AICGS PR54 Financing Sustainable Transportation

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54AICGSPOLICYREPORT

FINANCING SUSTAINABLE

TRANSPORTATION: AN OVERVIEW OF

FINANCE MECHANISMS AND CASES

FROM THE U.S. AND GERMANY

Andrea Broaddus

Max Grünig

Dominic Marcellino

AMERICAN INSTITUTE FOR CONTEMPORARY GERMAN STUDIES THE JOHNS HOPKINS UNIVERSIT



The American Institute for Contemporary German

Studies strengthens the German-American relation-

ship in an evolving Europe and changing world. The

Institute produces objective and original analyses of

developments and trends in Germany, Europe, and

the United States; creates new transatlantic

networks; and facilitates dialogue among the busi-

ness, political, and academic communities to manage

differences and define and promote common inter-

ests.

©2013 by the American Institute for

Contemporary German Studies

ISBN 978-1-933942-42-1

ADDITIONAL COPIES:

Additional Copies of this Policy Report are available

for $10.00 to cover postage and handling from

the American Institute for Contemporary German

Studies, 1755 Massachusetts Avenue, NW, Suite

700, Washington, DC 20036. Tel: 202/332-9312,

Fax 202/265-9531, E-mail: [email protected] Please

consult our website for a list of online publications:

http://www.aicgs.org

The views expressed in this publication are those

of the author(s) alone. They do not necessarily reflect

the views of the American Institute for Contemporary

German Studies.

TABLE OF CONTENTS

Foreword 3

About the Authors 5

Executive Summary 7

Introduction 10

Transportation Finance in the U.S. 11

Financing Mechanisms in Germany 24

Case Studies 29

Conclusion 41

Notes 44





In the past, sustainable transportation and mobility were seldom at the center of relations between Germanyand the U.S. But the shared concerns about urbanization, economic development, energy, climate change

and social inclusion have moved policymakers on both sides of the Atlantic to look more closely at the development of innovative transportation practices and technologies that can find mutually beneficial exchangesand applications. The reasons are clear. Whether developing and managing light rail, creating pedestrianoriented central business districts, or integrating bus rapid transit and regional fare systems, each is as vitato the health of Stuttgart region as it is to Northern Virginia. But it is at the policymaker’s, elected official’sand technician’s peril to assume that Ludwigsburg’s Pedelec or Esslingen’s fuel cell car-sharing programscan automatically transfer and fit into the unique political, economic, or environmental context of FairfaxCounty—or any other jurisdiction in the United States. Understanding how and ways in which these innovations can be traded and applied requires thoughtful attention to a range of special political, technical, andeconomic conditions.

Analyzing and comparing the opportunities to transfer and apply innovative transportation, land-use, andfinance mechanism policies between Germany and the United States was the basis for two reports commissioned by the American Institute for Contemporary German Studies (AICGS). With financial support fromthe Daimler-Fonds im Stifterverband für die Deutsche Wissenschaft, five premier transportation planning andfinance experts from Germany and the U.S. delved into the questions about what makes transportation andland-use planning and financing economic, sustainable, and inclusive. Special emphasis of these papers wasthe ways in which transportation, land-use, and financing innovations evolved in Germany and the U.S., howthe performance indicators compare, and what pieces of the technical and policy innovations can be tradedand applied in the unique contexts of Germany and the U.S. The authors included Drs. Ralph Buehler (VirginiaTech University) and Wolfgang June (KIT), Ms. Andrea Broaddus (University of California Berkeley), andDominic Marcellino and Max Grünig (Ecologic).

This publication is an example of AICGS’ commitment to comparative domestic and urban policy programsin Germany and the U.S., and the mutually beneficial applications of those transfers, especially in urban

contexts. AICGS is grateful to the authors for their insights, the Daimler-Fonds im Stifterverband für dieDeutsche Wissenschaft for its generous support of these reports, and to Kirsten Verclas, Kimberly Frank, andJessica Riester Hart for their thoughtful investment of time and their editorial efforts.

Jackson Janes Dale MedearisPresident, AICGS Senior Environmental Planner,

Northern Virginia Regional Commission(NVRC)

FOREWORD

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ABOUT THE AUTHORS

Andrea Broaddus is a transportation policy expert, whose research is focused on managing the demand fotravel through behavioral incentives and land-use practices. As a Humboldt Foundation German Chancello

Fellow, she researched road pricing and transit-oriented development policy in Germany at the HamburgUniversity of Technology. Additionally, Ms. Broaddus has experience working on transportation policy with theSurface Transportation Policy Project and as a Senior Associate with Nelson/Nygaard Consulting AssociatesShe is currently a Ph.D. candidate at the Department of City and Regional Planning at the University ofCalifornia, Berkeley.

Max Grünig joined Ecologic Institute in 2007 and focuses on the transformation of the transport and energysectors, covering smart grids and electric mobility as well as consumer behavior. He conducted research onaspects of international environmental governance related to the inclusion of aviation and shipping in the EUEmissions Trading Scheme and was also responsible for the 2010 Smart Energy Dialogue. In addition, heworks on the environmental impacts of electric vehicles and on possible improvements to the European carlabeling directive. In his most recent work, he compared approaches to sustainable urban mobility in the U.Sand Europe. As a specialist author, Mr. Grünig contributed to ETTAR (Environmental Technologies, Trainingand Awareness-Raising), a European transport research project coordinated by Ecologic Institute and spon-sored by the European Commission (EC) within the 6th Framework Program (FP6), as well as to a projectassessing the sectoral costs of environmental policy. Furthermore, he formulated the transport-related aspectsof the position paper on the EU budget review. In 2004, Mr. Grünig received his degree in economics fromthe Humboldt-Universität zu Berlin (Germany). He has lived and worked in the U.S., Iceland, and Japan. Heis a founding member of the European Institute for Sustainable Transport (EURIST) and a member of theConsumer Research Network run by the German Federal Ministry of Food, Agriculture, and ConsumerProtection (BMELV).

Dominic Marcellino has been a Fellow at Ecologic Institute in Washington, DC, since the fall of 2008. In hiswork, he focuses primarily on energy policy (including bioenergy, energy efficiency, renewable energy, andtransportation), climate policy in Europe and the U.S., as well as emissions trading systems. Mr. Marcellino is

currently leading the project “Incubating Communities of Influence to Transform Economies and theEnvironment” (I-CITE), funded by the European Commission (EC). As part of I-CITE, he is working with theAtlantic Council of the U.S. (ACUS) to create a first-of-its-kind transatlantic social network for young leadersin environmental policy—Emerging Leaders in Energy and Environmental Policy (E-LEEP). After graduatingfrom the University of Dayton (Ohio, U.S.) in 2002 with a degree in philosophy and a minor in economics, MrMarcellino studied environmental ethics at the University of Augsburg as a Fulbright Scholar from 2002 unti2004. He was also a Robert Bosch Fellow in Germany from 2008-2009.





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EXECUTIVE SUMMARY

This Policy Report is an outcome of the AmericanInstitute for Contemporary German Studies’ project

“The Transatlantic Climate and Energy Dialogue:Urban and Regional Transportation and EnergyProblems and Solution.” This dialogue consisted oftwo workshops and two reports, one focusing onurban transportation and land-use in Germany andthe U.S. and the other on financing urban transporta-tion. A draft of this report was presented to partici-pants of the Transatlantic Urban Climate DialogueWorkshop on “Sustainable Mobility” from November26 – 28, 2012 in Stuttgart, Germany. The final paperreflects feedback gathered during the workshop.

The aim of the research was to compare the differentapproaches to financing sustainable modes of trans-portation in the U.S. and Germany and to presentopportunities for improving the respective fundinginstruments in each country based on the experiencesshowcased in best practice case studies.

The Policy Report is organized in three main sections.

The first part presents key financing mechanisms fortransportation in the U.S., with a focus on thefinancing of sustainable modes, examining the federalgovernment’s role, the contribution of states taking

the example of the Commonwealth of Virginia, as wellas the role of regional government here in theWashington, DC region. Finally, the role of localgovernments in financing transportation is presented.The section closes with a discussion of potential newrevenue sources for sustainable modes.

The second part of the paper highlights the keyfinancing instruments for sustainable transportation inGermany, focusing on regional transit and bicycling.This section also begins with an inventory of funding

instruments at the federal level, moving to the statelevel—here the example of the State of Baden

Württemberg—before going to the local level, in thiscase the city of Stuttgart. In its final step, the sectionintroduces a potential restructuring of the financinginstruments in Germany based on an assessment othe current structure.

The third section is dedicated to presenting six casestudies which illustrate best practices for financingsustainable transportation in the U.S. and in GermanyThe case studies were grouped with respect to theigeographical scale—from urban to corridor toregional scale—and with respect to the financingapproach: public funds only, public funds leveragingprivate funds, public private partnerships, and finallyprivate funds only. The cases are briefly presented inTable 1 (page 9).

The relevant findings of the case studies for policy-makers are:

Germany offers a model of pure public financingthat ensures a common level and quality of transiservice throughout urbanized regions. An extension oStuttgart’s regional rail system (S-Bahn S1 line) wasused to illustrate how pooling resources from the

federal, state, regional, and local municipalitiesadjoining the line can be a fair and efficient means oproviding funding for public transportation infrastructure investments. This example reflects Germany’shigher commitment to and prioritization of investmentsin transit. The state of Baden-Württemberg spent 68percent of its transportation budget on public transiin FY2011, compared to 8 percent by the state oVirginia. Virginia is increasingly seeking to finance itshighway-oriented transportation system with debt andsales taxes that shift the burden of highway building



onto non-drivers, a policy which is both regressiveand not environmentally sustainable.

In the U.S., financing public transit investmentsmore often involves the private sector. Mostcommonly, public investment is used to leverageprivate investment in the form of land developmentaround stations. The Washington capital region’sSilver Line was used as an example of two innovativefinancing mechanisms that are being used to financethe transit line extension: road tolls and value capture.Tolls paid by drivers using the Dulles Toll Road arefinancing approximately 54 percent of the Silver Line

project cost, thus simultaneously serving as a disin-centive to driving and a financing mechanism fortransit. Local municipalities are financing their contri-butions to the Silver Line with value capture policieswhere businesses near the stations pay a higher taxrate.

Parking and registration fees are another way inwhich revenues collected from drivers are increas-ingly being used to cross-subsidize public transit. Inthe Washington capital region, car2go DC has madelump-sum payments to local municipalities for parkingrights. The example of San Francisco, California wasused to illustrate the largest-scale example of thistype, the Transit First policy by which all parkingrevenues are dedicated to the city’s transit system.

Germany’s regional transportation associations, orVerkehrsverbunden (VVs), show how disparate localtransit providers have formed organizations to enablesharing revenues across multiple transit operatorswithin a region. For this reason, the Verkehrsverbundis often called a “fare union.” In some cases, theVerkehrsverbund is also a regional transit agency,operating transit services that span the region.

Allowing customers to switch between different serv-ices seamlessly with harmonized schedules and a

single ticket can increase overall revenue and improvecost-recovery. Stuttgart’s Verkehrsverbund (VVS)was discussed as an example of how the region’stransit services have become more efficient, costeffective, and customer-service oriented since it wasformed in 1978.

Public private partnerships (PPPs) are an innova-tive financing model being used in both countries.PPPs generally take the form of a legal contractbetween the public and private entities, which sets aframework specifying the roles, responsibilities, andfinancial contribution of each, but can also be a coop-

eration without a binding contract. The Washingtoncapital region’s Capital Bikeshare is a traditional PPP,where public funding has covered up-front capitalcosts to build the system, and it is operated by aprivate company on a break-even basis.

In Stuttgart, the car2go car-sharing service illus-trates a less formal cooperation between the city andthe Daimler corporation that is similar to a PPP. In thiscase, public funds have been used to support thelaunch of car2go as an all-electric vehicle fleet. Bike-sharing and car-sharing both function as comple-mentary services to the public transit system.

A final fourth section contains deeper analysis andrecommendations and then outlines possible lessonslearned from this comparison of the respectivefinancing systems both in the U.S. and in Germany.

The authors would like to thank the American Institutefor Contemporary German Studies at Johns HopkinsUniversity and the Daimler-Fonds im Stifterverbandfür die Deutsche Wissenschaft for their generoussupport, which made this Policy Report and theparticipation in the workshop possible. The authors

also wish to thank Nicholas Denhaan for his assis-tance in researching elements of this report.

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Geographical Scale

F i n a n c i n g

A p p r o a c h

Urban Corridor Regional

Pure Public Stuttgart S-Bahnextension, wherestate government,Verband RegionStuttgart, andmunicipalities

share the invest-ment costs.

VerkehrsverbundStuttgart (VVS), aregional transitagency wheremunicipalities andtransit providers

pool costs andrevenues.

Leveraging

(Inviting Private

Investment)

San Francisco,where parking feesfund public trans-portation.

Silver Lineconstructionproject, where theDulles Toll Roadwill provide themajority of funding.

Public Private

Partnership

Capital BikeshareDC, where federaland local fundingcovered up-frontcapital costs and aprivate contractorcovers operatingcosts.

Pure Private car2go flexible car-sharing systems inDC and Stuttgart,which is basedsolely on privatefunding for capital

and operatingcosts.

Table 1: Overview of the Presented Case Studies



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This Policy Report was motivated by a set of commonchallenges in the U.S. and Germany that also present

opportunity for new ideas and policy changes. First,the economic crisis of the past several years hassapped public resources for transportation invest-ment in both countries. Particularly in the U.S., wherehigh unemployment has been linked to a decline invehicle miles travelled (VMT), the traditional sourcefor financing transportation—the gas tax—has proveninadequate for maintaining a sprawling and aginghighway-oriented transportation system. States andlocalities are under pressure to find new sources oftransportation funding.

Second, demographic shifts are changing trans-portation demand, such that driving is in decline. Inboth countries, an aging population is driving less,and so is the generation coming of age. Fewer youngadults are acquiring driver’s licenses and purchasingvehicles than their forebears, increasing demand forbicycling, car-sharing, and public transit.1 The travelbehavior of older adults is also changing towardincreased demand for transit services.2

Finally, the new ubiquity of information and commu-nication technologies are revolutionizing how peopletravel and making transit more customer friendly

through services such as trip planning apps formobile phones. They have made new services likecar-sharing possible. But they are also being used tofinance transportation infrastructure by charging per-use fees to travelers, for instance, using gantries thatread in-vehicle units to charge a toll. Germany’s TollCollect system is a pioneer in this regard, using GPSunits in commercial trucks to charge a per-kilometerfee for use of the national highway system.

In addition to and as a result of these changes, thereis a slow but steady shift within transportation plan-

ning institutions and the political bodies that financetransportation. Transportation policy is increasinglylinked to land-use policy, and to climate changeoutcomes. In the U.S. and Germany, there is anincreased desire to improve the sustainability of thetransportation system, both environmentally andfinancially.

In the U.S., despite a transportation funding crisis,politicians have been reluctant to raise fuel taxes,preferring to increase debt and expand the use ofnon-transportation sources like sales taxes andadministrative fees. Some states have been forced tore-prioritize their long-range transportation plans inlight of less public funding and shifting demand.Highways are still the biggest investment, but priori-ties are slowly shifting toward public transit and railsystems. The federal government has authorized newfinance mechanisms to leverage private funding oftransportation infrastructure and encourage publicprivate partnerships. There is a trend toward wideruse of tolls, value pricing, and other user fees tofinance expansions of the transportation system.Urban areas that have historically been penalized byfederal and state funding formulas are particularly

active in seeking new finance mechanisms to adaptlocal streets for safer and more convenient walking,bicycling, and access to public transit.



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Approximately 50 percent of surface transportationfunding in the U.S. comes from state sources, 20

percent from federal, and 30 percent from localsources.3 The main sources are excise taxes on fuelsales, levied by the federal and by state governments.Much of the money collected is legislatively restrictedfor highway purposes only. Who controls how themoney is spent—Congress, state legislatures,regional Metropolitan Planning Organizations, or localgovernments—and how much they control, has agreat impact on financing for sustainable modes likepublic transit, rails, and bicycle and walking facilities.

Federal Transportation Funding: In Crisis

Historically, transit has been funded at much lowerlevels in the U.S. than Germany. At the federal level,the U.S. still relies upon a transportation financingmechanism that was established in the 1950s inorder to build the Interstate Highway System. TheEisenhower Interstate Highway Act of 1956 raisedthe federal gas tax to $0.03 per gallon and dedicatedtax revenues to the Highway Trust Fund. Prior to thistime, roads were financed directly from the generalfund, as they are in Germany. The Highway Actclaimed fuel taxes as a “user fee” to be utilized for theexclusive purpose of building and maintaining high-

ways. Currently, the federal gas tax is $0.184 centsper gallon for gasoline and $0.244 cents per gallonfor diesel.4 Total fuel tax receipts to the Highway TrustFund amounted to approximately $30 billion in fiscalyear (FY) 2011.5

There was no federal finance mechanism for publictransit until 1982, when a Mass Transit Account wascreated within the Highway Trust Fund. From thattime, a portion of gas tax revenues have been dedi-cated to public transportation. For each gallon of fuel

sold, about 15 percent ($0.0286 per gallon) goes tothe Mass Transit Account. In 1991, a major trans

portation finance reform established the New Startcapital program for new light rail and other transisystems, to supplement the Mass Transit AccountSince then, transit supply has increased faster thademand in the U.S. The New Starts program hasfinanced hundreds of transit system expansionsaround the U.S., with fierce competition by locagovernments for program funds. During the period1997 to 2007, service kilometers of public transiincreased, the overall number of transit tripsincreased, and government subsidies per trip alsoincreased.6 In fact, during this period the U.S. spen$0.36 per passenger kilometer for public transitnearly twice as much as Germany, at $0.18 pepassenger kilometer.7 Partly this is due to Germatransit systems operating much more efficiently thanthose in the U.S., due to factors like denser landdevelopment yielding higher ridership. A typicafarebox recovery ratio for a U.S. transit system is 33percent, while in Germany a typical farebox recoverwould be from 70 to 80 percent.8

Federal transportation monies are spent accordingto formulas and policies set forth in reauthorizationsof the Highway Act. The most recent reauthorization

was in July 2012 and is called the Moving Ahead foProgress in the 21st Century Act (MAP-21)Congress reauthorized the Highway Act every siyears or so to rebalance priorities and addressemerging needs but due to a lack of politicaconsensus on priorities, MAP-21 authorized spendingfor only two years. It authorized roughly $105 billionin spending in fiscal years (FY) 2013 and 2014, witabout $40 billion for highways and $10 billion fopublic transit each year, plus $2 billion more for NewStarts transit capital projects.9



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MAP-21 allocates funds to each state by programand sets the planning requirements for transporta-tion projects. States have great flexibility in decidinghow to allocate funds among highway and transitprograms, and to local governments; most have usedit to prioritize their highway networks. In recent years,approximately 70 percent of federal funds were spenton highways and roads, and 30 percent on publictransit, trails, transportation “enhancements” (e.g.,historic preservation), safety, planning, andresearch.10

Notably, MAP-21 greatly expanded programs that

allow states to finance transportation investmentswith debt. For instance, the TransportationInfrastructure Financing and Innovation Act (TIFIA)program was increased ten-fold, from around $100million per year to nearly $1 billion in FY2014.11 Suchloans must be repaid with a dedicated revenuestream, typically a user fee such as a fare or toll, andso it is likely that the use of more tolling, congestioncharging, and other forms of value pricing willincrease.

However, MAP-21 failed to address the major issuewith transportation finance at the federal level: thebankruptcy of the Highway Trust Fund, which requiredsubsidies to meet shortfalls approaching 10 percentin FY2010 and FY2011. The federal gas tax hasbeen inadequate to meet desired spending levels forseveral reasons. First, it has not been raised since1993 and has been declining in real terms. The costsof building and maintaining transportation infrastruc-ture and services are constantly increasing. Thefederal gas tax is not indexed to inflation, meaning ithas lost more than one-third its original purchasingpower since 1993.12 Second, fuel tax revenue collec-tions have been in decline, as the average fuel effi-

ciency of the U.S. vehicle fleet improves, and withAmericans driving less in a sluggish economy.

One point of agreement among the politicians thatapproved MAP-21 was that they were not interestedin raising the federal gas tax. It is as yet unclearwhether the gap will ultimately be met by alternativesources of financing, by an increased role in trans-portation financing by the states, or by an overallreduction in spending. Some experts believe this indi-cates that federal transportation policy is currently in

a state of flux.

State Funding Trends: Debt, Sales Taxes,and PPPs

Each state is responsible for building, maintaining,and operating its portion of the nation’s transportationsystem. During the highway-building era, states wereprimarily focused on road building, but this has slowlyshifted as demand has changed and more federalfunding for public transit and rail has become avail-able. Today states provide about 20 percent of thefunding for transit systems nationwide, on average.13

To illustrate of the role of the state, Virginia’s trans-portation financing mechanisms are discussed indetail in this section.

Virginia has the third largest state-maintained highwaysystem in the United States with an annual operatingbudget of approximately $3.3 billion.14 It is built andmaintained by the Virginia Department ofTransportation (VDOT), which maintains over 57,000miles of interstate, primary, and secondary roads and12,600 bridges, tunnels, toll roads, and ferry services.The Virginia Department of Rail and PublicTransportation (DRPT) is responsible for planning thestate’s rail, public transit, and commuter services.DRPT works closely with local governments todevelop and fund the state’s sixty public transitsystems. State investment in passenger rail infra-structure and services is complicated by the historicalownership of heavy rail infrastructure by private freightcompanies. Regional and intercity passenger railservices using heavy rail often contract with privatecompanies for the right to operate on certain routes.There are more than twenty privately owned and oper-ated freight and shortline railroad companies inVirginia, and DRPT works with them to develop

passenger rail services.

Virginia’s transportation investment decisions areinfluenced by the political process. VDOT and DRPTare run by a board of directors appointed by theGovernor, the Commonwealth Transportation Board.They set priorities and govern the CommonwealthTransportation Fund (CTF), which finances most ofthe state’s transportation system via plans known asSix-Year Improvement Programs (SYIP). The Boardapproves annual allocations to VDOT and DRPT, and



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13

to individual projects in the SYIP; however, theprocess is different for each agency. While VDOT(highway) projects are usually funded directly by thestate, DRPT (rail and transit) projects are developedvia partnerships with regional and local governmentsthat bear the significant share of costs, with the statefunding only a portion.

Figure 1 (page 20) shows Virginia’s transportationrevenue sources, which amounted to $5.2 billion forFY2012.15 Figure 2 (page 20) shows the relativemagnitudes of these funding sources, and which arerestricted for highway maintenance or new construc-

tion needs. Transportation revenues are split amongVirginia’s transportation system as shown in Figure 3(page 21).

As shown in Figure 1, in 2012 approximately 23percent of Virginia’s budget came from the federalgas tax, and 40 percent from state sources—16percent from the state fuel tax, and 24 percent fromthe motor vehicle sales tax and license fees; nearly aquarter of the budget was financed with bonds.16

This amount will continue to grow as the staterecently approved $2 billion in new bonds to beissued over the next six years.

Virginia’s transportation investments for FY2012 areshown in Figure 3. Highway construction, mainte-nance, and operations accounted for 71 percent ofexpenditures, while public transit accounted for 9percent. Expenditures were 6 percent, but willincrease as reliance on debt increases.

The budget for the DRPT amounted to $481 millionin FY2012, or about 9 percent of the state’s totalinvestment in its transportation system. Of thatamount, about one-third was for transit capital proj-

ects, one-third was passed along as operating assis-tance for local public transportation systems, and 25percent was for passenger rail service expansions.The DRPT budget has increased significantly inrecent years as transportation funding has beenshifted in an effort to bolster a more balanced andmultimodal transportation system in Virginia. TheFY2012 budget represents a 93 percent increaseover the FY2005 budget of $248 million. The natureof the projects supported by DRPT has alsoexpanded to include major initiatives such as Norfolk

Light Rail Transit, Dulles Metrorail, and passenger raiin the I-95 and I-81 corridors.

STATE FUEL TAX

Each state imposes an excise tax on fuel sales inaddition to the federal gas tax, but the amount variesgreatly, depending upon the needs and politics of thestate. State gas tax rates range from $0.08 per gallonin Alaska to $0.412 per gallon of gasoline to abou$0.49 per gallon in California, New York, andConnecticut, states with large urban transisystems.17 Most states may add on additional sales

taxes and environmental fees that affect the final priceto consumers. Virginia established a gas tax in 1923at $0.03 per gallon, which would be equivalent to$0.40 in 2011 dollars.18 Today it is just $0.175 pegallon for gas and diesel, well below the nationaaverage of $0.209 per gallon. Maryland’s gas tax is$0.235 per gallon, last raised in 1992, and it has alsobeen $0.235 per gallon in Washington, DC since2009.19

In twenty-six states, public transit receives littlesupport from the state level because state fuel taxrevenues are restricted for highway and roadpurposes only.20 Virginia does not have a formarestriction in place, but tends to spend the bulk of itsstate-generated funds on its road network by choicerelying upon federal sources of funding for transit.

Similar to the federal level, gas tax revenues are themost important state-level source of financing trans-portation, and there is a funding crisis in most statesas revenues cannot keep up with spending. In manystates, lawmakers have sought to raise state gas taxrates to generate more money for diverse transporta-tion purposes, although even those that have been

successful may not have raised it enough to keeppace in real terms. Twenty-eight states raised theirgas taxes an average of 8.7 percent between 1992and 2002, but spending power decreased by 14percent during this period, due to inflation.21 InVirginia, where Governor Robert McDonnell pledgedin 2011 to address the funding crisis and securesignificant new long-term transportation funds, twoproposals to raise the gas tax were raised in 2012—one by Democrats and the other by Republicans—buteach party defeated the others’ proposal; eleven othe



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funding proposals also failed.22

Virginia has managed to grow its transportationsystem to the third largest in the nation without raisingthe gas tax by continually creating new and dedi-cated revenue sources for transportation. In the pastdecade, Virginia has increasingly shifted to non-trans-portation related revenue sources like the sales taxand general funds. It has moved away from a “pay-as-you-go” model and made increasing use of debt as ameans of financing the transportation system. Newfinancing mechanisms are aimed at leveraging privatecapital, such as the sale of bonds, and creation of an

infrastructure bank.

INNOVATIVE FINANCE

The federal government has given states progres-sively more opportunities to finance large-scale trans-portation projects in non-traditional ways. Theseso-called innovative financing mechanisms includebonding and debt instruments, federal debt financing,credit assistance, and public private financing—alldesigned to use public funding to leverage privateinvestments, and to build transportation infrastruc-ture more rapidly than would be possible throughgeneral revenue bond financing. They usually requirestate enabling legislation, and Virginia has acted toadopt several innovative finance mechanisms.

Virginia’s debt has grown 40 percent over the pastdecade, exceeding $25 billion as of 2008.23 In2000, the Virginia Transportation Act financed $546million of high priority projects selected by theGovernor and CTB (87 percent highway projects).24

It allowed the sale of bonds, and re-allocated insur-ance premium tax revenues from the general fund toservice the debt. The 2007 Transportation Initiative

authorized $3 billion in state bonds for public transitand rail, and re-allocated a portion of the recordationtax from the general fund to the Mass Transit Fund. In2011, two major bond sales were approved byVirginia lawmakers to support a six-year constructionprogram including over 900 highway, rail, and publictransit projects; $1.8 billion of normal capital projectrevenue bonds; and $1.1 billion of Grant AnticipationRevenue Vehicle (GARVEE) Bonds.25 GARVEEbonds dedicate the state’s future federal tax funds todebt service, without guaranteeing that the federal

government will provide the expected financing,thereby introducing risk.

Virginia has taken advantage of another financingmechanism allowed by federal law, the creation of astate infrastructure bank. A state infrastructure bank is a revolving loan fund that can be used as a mech-anism to provide funding for transportation projectsthrough loans and credit enhancement. The purposeof the bank is to encourage the investment of privatefunds in the development of transportation projectsand to provide an alternative source of financing. Asa revolving loan fund, the bank’s capital grows as

loan repayments and interest charges are used tosupport a new cycle of projects. Virginia’s infrastruc-ture bank was created in 1995 as part of a federalpilot program, and made very few loans in its firstdecade. Its management, program guidelines, andselection criteria are overseen by the CommonwealthTransportation Board (CTB). As of June 2009,Virginia’s infrastructure bank had $36.5 million avail-able to lend to private partners in transportation proj-ects.26 This amount increased to $283 million withthe passage of the state’s 2012-2017 six-year trans-portation plan.27

PUBLIC PRIVATE PARTNERSHIPS

Virginia has also taken advantage of provisions infederal law allowing the state to partner with privateparties to construct transportation infrastructure. ThePublic Private Transportation Act (PPTA) of 1995encourages private sector investment in provision ofpublic services, particularly major capital-intensivemega-projects.28 This law sets the legislative frame-work allowing the state, regional, and local govern-ments to enter into contracting agreements withprivate parties to construct, improve, maintain, and

operate transportation facilities, including publictransit. It allows flexibility for the development offinancing methods, including user fees and servicepayment mechanisms, combining private financingwith public funds/financing and issuing debt, equity,or other financial securities. PPTA allows for projectsto be initiated by the state or by local governments orprivate parties.

Virginia’s current six-year investment plan includes$1.4 billion for public-private transportation projects,



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which are expected to leverage an additional $4billion in resources from the private sector.29 To date,only one of the fifteen or so projects financed usingthe PPTA is a non-highway project, Dulles Metrorail.The remainder are highway capacity expansions,although two of the projects include tolled expresslanes, Interstates 95 and 495. It remains to be seenwhether the PPTA will realize its potential to be asignificant source of financing for sustainable modes.

Role of Regional Government

In the transportation planning process, the

Metropolitan Planning Organization (MPO) is theprimary planning body at the regional level. Since1991, federal transportation law requires that urban-ized areas with populations of 50,000 or more peoplehave an MPO to coordinate short- and long-termtransportation planning. Each of the nation’s 384MPOs must produce a Long Range TransportationPlan (typically twenty years), and a regional project listfor funding, or six-year Transportation ImprovementPlan (TIP). Federal funds may not be disbursed for aproject unless it is included in both of these docu-ments. The MPO must ensure that the long rangeplan and TIP are in compliance with these federallaws: the region will have adequate funds to build theprojects listed in these two documents (financialconstraint), regional projects will collectively keep theregion in compliance with federal air quality stan-dards, and ensure that the projects will not havedisproportionately adverse impacts on low income orminority communities in adverse ways.

The key roles of the MPO are technical assistanceand coordination of decision-makers in the region topromote an integrated and multi-modal system.MPOs conduct a range of studies and analyses, such

as travel surveys, regional travel models, and travelforecasts, for decision support. MPOs do not exer-cise direct control over funding and do not implementprojects. In large urbanized areas, however, MPOshave authority over certain federal funds normallyprogrammed by the state, including CongestionMitigation and Air Quality (CMAQ) funds. Other fundsavailable for disbursement by MPOs vary by regionand are generally much smaller amounts, coming fromsources like state gas taxes, sales taxes, vehicle fees,and tolls.

The Washington, DC region’s MPO is theTransportation Planning Board (TPB). The region isthe seventh-largest metropolitan region in the U.S.with 5.3 million people and 3.2 million jobs.30 Asshown in Figure 5 (page 22) , it includes eight counties in two states, the federal capital district, andtwelve independent cities. The transportation networkin the TPB planning area includes 15,000 lane milesof highways, 106 miles of the Metro commuter raisystem, and 226 miles of regional passenger rail services. Most workers (73 percent) commute by drivingalone and 5 percent carpool, while about 18 percentake some form of public transit. It is a prosperous

diverse, and rapidly developing region that isexpected to grow by 1.5 million people (28%) and 1.2million jobs (37%) by 2040.31

The TPB was established by the region’s state andlocal governments in 1965 and became associatedwith the Metropolitan Washington Council oGovernments (COG) in 1966. It was later designatedas the region’s MPO by the governors of Marylandand Virginia, and the mayor of Washington, DC. TheTPB is an independent body that is housed andstaffed by the COG. It has twenty-two memberseach an appointed representative of local, state, andfederal governments, state transportation agenciesthe regional Washington Metropolitan Area TransiAuthority (WMATA), and local transit agencies. Theregion’s long range plan is for a twenty-five year timehorizon, and is called the Financially ConstrainedLong-range Transportation Plan (CLRP).The TPB isrequired to update the CLRP every four yearsincluding the financial plan.

The most recent long range plan for 2011-2040 proj-ects the region will generate $223 billion for transportation from public and private revenue sources, as

shown in Figure 6 (page 22). As can be seen, only 7percent ($16 billion) is expected from privatefinancing sources and tolls over this twenty-five yeatimeframe. The funds from Virginia are from statesources as detailed in the previous section; Marylandand Washington, DC have similar state sources. Anadditional boost comes from the federal PassengeRail Investment and Improvement Act of 2008, whichprovides an additional $3 billion ($1.5 billion federaand $1.5 billion state/local match) for WMATA’sfuture maintenance needs. However, this source is



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set to expire in 2020.

Figure 7 (page 23) shows how this money isproposed to be invested. The regional long-rangeplan commits about 70 percent of funding to theoperation and preservation of the existing system,while the remaining 30 percent would be for newtransit and road construction. The larger systemexpansion projects have generated much publicattention and discussion, including Dulles Metrorail,the Purple Line light rail connector in Maryland, tolllanes on I-95 and I-495, and new streetcar service inWashington, DC. In light of scarce transportation

funds, some major projects have already beenremoved from the CLRP, and the remainder will beprioritized according to a “fix it first” approach forroads and allowing the Metrorail system to keep pacewith demand. A recent financial analysis revealed theextent to which priorities have shifted in recent years.In 2006, highway expenditures formed 43 percent ofthe CLRP budget and WMATA expenditures 43percent, while in 2010 highways were 36 percentand WMATA 51 percent.32

The long-range plan for the National Capital Regionechoes the themes of the national transportationfunding debate, and the debate at the state level.Existing financing sources are considered inadequateto meet the expense of maintaining a large systemwhile also expanding to meet growing demand. TheTPB names identifying financing as one of the keyissues facing the region:

“The Financial Plan for the CLRP focuses on long-term trends. One trend that has been clear for mostof the last decade is some of the traditional revenuestreams that used to pay for construction, operationand maintenance of the region’s transportation

system have not kept pace with growing needs. […]One of the key issues that will need to be addressedin future plans is how to finance proposed facilitiesthat go beyond those included in this plan. Severalregional projects that have been proposed exceededthe financial constraints on the plan that are requiredby federal regulations. Depending on the specificmodal configuration and design chosen, the cost ofthese additional proposed projects could be morethan twice that of those included in this plan for imple-mentation. To construct many of these projects would

require billions of dollars, requiring the region to iden-tify major new sources of funding. This could meansubstantial increases in user fees, such as tolls, gastaxes and parking charges.”33

This last line points the way toward the new potentialsources of funding that have been identified by theTPB, and other state and federal agencies facing thesame political impasse on raising fuel taxes—increased reliance on user fees such as tolls, gastaxes, and parking charges. These are discussed inmore detail in the section on new revenue sources,below.

Role of Local Government

Local governments—cities, counties, and town-ships—own about 77 percent of all roadway miles inthe U.S.34 The majority of daily travel, including virtu-ally all bicycle and pedestrian trips, takes place onthese local streets and roads. This means localgovernments are very important players in the provi-sion of sustainable modes—public transit, bicycle,and walking facilities.

Transportation decisions at the local level are made byelected officials serving either on the County Boardor City or Town Council. City officials are also respon-sible for the local streets, public transit, and walkingand biking facilities within their corporate boundaries.County officials are responsible for the secondaryhighway system in their county, as well as all the localstreets and so forth in unincorporated urban areas.

Yet urban areas tend to be disadvantaged in terms oftransportation financing in most states, as mostrevenue sources are collected and controlled by thestate and federal government. Almost all states allo-

cate transportation funds to local governments bystatutory formulas and legislative appropriations. Thelevel of funding to respective local governments isusually based on factors like qualifying lane miles,population, and other criteria in the formula. Forinstance, local government assistance constitutedonly 7 percent of Virginia’s transportation expendi-tures in 2012, amounting to $380 million to be splitamong eighty-one cities and towns. These funds arecritical for localities to maintain, operate, and improvetheir arterial and collector roads and local streets, for



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instance to build new crosswalks and bike lanes. Themain source of revenue for local governments is theproperty tax, which must support the police, schoolsystem, and wastewater system in addition to thetransportation system. With limited state assistancefor local road improvements, many cities do not makebicycle and pedestrian improvements a priority. Yetthe bulk of daily travel, especially bicycle and pedes-trian travel, takes place on local roads. The lack offunding for sustainable modes presents a significantchallenge for local governments seeking to shift localtrips by car to bicycle, pedestrian, and public transit.

In several states, including Virginia, populous urbanareas have served as “donor regions” for highwaybuilding in more rural areas, contributing significantlymore in gas tax receipts than they receive in alloca-tions from the state highway fund or direct local trans-fers.35 However, there may be a shift underway.Virginia did not use the traditional funding formula in2012, and so even though it was still a small part ofthe budget, $380 million for local road assistancerepresented an increase of $15 million overFY2011.36

Some local governments benefit from local revenuesources, usually a local option sales tax earmarked fortransportation, but this is usually committed to publictransit. For instance, in Virginia, there is an additional2 percent tax on gasoline sales within the NorthernVirginia Transportation District. Local officials areoften reluctant to increase sales taxes for transporta-tion purposes, as they are not user fees, and regres-sive in terms of the burden on those who pay.

Potential New Revenue Sources forSustainable Modes

As discussed above, as traditional transportationsources have proven inadequate or politically impos-sible to change, there has been increased interest indebt, leveraging private source, and in increasing userfees such as tolls, gas taxes, and parking charges.Perhaps the greatest challenge in developing afinancing plan at the regional level is the existence ofmultiple governmental jurisdictions at multiple levels,each with its own tax base, tax structure, and taxpolicy. Most new sources that have been imple-mented are at either the state or local level, because

the MPO is strictly a planning body, lacking theauthority to levy taxes. Any effort to develop newrevenue sources requires substantial agreement andcooperation among the many players in the region, aswell as public support and political leadership at thestate level. There are also technical challenges tointroducing new methods of collecting fees, fromselecting the new technological systems to setting alegal and administrative framework to manage them

The Washington capital region’s long range plan(CLRP) names several potential new revenue sourceswhich could be implemented at the state or local level

or on a project basis. It points out that even if the stategas tax was increased, or indexed to inflationincreasing vehicle fuel efficiency would continue toerode revenues. Revenue sources linked to transportation system use, such as per-mile fees andcongestion charging, were preferred. Potential newtransportation revenue sources identified in the CLRPand beyond, some of which are already in use in theWashington capital region, are:

A per-mile (VMT) fee for road use, which could bedifferentiated according to vehicle engine size andweight;

Tolls, at a flat rate or differentiated according to timeof day (congestion charging);

Local option sales taxes;

Beneficiary charges implemented through landtaxes or special assessment districts: impact feesvalue capture, tax increment financing (TIF), jointdevelopment; and

Public-private partnerships and innovative

financing.

These shall each be discussed in turn.

A per-mile, or VMT, fee system charges drivers on aper-mile basis for road use, giving them direct feedback about travel choices leading to higher VMTSuch a system is already in use in Germany, wherecommercial trucks are charged €0.12 per kilometefor use of the national highway system.37 The TolCollect system was supported by the German



f"'a'c"' a"'abe +a'+a"'

trucking industry because it leveled the competitiveplaying field against trucks registered in neighboringcountries with lower registration fees and fuel taxes,like Poland and Hungary. Since its implementation in2005, “empty” haul trips have decreased by morethan 20 percent.38

A comprehensive VMT fee system has been success-fully piloted in Oregon, and was perceived by partic-ipants as fair and not a burden.39 The fee could bevaried by vehicle so that heavier vehicles like truckspay more, reflecting the greater wear and tear theyimpose on roads. A disadvantage to this system is

that it would require major investment in new tech-nology to collect the fee. In the Oregon pilot, the feewas collected when vehicles were fueling at speciallyequipped gas stations. Each participating vehiclecarried an on-board unit that could communicatewirelessly with the fuel pump to report vehicle milestravelled. Then the mileage fee charges were includedtogether on the same bill with the charges for fuel andfuel tax, and the drivers paid all at once.

Tolls and congestion charging are fees that areusually imposed for use of a particular facility, like aroad, bridge, or tunnel. When the fee is variedaccording to peak hours of travel, or to respond tolevels of congestion monitored in real time, then it isa congestion charge. As congestion increases, sodoes the fee to use the tolled facility, encouragingusers to delay their trip, find an alternate route, or useanother mode. There are already three projects in theCLRP that are partly financed by tolls or congestioncharges: the Intercounty Connector in Maryland, andexpress lanes on I-95 and I-495 in Virginia. Theexpress lanes are known as HOT lanes, or HighOccupancy/Toll lanes, because they are free for useby high occupancy vehicles (two or more passen-

gers), while those driving alone must pay the toll. Tollsare paid using on-board units purchased by driversand kept in their vehicles that are linked to paymentaccounts. Although these systems generate a reli-able revenue stream, there are significant set-upcosts, such as gantries over the highway to monitortraffic and to communicate the dynamically adjustedtoll rate to drivers.

Beneficiary fees seek to capture some of the valuecreated by a new transportation facility, such as a

road or transit station, to future users. Impact fees andspecial assessment districts are rooted in the ideathat new development should pay its own way. Theyare mechanisms by which fees are applied to adja-cent properties that benefit from transportationimprovements, usually along a street or throughout aneighborhood. Usually only local government has theauthority to implement them. For instance, ArlingtonCounty and Fairfax County both use impact fees oncommercial land to finance transportation infrastruc-ture needs. Commercial real estate pays a surchargeof $0.125 per $100 assessed value in Arlington, and$0.11 per $100 assessed value in Fairfax.40

Value capture and tax increment financing (TIF) areboth mechanisms linked to the property tax rates.Value capture adjusts land tax rates according to theproperty value added by publicly funded transporta-tion improvements. TIF is a mechanism that seeks toleverage future property values to finance projects inthe present, by freezing property taxes at a set leveland making property investment more profitable.These mechanisms have been in use in theWashington capital region for decades. For instance,Washington, DC used a value capture tax to financeexpansion of the Metrorail system by charging prop-erty owners within 2,500 feet of a station a higherproperty tax rate.41 It is likely that Fairfax County willadopt an impact fee to help finance transportationinfrastructure around the Silver Line’s Tysons Cornerstation.42

Washington Metrorail is the leading practitioner of joint development in the U.S. When a transit providerparticipates in the land development around a newtransit station by retaining ownership of thesurrounding land or selling air rights above the transitcorridor, it is called joint development. The Dulles

Silver Line includes several joint development proj-ects where rents will help to finance transit services.

Local option taxes are special taxes designated fortransportation purposes that can be applied toanything transportation or non-transportation related,such as fuel sales, general sales, property sales, orincome. These taxes require two steps to beapproved. First they must be specifically enabled bystate legislation, and then they must be approved byvoters on a ballot measure. Despite this high hurdle,



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this has proven a popular way to secure stablefinancing for transit systems in many U.S. cities.General sales taxes tend to have the highest yield. Inthe Washington capital region, there is a 2 percentsurcharge on fuel sales within the Northern VirginiaTransportation District.

Although just a few have been discussed in detail inthis Policy Report, there are many other potentialtransportation finance mechanisms being experi-mented with around the U.S., as most states andregions are facing similar challenges to theWashington, DC region. For more information, an

exhaustive list of financing mechanisms that are beingused by local governments was compiled by a non-profit organization that tracks such issues, the StateSmart Transportation Initiative.43



f"'a'c"' a"'abe +a'+a"'

Figure 1: VDOT 2012 Budget Revenue Sources (in millions) ($5.2 billion)

BHE: d, cB@@BAJG EAFCBEGG<BA fHA bHG, f<F E 2011-2012 (+<@BA, a: <E<A< dCEG@AG B EAFCBEGG<BA, 2011).

Figure 2: Sources of Transportation Revenues and Eligible Uses, 2012 ($5.2 billion)

BHE: d, cB@@BAJG EAFCBEGG<BA fHA bHG, f<F E 2011-2012 (+<@BA, a: <E<A< dCEG@AG B EAFCBEGG<BA, 2011).

State fuel tax,

$834

Other state

taxes, $1,283

Bonds, $1,272

Local Sources,

Tolls and Other,

$676

Federal funds,

$1,208

$0 $200 $400 $600 $800 $1,000 $1,200

Federal Highway Funds

Capital Project Revenue (CPR) Bonds

GARVEE Bonds

Retail Sales and Use Tax

Priority Transportaon Fund*

Motor Fuels Tax

Other (Interest, etc)Vehicle Sales and Use Tax

Vehicle License Tax

Federal Transit Funds

Local Sources and Tolls

Federal Rail Funds

Maintenance and Operaons Acquision and Construcon



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Figure 3: VDOT 2012 Budget Expenditures ($5.2 billion)

BHE: d, d aAAH bHG, f<F E 2011-2012 (+<@BA, a: <E<A< dCEG@AG B EAFCBEGG<BA, 2011).

Figure 4: Virginia DRPT Expenditures FY2012 ($481 million)

BHE: d+, aAAH bHG f<F E 2012 (+<@BA, a: dCEG@AG B +< A H< EAFCBEGG<BA, 2011).

Highway

Acquision and

Construcon

43%

Highway

Maintenance

and Operaons

28%

Mass Transit

Fund9%

Airport & Port

Trust Funds

1%

Local Govn't

Assistance

7%

Planning,

Research,

Environmental

Monitoring

1%Debt Service

6%

Administraon &

Other State

Agencies

5%

Rail Programs

23%

Administraon

1%

Planning, Regulaon,

and Safety Programs

2%Public

Transportaon

Programs67%

Rural Areas and

Paratransit Programs

2%

Commuter

Assistance Programs

3%

Dulles Corridor

Metrorail Project

2%







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f"'a'c"' eca'" "' e+a'

Local and regional public transportation servicesemploy about 120,000 people in Germany and trans-

port approximately 28 million passengers every day,i.e., about 10 billion passengers per year.44 Localand regional public transportation or transit is consid-ered any scheduled transport with less than 50kmitinerary or less than one hour total travel time.

Transit funding in Germany takes place at the federal,state, and municipal level. Many funding instrumentsexist, some covering a single mode, others relating tovarious modes. The total funding of transit serviceswas €28 billion in 2008.45 Of this, approximately€9 billion or a little more than a third came from directrevenue, such as user fees, advertising, and rentalrevenues. Other sources of funding include:

investment funding for road transit (state fundingfor investment)

investment funding for rail transit (state funding forinvestment)

tax breaks (no VAT on commissioned transit serv-ices, reduced VAT for all other)

public reimbursements (regional fare transfers,

special fares for students, disabled, and others)

contractual revenue road (revenue for commis-sioned services)

contractual revenue rail (revenue for commissionedservices)

As can be seen on the one hand, user fees do notcover the full costs of public transportation. On theother hand, users paid approximately €10 per 100km

in public transportation in 2010, much higher than theaverage of €6.50 per 100km paid for fuel by car

owners, not taking into consideration other costsrelated to car ownership.46

While fuel costs increased by 140 percent from 1991to 2011, transit ticket prices (in regional transit asso-ciations, or Verkehrsverbunden) rose by 120 percent,both much higher than average living expenses(approximately 45 percent).47 This implies that feesfor using public transportation cannot be increasedsignificantly in order to raise further revenue for infra-structure and operations. Other sources need to beexplored.

The following sections describe in more detail thevarious existing funding instruments at the federal,state, and municipal level, applied to the Stuttgartregion whenever possible.

Federal Funding for Transit

Rail passenger transportation for urban and regionaldistances is co-funded by the federal government.The 1993 law on regionalization(Regionalisierungsgesetz , RegG) entered into forcein 1996.48 Under the statutes of the law, the federal

government transfers funding to the German Länder (states), thus allowing them to order rail services fromrailway providers. The tax on liquid fuels for automo-biles provides the revenues for these streams offunding. Hence, road users are co-funding regionalrail.

The amount available under this law was set at€6.675 billion in 2008 and increases by 1.5 percentper year until 2015. The federal State of Baden-Württemberg has a share of 10.44 percent in this



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funding, i.e., roughly €740 million in 2012.49Currently, funding for the period after 2015 is beingnegotiated.50

The German states can contract for the desired railservices through either direct procurement or an opentendering process.51 The rail service operator thenreceives a set contract value, plus the fares paid byindividual riders. The fee structure for fares is part ofthe contract between the commissioning state andthe operator. The main contractor by far is DB Regio,a company that operates regional rail servicethroughout all of Germany

The second large pillar in federal transport infra-structure funding used to be the Law for the Financingof Municipal Transport Development (Gesetz über Finanzhilfen des Bundes zur Verbesserung der Verkehrsverhältnisse der Gemeinden orGemeindeverkehrsfinanzierungsgesetz , GVFG),which was in effect until 2007. Due to the so-calledfirst federalism reform in 2006, the law was changedinto the Law to Decentralize CommunalResponsibilities and Financial Aid (Gesetz zur Entflechtung von Gemeinschaftsaufgaben und Finanzhilfen or Entflechtungsgesetz , EntflechtG).52

The change in name kept most instruments intact anddid not affect the general purpose of the law: sepa-rating responsibilities of tasks, which were until thenaccomplished by the federal government and thestates in cooperation. This implies annual transfers of€1.336 billion from the federal government to thestates. Until 2013, this funding is earmarked for trans-portation investments only. After 2013, theearmarking is removed. The funding instrument is inplace until 2019. Discussions about federal fundingfor state and municipal transportation financing arestill ongoing.

The State of Baden-Württemberg has a right to 12.40percent of federal funding, i.e., roughly€166 million.53 This money is used mostly for railinfrastructure financing. Other sources of federalfunding are much smaller in volume, but can be signif-icant for the funding of specific investments or oper-ations.

Funding for railway infrastructure investments can besupported through the federal railway extension law

(Bundesschienenwegeausbaugesetz , BSWAG1993), of which a portion is made available for transifunding as well. For the years 2009 to 2013, a totaof €973 million of federal railway funding was seaside for various new transit projects and improvingexisting transit rail systems.54 Germany’s total fundingfor rail infrastructure investments (including funding astate level) was €430 million in 2008.

Furthermore, the federal government transfers reim-bursements to railway operators for transportingdisabled passengers at a reduced fare (section 148of the Social Security Bill, Sozialgesetzbuch). Overal

transfers to compensate for lost revenue (includingtransfers by states) were €2.17lion in 2008.55

Another component of indirect federal funding is theapplication of a reduced Value Added Tax (i.e., 7percent instead of 19 percent) for all regional andlocal transit fare sales.

Moreover, municipalities have the right to compensatelosses in one municipally-owned service provider withsurplus in others, such as compensating transiagency losses with gains from an energy providerThis summation across enterprises alleviates thepotential tax burden of the municipally-owned compa-nies and thus also represents an indirect federafunding. Total financing through this tax break mech-anism in Germany amounted to €2.78 billion in2008.56

State of Baden-Württemberg Funding forTransit

In 2010, transit providers in Baden-Württembergserved 1.174 billion passengers, of which approxi-mately 50 percent used the bus, 33 percent light railand 13 percent rail.57 Rail transit in Baden-

Württemberg is commissioned through two entitiesNahverkehrsgesellschaft Baden-Württemberg GmbH(NVBW) serving the entire state, and Verband RegionStuttgart serving the Stuttgart region. Overall, 309transit providers transported passengers in the state

The state of Baden-Württemberg’s transportationsystem expenditures amounted to approximately 1.77billion in the fiscal year 2011, corresponding toapproximately 5 percent of total state spending.58

Baden-Württemberg received approximately



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€1.112 billion for transportation from the federalgovernment, with the rest coming from non-trans-portation related state sources.59

Baden-Württemberg spent €1.181 billion60 onpublic transit services, approximately 68 percent of allstate transport spending. This total budget wascomprised of several categories, including:

€650.9 million transfers to operating costs ofmunicipal and regional rail transit,

€135 million infrastructure investments,

€2.8 million rolling stock investments,

€10 million transfers to investments and operatingcosts of bus transit,

Approximately €48 million to support regionaltransit associations (Verkehrsverbunden),

€36.8 million to compensate for free tickets fordisabled, and

€394 million to compensate for fare rebates tostudents.

The federal passenger transportation law(Personenbeförderungsgesetz , PBefG 1990) entitlestransit providers to receive a 50 percent compensa-tion paid by the states for foregone revenues due toreduced fares for students and apprentices. Stateshave the right to decide legislation amending theprocedure laid out in Section45a of the PBefG.61 In2010, the State of Baden-Württemberg transferred€224 million to transit providers to compensate forlost revenue of secondary cycle education students

and €170 million for school students.

Since school-busing is the exception in Germany,students riding public transit constitute a significantshare of the ridership. A continuing decrease in thenumber of students, thus, has direct implication forthe operation of transit in the peri-urban and ruralregions.

The region of Stuttgart, on the other hand, is expectedto grow in terms of population and economic activity

and hence will have an increasing potential ridershipof transit.

A total of twenty-two regional transit associationsexist in the State of Baden-Württemberg, eachensuring a uniform fare system within their area ofoperation. The Verkehrsverbund provides a harmo-nized transit schedule and a single ticket for all transitconnections (rail and bus). Riders can access infor-mation about the individual Verkehrsverbund and theirservices including connections on the portalhttp://www.3-loewen-takt.de/index.php.

The Verkehrsverbund Stuttgart (VVS), created on 1October 1978, covers the city of Stuttgart and thesurrounding municipalities Böblingen, Esslingen,Ludwigsburg, and the Rems-Murr-Kreis.62 Thiscorresponds to an area of more than 3,000 square kmcovering 2.4 million citizens and over 330 millionpassengers in 2010.63 In 2010, total operating costsof the VVS amounted to €627.1 million, whilerevenues from tickets, lease, and rentals equaled€363.2 million, resulting in a cost-recovery rate of57.9 percent. The remaining 42.1 percent arecovered by transfers from the state of Baden-Württemberg as well as the participating municipali-ties and transportation providers.Baden-Württemberg distributes €50 million annuallyto the twenty Verkehrsverbunden in the state througha performance-based system incentivizing measuresthat increase ridership or improve financial efficiency,where the best-performing regions receive a highershare of funds.64

City of Stuttgart Funding for Transit

The city of Stuttgart is most populated entity withinthe VVS and as such bears a significant share of the

financial burden. The fully city-owned StuttgarterStraßenbahnen AG (SSB) is the largest owner withinthe VVS and holds 26 percent of shares (the city ofStuttgart holds another 7 percent).65 SSB employed3,000 people, serviced seventy-one bus and light raillines, and provided 190 million passenger rides in2010.66 The city directly commissioned the transitservices to the SSB through in-house commissioning.

SSB operating revenues were €281.7 million in2010, while operating costs amounted to €300.2



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million. The total remaining operating funding gap was€18.5 daily use (36%), followed by commuting(33%) and student transit (27%). Senior citizen ridersrepresent 4 percent of fare revenues. In 2010, SSBinvested a gross amount of €106.5 million, but alsoreceived investment subsidies of €31.8 million. Morethan half of the investment went to rail maintenanceand extension.

The city of Stuttgart supported transit in 2010 withtransfers of €45.8 million, which includes transfers toSSB and other municipal transit operators.67 On theother hand, the city received compensatory payments

for transit services from the state and other munici-palities in the same order. The city transferred€0.5 million to VVS. As reporting duties vary betweenthe federal level, municipalities, Verkehrsverbunden,and transit providers, a fully transparent assessmentof transfers and funding is difficult.

Stuttgart’s spending on bicycle facilities was ratherlow compared to public transit. Investments and main-tenance of bicycle lanes by the city was budgeted at€1.2 million in 2010.68

ConclusionTransit funding in Germany depends on many sourcesat various levels of governance. While fare revenuescannot cover the full costs of services, the legalframework ensures coverage of all regions.

Wealthier and denser agglomerations fare better asthe funding gap is relatively small and can be bornemore easily by the state and municipality. As such,Stuttgart and its surrounding region are in a veryfavorable situation in terms of transit funding.

The multi-layered funding structure provides formultiple safety nets on the funding side: if the farerevenues decrease, then public entities can co-funda higher share; if the municipality is short on cash,then state or federal government can jump in. Thediverse funding instruments make it relatively difficultto measure the funding flows and assess the effi-ciency of the system. On the other hand, linking partof the funding to fuel taxation guarantees a stablefunding source.

It has been argued that funding instruments need tobe harmonized and simplified across the differenlevels of governance in order to foster transparencyand efficiency of transit service provisioning.69 WhileVerkehrsverbunden reduce competition among transiproviders, markets are sufficiently regulated andquality regularly monitored to ensure high levels ocost-recovery and service quality in most cases. Thecoming decades will see changing frame conditionsfor public transit in Germany: an ageing populationtighter public funds, and shifts in regional economicpower will challenge the quality and coverage in someregions. The Stuttgart region will be exposed to these

developments as well, but too a much lesser degreethan other areas in Germany.

Only the continuation and extension of federal fundingfor public transit can soften the regional disparity inavailable funding in Germany. Therefore, it is essential that core public transit services, both capitainvestments and operating costs, will be covered byfederal funding instruments. Quality and effectivenessperformance indicators may be suitable to allocatepart of the funding and thus encourage innovativeand cost-effective management practices.



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Figure 8: Sources of Revenue for Transit Services in Germany (billion €, total €24.61 billion)

BHE: +AP bBE@AA G ., 'HBEAHA E f<AAM<EHA F NAG<A EFBAAAIE>EF (bBAA: fE<E<-eEG-G<GHA, 2010).

direct revenue

37%

public

reimbursements

9%

tax breaks

11%investment

funding road

transit

7%

investment

funding rail transit

2%

contractual

revenue road

12%

contractual

revenue rail

22%



Washington: Metro’s Silver Line

BACKGROUND

The Washington Area Metro Authority (WMATA) is agovernment agency operating transit service in theWashington metropolitan area. The Washingtonmetropolitan area includes three jurisdictions: theDistrict of Columbia, (southern) Maryland, and(northern) Virginia. Within those three jurisdictions,WMATA provides rapid transit service under itsMetrorail brand, fixed-route bus service under itsMetrobus brand, and paratransit service under itsMetroAccess brand. The planned “Silver Line” projectis an extension of the rapid transit system (rail).

The Silver Line project will oversee the constructionof eleven new stations and a twenty-three mile exten-sion of the existing Metrorail system, operated byWMATA from East Falls Church to WashingtonDulles International Airport west to Ashburn.70 Theextension will serve Tysons Corner, as well as theReston and Herndon area, two of Virginia’s largestemployment centers. It will also provide a direct ridefrom Dulles International Airport to downtownWashington. All of the new stations built along SilverLine will be in the Virginia part of the Washingtonmetro area, seen on upper left in Figure 9 (page 37).

Construction of the Silver Line project is broken upinto two phases. Construction on Phase 1 hasalready begun, with a planned completion date ofMarch 2013. Phase 1 will include the four stations inTysons Corner, as well as the station at WeihleAvenue, located in Reston, Virginia (Fairfax County).Phase 2 will run from Weihle Avenue to Ashburn(seen as Route 772 on map), located in LoudounCounty, Virginia. The construction and completiondate has not yet been set for Phase 2.

The purpose of the Dulles Metrorail is to provide high-capacity transit service in the Dulles Corridor. New

Metrorail service in the corridor will not only result intravel time savings for commuters between the DullesCorridor and downtown DC, but additionally expandthe reach of the existing regional rail system, offer aviable alternative to automobile travel, and supporfuture transit development along the corridorFurthermore, the connection from Downtown DC toDulles Airport will connect more travelers into andout of DC who would otherwise have relied on RonaldReagan Washington National Airport. At the momentDulles Airport is seen as inconvenient by travelersbecause there is no way to get there unless by cartaxi, or a long bus ride.

FINANCING

The cost of the project has varied widely since firstproposed. The project’s official website continues tolist the cost at $5.25 billion,71 although theMetropolitan Washington Airports Authority (MWAA) just released a report estimating $5.6 billion,72 andthe Washington Post and Washington Examinereference the cost at $6 billion.73

The entities providing funding to the project are: the

federal government, the State of Virginia, FairfaxCounty, Loudoun County, and MWAA. The amount offunding that each entity was thought to becontributing to the project has fluctuated since incep-tion—namely, how much the federal government andMWAA were going to provide—but the biggescontributor was always going to be MWAA by meansof the Dulles toll road, which will account for morethan half of the total funding. The report just releasedby the MWAA Joint Finance and Dulles CorridorCommittee cites the following figures.

29

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30

Contributions by entity, based on a projected totalproject cost of $5.6 billion:

Fairfax County will contribute $900 million basedupon a fixed percentage of 16.1 percent of the totalcost of the project.

Loudoun County will contribute $269 million basedupon a fixed percentage of 4.8 percent of the totalcost.

Aviation funds from MWAA will contribute $229million based upon a fixed percentage of 4.1 percent.

The federal government will contribute $900 million(17.1 percent) based on a fixed amount from FTAgrant for Phase 1 of $900 million.

The State of Virginia will contribute $275 million(4.9 percent), based upon a fixed amount from non-toll road funding.

The Dulles Toll Road (DTR) will contribute theremaining amount, $3.02 billion (54 percent), whichis neither a fixed amount, nor a fixed percentage.

Funding from the DTR has been a source of dissatis-faction among motorists because of the steepincreases at toll roads planned for the next threeyears.74 The cost of the toll roads, which is currentlyat $2.25, would increase to $2.75 in 2013, $3.50 in2014, and $4.50 in 2015. Whether those rates willincrease from thereon remains unseen, but in anycase, the toll road will contribute the majority offunding to the project. Since the amount the DTR willcontribute is neither fixed as a percentage nor as anamount, it is plausible that it will need to contributeeven more if delays in construction occur.

The multi-pronged approach to funding the Silver Lineproject is interesting in virtue of how the DTR fits intothe plan. Namely, the heaviest burden of the project’sfunding is being placed on the entity that is perhapsthe least environmentally accommodating: motorists.Since one of the principal aims of the project is toencourage an alternative to automotive transporta-tion, it is perhaps fitting that this would be the case.And, since public transportation is almost inherentlymore eco-friendly than a system of individuals

motorists, it is only logical that cities establisharrangements in which the biggest polluters are theclass paying the biggest tax burdens, an idea that theEU is certainly no stranger to.

At the same time, the DTR’s dependence onmotorists for a majority of the project funding hasclear risks. Continually rising tolls for the DTR and alsothe tolls of a nearby feed-in toll road (the DullesGreenway) could result in fewer motorists using theDTR, partially reducing this source of funding andincreasing traffic on secondary roads. However, withfew public transportation alternatives for these

motorists and with strong population and employ-ment growth expected in the region, current trendsindicate that the expected funding will likely materi-alize. This approach also raises some questions offairness, which voters in Loudoun and Fairfax coun-ties are likely to address in the coming years.

San Francisco: Using Parking Fees forPublic Transit

BACKGROUND

The San Francisco Municipal Transportation Agency(SFMTA) is responsible for the public transportationsystems in the City and County of San Francisco.The SFMTA was created in 1999 by voter proposition(Proposition E), established as Article VIIIA of the SanFrancisco Charter.75 The citizens’ intent through theproposition was to rationalize the local public trans-portation options of the City and County of SanFrancisco by creating one authority responsible for allthe various transportation systems. In addition tooperating the bus, light rail, and cable car systems,the SFMTA oversees San Francisco’s MunicipalRailway (MUNI). When SFMTA was established in

1999, it also assumed responsibility for the city’sparking and street traffic systems—these are oper-ated as a sub-department of SFMTA as the SanFrancisco Department of Parking and Traffic. TheSFMTA’s responsibilities were expanded further in2009, when the city’s Taxicab Commission was alsosubsumed under the SFMTA with the passage ofProposition A in that year.76 The SFMTA also hasauthority over the bridges and roads leading into SanFrancisco; several of these are toll roads, theproceeds of which flow to the SFMTA. Beyond its



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unique and comprehensive structure, the SFMTAsystem is quite large, boasting the country’s thirdhighest ridership on a per capita basis: each day, over700,000 individual rides take place on the MUNIsystem and over 35,000 vehicles enter the City andCounty of San Francisco from outside theirborders.77

Since 1973, MUNI, which operated many of thesystems now under SFMTA itself, and subsequentlythe SFMTA have been tasked with a “transit-firstpolicy” approach to transportation. This emphasis hasmeant that non-automobile-oriented options and

planning take precedence as the SFMTA considers inwhich areas to make its capital investments and howhigh to set fees and charges for various items(including vehicle registration, car towing, parkingmeters, etc.). To this end, for example, Section8A.105(e) of the ordinance that established SFMTAdeclares that revenue accruing from parking meters,parking garages, and traffic fines will accrue to theMunicipal Transportation Fund.78 This holds true forthese other charges and fees as well. Among otherresponsibilities, the ordinance establishing theSFMTA gave control of city-owned parking garages,toll booths, etc. to SFMTA. With the addition ofresponsibility for taxis and the Taxi Commission, theSFMTA now has full authority to implement a compre-hensive transportation vision for the City and Countyof San Francisco focusing on the transportation andmovement of people, which includes but is neitherlimited to nor focused on the passenger vehicle. Asthe SFMTA is responsibility for all street traffic as well,this means that the SFMTA considers bicycle infra-structure, biking, sidewalks, and walking in its plan-ning, in addition to the various means of publictransportation that it offers.

FINANCING

As mentioned above, in addition to the fact that theSFMTA has responsibility for the operation of SanFrancisco’s various transportation systems and infra-structures—including streets, street parking, bridges,tunnels, and public parking garages—the proceedsfrom various auto-related fees and charges accruenot directly to the city and county’s general funds, butrather to the operating budget of the SFMTA.Therefore, in addition to the usage fees (farebox

revenue) paid by users of the SFMTA’s transit optionstolls from car drivers entering the city, as well as streeparking and parking garage fees, accrue to theSFMTA budget. Parking and other automobile-relatedfines, car towing fines, car registration fees, and otherautomotive charges (i.e., neighborhood parkingpermits) also provide portions of the SFMTA’s oper-ating revenue; in San Francisco, at least, the publichas chosen to use these charges and fees from automobiles to fund and promote transit and non-automobile transportation options in San Francisco.

The most recently available financial audit of the

SFMTA provides figures for the agency’s operatingbudget and the contribution of farebox revenue, feesand fines, as well as the contribution of street andgarage parking to the revenue of the SFMTA systemThe SFMTA’s budget revenues are displayed in Table2 (page 37).

When combining categories to assess proportionacontributions to the operating budget, fines, parkingfees, and vehicle towing made up 24.14 percent othe SFMTA’s revenues in 2000-09 and 28.51 percenin 2009-10. This slightly exceeds the contributionfrom farebox revenues. The public contributions toSFMTA—in the form of general fund support andgovernment grants and taxes—actually declined ovethis period from 44.36 percent to 33.54 percent othe SFMTA’s operating budget. These sources arederived, in part, from income taxes, as well as stateand local sales taxes. The decrease in general publicsupport for SFMTA was offset by larger proportionacontributions from parking fees, permits and finestowing, and farebox revenues. Those categoriestogether contributed $414 million out of the SFMTA’s$769 million budget.

The transit-first policy orientation of the SFMTA hasbeen merged with the financial support of automotivefines, charges, and fees, which enables the SFMTA tocarry out part of its mission without relying exclusivelyon taxes and farebox revenue.

Verkehrsverbund Stuttgart

BACKGROUND

In many German cities and regions, adjoining commu-



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nities had public transportation offerings and publictransit systems and operators that did not cooperatedirectly with one another. Systems had different vehi-cles, offered different services, did not link routes andtiming, and so on. This led to redundancies and inef-ficiencies. In order to streamline local public trans-portation service and to improve access to the servicefor riders, the Verkehrsverbund (VV) was created. Adirect translation is “transport association,” becauseeach Verkehrsverbund amalgamates the disparatelocal transportation providers under one company.They enable disparate local transit to share revenuesacross multiple transit operators within a region. For

this reason, the Verkehrsverbund is often called a“fare union.” In some cases, the Verkehrsverbund isalso a regional transit agency that serves as the oper-ator of longer-distance services that span the region.

A Verkehrsverbund is a public entity, often organizedin the legal form of the Gesellschaft mit beschränkter Haftung (GmbH), which roughly equates to limitedliability companies in the U.S., with legal responsibilityfor organizing and delivering public transportationservices to the citizens of a region. Hamburg estab-lished the first Verkehrsverbund in 1965. As a regionalentity, a Verkehrsverbund is responsible for coordi-nating all aspects of transit operations and ticketingamong the local transit operators in the region, fromfare structures to route design and the timing of trans-fers.

The Verkehrsverbund Stuttgart (VVS), established in1978, is one of twenty-two VVs in the state of Baden-Württemberg. It covers the Stuttgart region by organ-izing a uniform set of fares and tickets for usage of thebus, streetcar, and regional rail systems. The VVSalso produces an overlapping and comprehensiveoperational schedule for the system’s offerings,

provides information for riders about the variousschedules and the projected frequency of each line,and also ensures that connections between lines andmodes of transportation are rationalized in order tosimplify transfers between them.

FINANCING

In Germany, as in the United States, all of the capitalcosts and those operations and maintenance costsnot covered through farebox recovery are provided

through public funding. The public funds for localpublic transportation come from some combination ofthe state (e.g., Baden-Württemberg), the region, andthe localities served by the system. The federalgovernment (Bund ) also provides funding for publictransportation.

Through the Verkehsverbund, fares are pooled andredistributed among local operators to cover theoperations and maintenance budget of the regionalsystem as a whole. Since the VV is charged withproviding reliable service to as many people in theregion as possible, it serves to rationalize decision-

making and maximize service options based on allavailable funds in the region. Research has shownthat VVs have been more successful than individuallocal transit providers in attracting new riders,increasing revenue per passenger, and improvingcost-effectiveness.79 For instance, during the period1990-2007, VVS increased the number of annualtransit trips in the region by 40 percent, and fareboxrevenue per passenger increased by 30 percent.80

The rates of farebox recovery for local public trans-portation systems in Germany tend to be significantlyhigher than in the U.S. In 2007, German systemsaveraged a farebox recovery of 77 percent, whileAmerican systems averaged 33 percent.81 For theoperating years of 2010 and 2011, the VVS had theoperating costs and farebox revenues as displayed inTable 3 (page 38) . The farebox recovery rate is lowerthan the German average, but is on an upward trend,increasing slightly from 2010 to 2011, and nearing 60percent.

Stuttgart’s S1 S-Bahn Extension

BACKGROUND

The S-Bahn in Stuttgart is a regional train network connecting the city of Stuttgart, the Stuttgart airport,and surrounding communities. The entire S-Bahnnetwork in Stuttgart is 266km in length and has anannual average ridership of over 360,000 people perday.

In the past decade, the S-Bahn has completed twonetwork extensions (to the S4 and S1 lines) and is inthe process of creating a new line, the S60. Both of



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the (nearly) completed projects and also the prospec-tive extension to the S60 line have been financedsolely with public funds. As with the funding neces-sary for the construction of the Silver Line in theWashington, DC area, acquiring the needed funds forthe S-Bahn construction projects required the contri-butions of state and local governments, as well as theimplementing authority.

FINANCING

The S4 line extension from Marbach to Backnang is14 km and was completed in late 2012. This exten-

sion added five stops to the S4 line. The estimatedcapital investment costs of building the extension are€11 million ($14 million),82 which was split betweenthe federal state of Baden-Württemberg (€6.5million/$8.3 million), the Verband Region Stuttgart(€3.10 million/$3.95 million), which operates the S-Bahn system, and the communities of Ludwigsburg(€550,000/$701,000) and Rems-Murr(€830,000/$1.06 million), where the new stationsare located.

The Verband Region Stuttgart also led the expansionof the S1 line. This extension was 13 km andextended the line from Plochingen to Kirchheim. Thetotal planning and construction costs were €32.5million ($41.4 million). In addition to the line extension,these costs also included the construction of fiveoverpasses. After a series of false starts and longnegotiation (the first discussions of extending the linebegan over thirty years ago), a group of public part-ners were able to agree on the division of financialcontributions in order to complete the project. In thefinal agreement, the S1 extension received financialsupport from local communities, the region, andBaden-Württemberg. The total cost of €32.5 million

was divvied up as follows: fifteen of the communitiesserved by the line contributed €7.78 million ($9.92million); the Verband Region Stuttgart €12.29 million($15.67 million); and Baden-Württemberg €16.4million ($20.9 million). To finalize the agreement, theVerband Region Stuttgart also agreed to assumeadditional project risk (in the event of cost overruns,etc.).83 The S1 extension was completed in 2009.

car2go Car-Sharing

BACKGROUND

In 2008, Daimler AG began a subsidiary in Europeand North America called car2go, launching its firsfleet in Ulm, Germany. Car2go is a car-sharingprogram that enables paying members to rent cars ona per-minute basis. Car-sharing offers customersaccess to automobiles and other motor vehicleswithout having to own the car itself. While similar insome respects to renting a car, car-sharing attemptsto provide mobility options to drivers in their neigh-

borhood and throughout a city or region. Cities haveembraced car-sharing programs as a way to expandthe mobility options for citizens. Car-sharingaugments the existing transit system by providingaccess to automotive transportation, while potentiallyreducing car ownership overall.

The first car-sharing programs, and still the mostestablished, in Europe and the United States utilize amodel where members can choose from a variety ocars that can be rented on a short-term (usually hourlyor daily) basis. Rentals are all-inclusive with the usagefee, insurance, parking, gas, and maintenanceincluded in one price based on the time of useHowever, this model requires drivers to make a roundtrip, as each vehicle “lives” in a particular parking spotto which the driver must return it when the rental isover.

The car2go car sharing model is different in tworespects: it offers only one type of car, the SmartFortwo, and one-directional rental, where cars do nohave to be returned to the point of rental. Cars maybe parked throughout a city or region, and memberslocate them using a web-based, geo-positioning too

on the car2go website and also via smartphone appli-cation. They offer customers options of flexibility thaposition-based car-sharing systems do not haveCar2go aims its service primarily at those who are noplanning trips well in advance—usually customersutilize the on-demand rental option by simply findingan available car and renting it on the spot.

Daimler followed up its initial pilot phase in Ulm withcar-sharing programs throughout Europe and NorthAmerica, including active fleets in both the



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Washington, DC metro area and in Stuttgart. Berlin,Germany, boasts car2go’s largest fleet with nearly1,200 cars. The Stuttgart system began with 300automobiles.

In Stuttgart, car2go launched an all-electric vehicleversion of the car-sharing system at the end ofNovember 2012.84 The city is promoting electricvehicles in general; for instance, by the end of 2012,190 of 250 planned charging stations wereinstalled.85 EnBW, the electric utility in Stuttgart, isinstalling the charging stations—eventually there willbe 500 stations in and around Stuttgart, for use by

car2go and privately owned electric vehicles.86 Oneof the outstanding challenges is determining the feestructure for car2go and private electric vehicles forusing the charging stations. Stuttgart has establishedan exemption from parking fees for electric vehiclesparking in the city center. This exemption was madepossible by a grant from the state of Baden-Württemberg, which provided the funding (€ 2.4million) as part of its ongoing support for electric vehi-cles in the state.87

FINANCING

Upfront Capital Costs

To date, car2go has been financed and operated asa completely private venture (the first exception tothis is actually the program in Stuttgart, where theelectric vehicle infrastructure and the parking agree-ment have entailed explicit or implicit public support).Both in Washington, DC and in Stuttgart—and in allother cities where car2go operates—members pay aone-time membership fee. After that, the hourly anddaily usage fees are designed to cover the costs ofoperation (gasoline, parking, maintenance, insurance,

etc.). Without indicating when the company expectsto break even on the car2go system, the company hasstated that car2go was launched as a businessventure and must eventually become profitable inorder to continue to exist.88 Moreover, with the launchof the first all-electric fleet in Stuttgart in November2012, Daimler AG indicated that it has ambitions tooffer the car2go service in over fifty cities by 2015.89

In the case of Washington, DC, car2go NorthAmerica, LLC (the official name of the Daimler North

America Corporation subsidiary), the companyprovided the 300 Smart Fortwos. Based on thewholesale price of the Smart Fortwo Passion Coupe($13,661), the model used in the DC car2go system,adding in approximately $1,000 per vehicle for ship-ping, insurance, and import duties, the authors arriveat the estimate of $4.4 million for the capital invest-ment of starting the program.90 In addition to thiscapital outlay, car2go in Washington, DC had toagree to an arrangement with the city’s governmentto enable customers to park the vehicles in any legalspot—excluding rush hour and street-cleaning restric-tions—at any time without having to pay directly for

parking. According to publicly available records,car2go go paid the DC Department of Transportationa total of $793,300 in 2012 for parking rights onpublic streets, including parking tickets accrued bycar2go vehicles in the course of the year.91 Thisamount represents a cost of $2,890 per vehicle. Forthe first year of operation in DC, 2012, assuming thatuser fees cover operating costs, including fuel, insur-ance, and maintenance, we estimate that car2goinvested an estimated $5.1 million in order to launchthe system.

The European car2go subsidiary certainly entailed ahigher per-vehicle expense to launch Stuttgart’s newall-electric vehicle fleet; however there are other costssavings, as mentioned above. Stuttgart has partneredwith the state of Baden-Württemberg, which iscovering the costs of installing charging station infra-structure and waiving parking fees for electric vehi-cles in the city center; the exemption is slated to lastthrough 2014.92

Daimler’s continued plans for expansion of car2goover the next several years, despite the significantcapital outlays to launch the program in each city,

support the company’s claim that Daimler viewscar2go as a viable business endeavor that is alreadyor will soon contribute to its bottom line.

Capital Bikeshare

BACKGROUND

Capital Bikeshare is the name of a regional bike-sharing program in Washington, DC and severalsurrounding communities, including Arlington and



Alexandria, VA. The Capital Bikeshare systemconsists of over 175 stations where users can findand park system bicycles, and over 1,670 bicycles.93

The bike stations and the bikes themselves are ownedby the local governments that support the program,while the operation of the Capital Bikeshare systemis contracted to an outside vendor in a public-privatepartnership. The operating company is Alta BicycleShare, which operates bike-sharing systems in othercities including: Melbourne, Australia; Chattanooga,Tennessee; Boston, Massachusetts; and (recentlyannounced) Portland, Oregon.94

Capital Bikeshare was started in September 2010and replaced a previous bike-sharing system inWashington, DC called SmartBike DC. The CapitalBikeshare system is based on a docking stationmodel akin to other bike-sharing programs in Paris,France, and Montreal, Canada. Users can pick upbikes from any docking station where a bike is avail-able—the location and number of bikes available ateach station can be found on the Capital Bikesharewebsite and smartphone application, which displaysdynamic tracking of the number of bikes at eachstation on a GPS-based map.

Use of Capital Bikeshare bicycles requires joining thesystem as a member, with an account tied to a creditcard. Membership options were designed for bothtourists and residents of the area. Regardless of themembership option selected by a user, the first thirtyminutes of each trip with a bicycle is included in themembership fee. Usage fees for each trip differ basedon the length of use and the type of membership thatthe user has.

Capital Bikeshare memberships and ridership haveincreased steadily since its launch: Figures 10 and 11

(page 40) display the membership and ridershipdynamics of the Capital Bikeshare system fromOctober 2011 through September 2012. It can beseen that in just two years, membership jumped from17,802 annual members and 99,442 distinct 24-hourmemberships to 28,341 and 209,235 memberships,respectively.95 Looking at ridership dynamics, inOctober 2011, there were 123,497 trips system-wide, and by September 2012, a peak of 218,843trips.96 Membership dynamics were similar: we reportannual and 24-hour memberships over the same

three data points.

FINANCING

Upfront Capital Costs

The initial investment costs for starting the CapitaBikeshare system in each of the four jurisdictionswhere it is in operation were covered by a mix ofederal and local public investment. The costs of thedocking stations differ by size. Using the advertisedcost of sponsoring a station in Alexandria as a base-line, the docking stations range in cost from $40,209

for the installation and equipment for an 11-dockstation with 6 bikes; a 27-dock station with 14 bikescosts $72,687.97 Total governmental funding for thecapital costs of Capital Bikeshare, divided by jurisdiction is estimated to total, to date, $10.3 million inWashington, DC; $3.1 million in Montgomery CountyMaryland; $1.9 million in Arlington, Virginia; and$600,000 in Alexandria, Virginia.98 The estimatedcost of each bicycle is approximately $1,000; basedon this figure, the cost of the system’s bicycles isapproximately $1.6 million. Estimates for other capitaexpenditures are not available at present.

As the system has expanded, it is possible to repormore specific capital cost figures for the programThe extension of bike-sharing into MontgomeryCounty, Maryland, which borders Washington, DC tothe north, with 350 bicycles and 50 docking stationsis estimated to cost $2.15 million.99 A grant of $1million from the State of Maryland would cover 30 othe stations, which works out to an average cost ofover $33,000 per station. A transportation impact taxfor new business development in MontgomeryCounty would help offset some of the shortfall incapital costs.

OPERATION AND MAINTENANCE COSTS

The user fees, collected from short-term rentals andannual memberships, are the source of revenuedesigned to cover the costs of operation and main-tenance (O&M). One method of assessing the financial sustainability of a transit offering is to assess“farebox recovery,” which is the ratio of operating andmaintenance costs versus direct income from usefees (for example, bus fares). An analysis of Capita

35

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Bikeshare’s initial farebox recovery revealed an excep-tionally high degree of cost recovery. From the launchof the system in September 2010 through April 2012,Capital Bikeshare reported O&M costs of $2.54million, while income from user fees and othersources totaled $2.47 million.100 This works out to afarebox recovery ratio of 97 percent. Based on datamade available by Capital Bikeshare, steadilyincreasing numbers of one-time and annual usersimply that recovery rates should remain robust. Aportion of the yearly revenues come from advertise-ments on the bike stations, which are paid for by busi-nesses. These arrangements run from the “adoption”

of an 11-bike station for $10,000 a year up to the$72,000 “sponsorship” for the cost of a 27-dock station, plus maintenance costs running up to $3,450per year. Sponsorship also nets the supportingcompany fifty free memberships.101

As the system expands to Montgomery County andAlexandria, operational costs could increase, partlydue to increased costs of “re-balancing,” or trans-porting bikes between stations in order to maintainsimilar levels of bike availability. High farebox recoveryand relatively low capital costs have made CapitalBikeshare a low-cost option for increasing mobilityoptions and improving access to bicycles in an urbanarea.



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Figure 9: Dulles Corridor Metrorail Project

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Table 2: SFMTA Operating Budget and Sources of Revenue in Dollars

Revenue Categories FY 2008-2009 Original Budget

(% of total revenues)

FY 2009-2010 Amended

Budget (% of total revenues)

Farebox Revenues $157,248,618 (20.05%) $195,163,421 (25.39%)

Permits, Fees, and Fines $112,133,142 (14.30%) $129,775,643 (16.88%)

Parking and Rents $70,238,800 (8.96%) $81,547,830 (10.61%)

General Fund Support $195,715,000 (24.96%) $178,300,000 (23.20%)

Recoveries, Fund Balance $89,777,476 (11.45%) $96,520,910 (12.56%)

Government Grants and Taxes $152,081,480 (19.40%) $79,467,287 (10.34%)

Vehicle Towing and Other $6,902,570 (0.88%) $7,817,111 (1.02%)

Total Revenues 784,097,086 768,592,202

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Table 3: Yearly Operating Costs, Revenue, and Farebox Recovery of the VVS (2010 and 2011)

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Table 4: car2go Rental Rates and Fee Structure in Washington, DC

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2010 2011

Operating costs (in million €) 630.2 638.9

Service revenue (in million €)

363.2 376.3

Farebox recovery rate 56.7% 58.9%

Membership fee (one time) $35.00

Per minute charge during a rental $0.38

Per hour rental maximum charge $13.99

Per day maximum charge $72.99

Per mile charge after 150 miles per rental $0.45

Table 5: car2go Rental Rates and Fee Structure in Stuttgart

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Membership fee (one time) € 9.90

Per minute charge during a rental while driving the car € 0.29 (€ 0.09 per minute is charged, when the rentalincludes a duration where the driver has parked thecar, retaining the rental)

Per hour rental maximum charge while driving the car € 12.90 (€ 5.40 per hour is charged, when the rentalincludes a duration where the driver has parked thecar, retaining the rental)

Per day maximum charge € 39.00



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Table 6: Capital Bikeshare Membership Fees (as of November 2012)

Type of Membership Membership Fee

One day (24 hours) $ 7.00

3 days $ 15.00

30 days $ 25.00

Annual membership $ 75.00

Annual membership with monthly installments $ 84.00 (twelve payments of $ 7.00)BHE: cC<G b<>FEXF JF<G, GGC://JJJ.C<G<>FE.B@/B@

Table 7: Capital Bikeshare Usage Fees

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Total Hourly Fee for the Trip

Duration of Trip (in minutes) One Day and Three Day

Members

All Other Members

Under 30 (up to 29:59 minutes) Included Included

30:00 – 59:59 $ 2.00 $ 1.50

60:00 – 89:59 $ 6.00 $ 4.50

90:00 – 119:59 $ 14.00 $ 10.50

For all additional increments of 30minutes

+$ 8.00 per 30 minute increment $ 6.00 per 30 minute increment

Maximum daily charge $ 94.00 $ 70.50



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Figure 10: Capital Bikeshare Membership Data

BHE: G cC<G b<>FE LFG@ dG dFBE (2012), GGC://<FBE.BG..BI/cb<dFBE/.

Figure 11: Capital Bikeshare Ridership Data

BHE: G cC<G b<>FE LFG@ dG dFBE (2012), GGC://<FBE.BG..BI/cb<dFBE/.

-

50,000

100,000

150,000

200,000

250,000

Monthly Trips

-

50,000

100,000

150,000

200,000

250,00024 Hour

Annual

3 Day

30 Day



This comparison of public transportation funding inthe U.S. and Germany revealed systemic differences

that are rooted partly in historic developments, butpartly also in more recent decisions.

A key historic difference is to be found in governance,i.e., in the different relations between the federalgovernment, the states, and the municipalities. Whileboth the U.S. and Germany are federal by design, theauthority of the federal government reaches muchfurther into the state level in Germany. The approachto federalism in the U.S. is to provide guidelines, butdelegate most decision-making to state legislatures.Another historic difference is that Germany’s regionalgovernments are more empowered than those in theU.S. As a consequence, there is greater harmoniza-tion across German states and regions, both in thelevel of transportation services provided, and in thecoordination of service quality.

In the U.S., a weak federal role encourages greaterflexibility and subsidiarity, improving prospects formany competitive states, while in Germany, a higherlevel of federal influence is mirrored by a higher levelof fiscal obligation of the federal government towardits states. The German system of redistributing taxesto fund public transportation also reflects the idea of

the German Sozialstaat or welfare state system,where transfers reduce inequality and ensure acommon standard of living. This inadvertently takesresources and flexibility from states (and municipali-ties) and discourages competition between regions.On the other hand, it ensures minimum service levelsthroughout the entire territory. By contrast, in the U.S.there is great variation in transit service at the localand regional level, depending upon the publicresources and political will of each area. Arguably, thecoverage and service quality of public transportation

are superior in most German municipalities comparedto the U.S.

Another key historic difference between these twonations is the approach to land-use (spatial) plan-ning. This topic was discussed at length in acompanion report to this one that was published byAICGS in 2013, “Transportation and Land-UsePlanning in Germany and the U.S.: Lessons from theStuttgart and Washington, DC Regions.” Germany’ssystem of spatial planning helps to explain why itstransit systems are able to operate much more effi-ciently than those in the U.S. In the German systemland-use decisions are carefully coordinated withtransit investments, to ensure that the populationdensity can support efficient levels of serviceGerman regions have traditionally clustered development more closely together metropolitan regions inthe U.S. From a financing perspective, while U.Smunicipalities often compete for new developmenby offering corporate tax breaks, an issue known as“fiscal zoning,” this issue has been addressed by thefederal government in Germany, where municipalitiesare regulated as to the amount they can raised orlower their corporate taxes.

There are also strong differences between trans-

portation institutions in the U.S. and Germany. In theU.S., while the main transportation funding source isfederal, the majority of decision-making is at the statelevel. State transportation agencies control the vastmajority of investment into the transportation systemtending to favor the highway system over publictransit services. In Germany, transport investmendecision-making is spread across all levels of government. A federal agency is responsible for planningbuilding, and maintaining the interstate highwaysystem (Autobahnen). Municipalities and regions

41

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have greater authority and far larger budgets for plan-ning, building, and maintaining urban and regionaltransport systems, and tend to invest most heavily inpublic transit services.

Other differences are rooted in political decision-making, rather than historic and institutional context.The major share of funding for sustainable modes,particularly public transportation, comes from themunicipal level in the U.S.; in Germany, it comes fromthe federal government. This difference in fundingapproaches implies different incentives to adopt noveland innovative funding instruments. While our case

studies show a number of examples from both coun-tries, only one example from Germany involves privatefunding (car2go in Stuttgart), while all other Germanexamples are purely publicly financed. In the U.S., onthe other hand, our examples show a trend toward amuch greater degree of private funding.

The relevant findings of the case studies for policy-makers are:

Germany offers a model of pure public financingthat ensures a common level and quality of servicethroughout urbanized regions. An extension ofStuttgart’s regional rail system (S-Bahn S1 line) wasused to illustrate how pooling resources from thefederal, state, regional, and local levels adjoining theline can be a fair and efficient means of providingfunding for public transport infrastructure invest-ments. This example reflects Germany’s highercommitment to and prioritization of investments intransit. The state of Baden-Württemburg spent 37percent of its transportation budget on public transitin FY2011, compared to 8 percent by the state ofVirginia. In addition, Virginia is increasingly seeking tofinance its highway-oriented transportation system

with debt and sales taxes that shift the burden ofhighway building onto non-drivers, a policy which isboth regressive and not environmentally sustainable.

In the U.S., financing public transit investmentsmore often involves the private sector. Mostcommonly, public investment is used to leverageprivate investment in the form of land developmentaround stations. The Washington capital region’sSilver Line was used as an example of two innovativefinancing mechanisms that are being used to finance

the transit line extension: road tolls and value capture.Tolls paid by drivers using the Dulles Toll Road arefinancing a large portion of the Silver Line projectcost, thus simultaneously serving as a disincentive todriving and a financing mechanism for transit. Localmunicipalities are financing their contributions to theSilver Line with value capture policies where busi-nesses near the stations pay a higher tax rate.

Parking and registration fees are another way inwhich revenues collected from drivers are increas-ingly being used to cross-subsidize public transit. Inthe Washington capital region, car2go DC has made

lump-sum payments to local municipalities for parkingrights. The example of San Francisco, California wasused to illustrate the largest-scale example of thistype, the Transit First policy by which all parkingrevenues are dedicated to the city’s transit system.

Germany’s regional transportation associations, orVerkehrsverbunden, show how disparate local transitproviders have formed organizations to enablesharing revenues across multiple transit operatorswithin a region. For this reason, the Verkehrsverbundis often called a “fare union.” In some cases, theVerkehrsverbund is also a regional transit agency,operating transit services that span the region.Allowing customers to switch between different serv-ices seamlessly with harmonized schedules and asingle ticket can increase overall revenue and improvecost-recovery. Stuttgart’s Verkehrsverbund (VVS)was discussed as an example of how the region’stransit services have become more efficient, costeffective, and customer-service oriented since it wasformed in 1978.

Public private partnerships (PPPs) are an innova-tive financing model being used in both countries.

PPPs generally take the form of a legal contractbetween the public and private entities that sets aframework specifying the roles, responsibilities, andfinancial contribution of each, but can also be a coop-eration without a binding contract. The Washingtoncapital region’s Capital Bikeshare is a traditional PPP,where public funding has covered up-front capitalcosts to build the system, and it is operated by aprivate company on a break-even basis.

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In Stuttgart, the car2go car-sharing service illus-trates a less formal cooperation between the city andDaimler AG that is similar to a PPP. In this case,public funds have been used to support the launch ofcar2go as an all-electric vehicle fleet. Bike-sharingand car-sharing both function as complementaryservices to the public transit system.

These findings point the way forward to furtherresearch and policy action. A few additional ideasemerged during the discussion at the meeting inStuttgart where this Policy Report was presented indraft form, which the authors did not develop in detail,

but would like to mention. A significant differencebetween the U.S. and Germany lies in the approachto transporting students. While in the U.S., dedicatedschool busing for students became a de facto stan-dard after desegregation busing in the 1970s and1980s, German students rely on common publictransportation options to reach their schools. Schoolbuses use scarce capital in an inefficient way as theyidle most of the day and year, and as they can only beused for a sole purpose. In Germany, both federaland state governments heavily subsidize the transportof students with annual transit passes. Thus, transitproviders can count on a stable base revenue source,which is especially vital in rural areas, where studentridership forms a higher share of transit use. If busingwere discontinued, those funds could go into the localtransit system and would thus benefit non-studentriders as well. This leveraging could trigger additionaltransport services in terms of higher service frequen-cies or new lines, and so create a virtuous cyclewhere more riders are attracted, more revenuesgenerated, and greater system efficiency achieved.

Our comparison thus closes with an outlook to furtherresearch and address the challenges faced in

financing for public transportation in both countries.Improving the respective financing systems is crucialfor supporting dynamic and efficient societies in thetwenty-first century.

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Documents

AICGS PR54 Financing Sustainable Transportation