Alphabet soup? An update on transit finance

By Mary Ebeling

Across modes, the funding paradigm for transportation projects is shifting. As Congress exhibits a lack of appetite for addressing the impending crisis in the gas tax funding model, states and local governments are developing new ways to assemble financing packages for needed infrastructure projects. New strategies often combine previously underutilized local and state sources while tapping the private sector and federal grants to assemble full funding packages.

SSTI recently discussed the use of P3s and availability payments as an innovative transit funding model. These financing strategies remain just one alternative for funding a complex, capital-intensive transit project. Transit agencies typically must combine multiple financing strategies to complete large construction projects. Two financing mechanisms, TIFIA and RIFF, offer federal loan assistance and make additional private sector partnerships possible in large infrastructure projects. These programs provide loans that a transit agency repays over time, typically 30 years.

Value capture in the form of Tax Increment Financing to pay these loans shows promise as a revenue source for these types of financing packages. By using the increased property tax revenues captured through TIF, Denver hopes to pay down its debt from the construction of a transit hub at a rehabilitated Union Station. Denver’s revenue from increased property taxes on the 40-acre project area is coming in much higher than expected. The city currently expects to have the loans paid eight to 10 years earlier than expected. This early payment will save the city significant money on the debt service for these loans.

As demand for rail and other multi-modal alternatives grows, we will see increasingly creative funding packages for transit capital projects.  Other cities and states have taken note of Denver’s success. For example, San Francisco is moving forward with a $1.9 billion transit center using TIFIA. The Orlando – Miami rail line has tapped the RIFF program.

Mary Ebeling is a Transportation Policy Analyst at SSTI.