support at the ballot box for increased investment in transportation infrastructure.
The bad news about this approach is that sales taxes have no connection whatsoever with increasing transportation demand and the need for infrastructure investment. A sales tax on clothing purchases has little or no influence on transportation demand. In traditional funding methods, transit fares directly influence capacity and travel choice; and while less direct, the motor fuel tax is at least loosely tied to roadway usage—the more you drive the more taxes you pay. The greatly increased reliance on sales tax and other similar forms of “non-transportation” funding supplements reduces the market influence on transportation demand.
Price Versus Perception
How these factors play out for Los Angeles remains to be seen, but it is clear that the region recognizes the importance of transportation planning and is taking steps towards self-reliance. However, these invisible—or at least unnoticeable—forms of taxation tend to support the illusion that road transportation is free; a basic entitlement. We’ll explore the public perception on transportation funding needs and methods more in the next installment of our Funding Future Mobility series.
Ed Regan is a CDM Smith senior vice president based in Columbia, South Carolina, USA, and a preeminent thought leader on transportation finance and planning. Nearly 4 decades of dedication to the toll industry have fed his passion to advocate sustainable solutions for funding transportation infrastructure today and in the future.