This study examines the extent to which states have devolved one of the most fundamental decisions in transportation policy--whether to use taxation powers to fund transportation improvements--to local and regional governments. The purpose of the study is to generate a baseline of knowledge on "local option transportation taxes" in all fifty states. We have examined the laws that states have used to authorize these taxes, the extent to which local areas have adopted them, and how the revenues are used and governed.
This is not a study of local transportation finance in general. Local governments use a wide range of revenue sources and mechanisms that were not considered in this research, including general revenues, dedicated tax streams passed down from the state governments, and tolls. We also did not systematically examine the local issuance of bonds, except where it was associated with an identifiable local tax.
What is a local option transportation tax? In the face of complex real-world taxation systems, we developed an imperfect but straightforward definition: a tax that varies within a state, with revenues controlled at the local or regional level, and earmarked for transportation-related purposes. This broad definition includes taxes regardless of how they were established, as long as they are not uniform statewide, and do not fund state programs.[1] There is wide diversity in how local option transportation taxes are constructed, implemented, and used around the country. Typically, however, these are time-limited taxes that are approved by the voters and earmarked for a specific set of projects.
Understanding the legal and political landscape for local option taxes is important if we wish to know what directions future transportation finance is likely to take. The share of transportation funds raised by local option taxes remains small, but has been growing. However, the significance of these revenues far outshines their scale. The decision to increase taxes for any purpose is always a difficult one, and is rarely done lightly. In transportation, it tends to occur when the public believes there is a pressing local need that cannot be met with existing resources. Local option taxes are often the levers by which communities ensure that major projects get built, and yet their adoption and implementation typically occurs outside the traditional metropolitan planning process.
Local option transportation taxes have been adopted in one form or another in at least 46 states. Their growing popularity suggests that the public's appetite for new transportation facilities and services continues to outpace the ability of state and federal governments to deliver them. These taxes have been propelled by a wide range of factors.
In many areas of public policy, devolution has led to a more substantial role for local governments than ever before. Yet few local governments have the freedom to set their own revenue and taxation policies: most must operate within narrow tax policy frameworks established by their states. Furthermore, voters in most states have enacted property tax rate limits or revenue rollbacks, or mandated voter approval for local tax increases (Mullins and Cox 1995; Mackey 1997). In general, local governments have responded to these fiscal pressures by seeking to exploit all politically and legally feasible revenue options and competing with other jurisdictions to expand their tax bases.
Local option taxes are one avenue that state governments have created to relieve these pressures. There is wide diversity around the country in how local option taxes are constructed and implemented. One of the most common forms, particularly in western states, is a voter-approved, time-limited sales tax that is earmarked in advance for a specific list of projects.
Aside from property taxes, which have funded local transportation investments for over a century, nearly all of the taxes identified in this study were adopted in the past 35 years. In the 1970s, major metropolitan areas began to adopt permanent taxes to fund the operations of their transit systems. Among the first regions to adopt dedicated taxes to support transit operations and development systems were New York (mortgage recording tax in 1969), Portland (payroll tax in 1969), San Francisco (sales tax in 1969), Atlanta (sales tax in 1971), Cincinnati (payroll tax in 1973), Denver (sales tax in 1973), Seattle (sales tax in 1973), and Cleveland (sales tax in 1975). In a handful of regions (Boston, New York, San Francisco, and Northern Virginia), taxes were imposed directly by an act of the state legislature.
In the 1980s, a growing number of states began to authorize special voter-approved local option taxes. These were often sales taxes for targeted investments in infrastructure, capital facilities, or economic development plans. Some states limited the use of these taxes to specific types of projects, such as the construction of highways, rural road maintenance, or new rail systems. Others allowed them to fund a wider range of capital improvements, including schools and other public buildings, wastewater systems, sports and convention facilities. Most of these taxes are time-limited and intended to build only a few specific projects, although some are also permanent and more programmatic in nature. During this time, local option taxes began to proliferate in Arizona, California, Florida, Georgia, Illinois, Indiana, Michigan, Missouri, Nevada, Oklahoma, South Dakota, and Texas.
This pattern expanded in the 1990s, as the use of dedicated local taxes in transportation finance became even more widespread. Over the past ten years, at least 21 states either adopted new laws authorizing local option taxes, or saw a significant expansion in their use. In contrast, only a couple of states (Massachusetts and Rhode Island) appeared to experience a decline in their use. Local option transportation taxes are nearly completely absent in only four states (Delaware, Maine, New Hampshire, and New Jersey), but even those states have some laws on the books that permit their use.
Certain features of local option transportation taxes have helped make them palatable to both elected officials and the voting public:
With local governments taking greater initiative in funding transportation infrastructure and services, their methods of funding and decision-making deserve greater attention and understanding. However, few aspects of local transportation finance have been studied systematically. No study has attempted to develop a picture of the extent and character of local option transportation taxes nationwide. The last study addressing the role of local option taxes in transportation finance was written over a decade ago, and examined only six states (Pagano 1988). More recent studies have focused on the strategies that have led to voter approval of transportation tax referenda (Nelson and Colman 1991; Beale, Bishop, and Marley 1996; Haas et al. 2000).
Other studies have examined gasoline taxes (J. Brown et al. 1999); local assessment districts (Darche and Curry 1990; Transportation Research Board 1986); impact fees (Peters 1994); and user fee revenues (Navai 1998; Szeto and Wuestefeld 1996). While these are all important components of local transportation finance, a synthesis of the contributions of these and other local-source revenues to the larger financing picture is still needed.
The most comprehensive source available for data on local transportation finance is the Federal Highway Administration's annual Highway Statistics report. For each state, the report presents detailed data on highway-related revenues and expenditures, including detailed breakdowns of revenue sources at the federal, state, and local levels. In somewhat less detail, it also presents data on transit finance in each state. These transit data are less detailed than those published by the Federal Transit Administration, but more comprehensive, because they include services provided directly by state and local governments, not just the finances of individual transit agencies. While the federal data are particularly useful for identifying key trends (see Appendix A), their aggregate nature prevents their use to understand how these taxes are being used in individual cities and counties. For this reason, we chose to develop our estimates independently, using the federal data for comparative purposes only.
The aim of this research effort was to determine the basic characteristics of local option transportation taxation in the United States. In each of the fifty states, our major research questions were:
This study was conducted over the course of one year. It began with an examination of existing sources of data on local transportation finance, including publications from the Federal Highway Administration, Federal Transit Administration, the U.S. Census Bureau, the Commerce Clearing House and the U.S. Advisory Commission on Intergovernmental Relations. These varied sources provided a useful foundation of knowledge from which we could develop state-specific research questions.
In the spring and summer, we sent information requests to state departments of transportation, state departments of revenue, associations of counties, and major transit agencies. We supplemented the data they provided with an independent examination of laws governing local option taxes and a search of state web pages for publications and data on local tax rates and revenues.
We also surveyed city and county governments in a dozen states (Arizona, Colorado, Florida, Georgia, Illinois, Missouri, Nevada, New York, Ohio, Pennsylvania, Texas, and Washington) to develop a more detailed picture of how various local option transportation taxes are actually implemented. These states were chosen to ensure inclusion of the largest and most internally diverse states, while also representing a broad mix of geographic locations, growth rates, and tax policy traditions.
To arrive at this list, we first chose the two largest states in each of four major geographic regions in the U.S. (New York and Pennsylvania in the Northeast, Illinois and Ohio in the Midwest, Florida and Texas in the South, and California and Washington in the West). To this list, we added Arizona, Colorado, Georgia, Missouri, and Nevada because these mid- and small-sized states have been particularly active in their use of local option transportation taxes. We decided not to include California because written surveys were unlikely to produce more detailed information than were available from state publications and individual county transportation authorities.
Finally, we asked experts in local transportation finance in each state to review the accuracy of our conclusions and to help fill in the remaining data gaps. We also invited the reviewers to provide additional background information on their states, including major issues and trends in transportation policy.
Potentially, any revenue source used by local governments can be earmarked for transportation purposes. Of primary interest in this study are local option taxes, policy packages pre-specified by state governments, which local areas may elect to adopt. These packages vary from state to state, but most include strict definitions of the types and levels of taxes that may be imposed, as well as rules concerning how the tax may be adopted (usually direct voter approval), and how the revenues may be spent.
Settling on a definition of a "local option transportation tax" was a difficult decision that requires some explanation here. The definition that we have chosen to use is: a tax that varies within a state, with revenues controlled at the local or regional level, and earmarked for transportation-related purposes.
This definition has some noteworthy characteristics. First, it excludes many revenue sources that appear to be "local" or "optional":
Our definition includes any tax that varies by location and is earmarked for transportation purposes. This includes taxes earmarked at either the state or local levels:
Around the nation, local governments have explored many different taxation possibilities to fund transportation improvements. This section will examine the major features of the various types of taxes, and how they are being used around the country.
Historically, different rationales have driven state and local investments in transportation, leading to distinct traditions of funding investments at these different levels of government. The traditional role of municipal governments in transportation finance has been the construction and maintenance of local streets. The primary function of these streets is the provision of access to private land, for private transportation purposes, as well as for the delivery of utilities and public services. Without this access, land becomes far less useful, and its value is significantly diminished. Thus, property taxes have long been considered a natural means for paying for local street improvements, because they recapture some of the wealth creation made possible by the government's actions.
States have traditionally had a different role in funding transportation investments. Their primary objective has been the provision of mobility to longer-distance, inter-city travelers. In this century, this has meant the construction of roads and highways. Tolls, gasoline taxes, and other user fees have long been the favored means of funding these projects, because they ensure that individuals pay in rough proportion to their use of these facilities.
Most other transportation investments lack such clearly defined roles. Today, many projects are designed to meet diverse and conflicting needs at the regional or metropolitan scale, including access to new land markets, mobility for commuters, environmental quality, safety, economic development, and socio-economic equity. The beneficiaries of these investments differ widely depending on the specific types of projects. Because of this diversity, no single revenue source is a "natural" fit for handling projects at this level. Around the country, different states have authorized many different types of taxes at many different geographic scales, in order to find an appropriate match between the burdens and benefits of local option transportation taxes.
Other forces have also shaped regional transportation finance and contributed
to its distinct character, including fiscal competition among levels of government,
legal restrictions on the uses of specific revenue sources, and requirements
for voter approval of new taxes. As a result of these forces, transportation
revenue options are chosen as much for their legally and political viability,
as for their basic rationality and fairness.
2.1. Fuel taxes
Characteristics
For many reasons, taxes on motor fuels have been an attractive revenue source for transportation improvements. The gasoline tax is easily administered compared to many other taxes, and provides a relatively stable revenue stream. But most important, it is paid by automobile drivers--the users of the road system and thus the most direct beneficiaries of improvements to that system. Because of the close connection the gasoline tax provides between who pays the taxes and who benefits from them, it generally has been accepted as a fair and equitable means of funding our nation's road system for eighty years. Today, it remains the dominant transportation revenue source at the state and federal levels.
However, the gasoline tax has several other features that limit its usefulness as a local transportation revenue source. Because it is levied as pennies per volume of fuel sold, rather than a percentage of the fuel price, the revenues it generates will tend to lag over time, because the real value of each penny will decline due to inflation. The increasing fuel efficiency of the vehicle fleet may also lead to less robust revenue growth.
An even more serious problem is the very limited revenue base of the gas tax. Because it taxes only one product, its tax rate must be set very high to generate the magnitude of revenues needed for major infrastructure investments. It is not much of a problem for large governments (e.g. states or the federal government) to enact taxes in excess of 15˘ per gallon, but over a small area (e.g. a county) such a high tax rate would lead drivers to purchase their fuel elsewhere.
Authority and Use
The fifteen states that authorize local option motor fuel taxes are primarily located in the Midwest, West and South. In five of these states, no local governments have adopted gas taxes. Only in five other states (Alabama, Florida, Hawaii, Illinois and Nevada) do local gasoline taxes appear to make a major contribution statewide, but they are locally important in several other states as well.
While most states earmark local gasoline taxes for transportation projects, a few (Alabama, Alaska and New Mexico) also permit the revenues to be used for non-transportation related purposes. In the five states where fuel taxes have been adopted most widely, they are used primarily to maintain and improve county road systems. Typically, these taxes are open-ended in duration, and are not earmarked in advance for specific projects. Most local gasoline taxes have been adopted in states that do not require voter approval.
Here are some examples of how local gas tax revenues are being used around the country:
Overall, local option fuel taxes can be a sound and appropriate long-term revenue source for the maintenance, operation, and routine expansion of local transportation systems, particularly if they can be indexed for inflation. However, it is politically and economically difficult for local gasoline taxes to be adopted at high enough levels that they can generate sufficient revenue for major infrastructure investments. Perhaps for this reason, it is unusual to find cities or counties adopting time-limited, high-rate fuel taxes.
Table 1: Local Option Gasoline Taxes
Figure 1: Map of Local Option Gasoline Taxes for Transportation
There are many different ways of taxing vehicles, each with its own rationale. In this study, we have broadly defined vehicle taxes to include flat annual vehicle registration fees; annual taxes based on vehicle value (or some proxy), weight, age, body type, or number of wheels; and other taxes on vehicle rentals and leases, parking, and sales. Another important user tax, weight-based fees on trucks, is an important revenue source for many state governments, but is not practical at the local level, since local governments do not have jurisdiction over the use of state and federal highways.
Many states have ad valorem vehicle taxes in which motor vehicles are taxed as personal property, just as personal real estate might be taxed. Many of these laws date from the early 1900s, when rampant tax evasion led state governments to shift collection of this tax into the vehicle registration process. Although most states have long since abandoned taxation of personal property, the tradition of taxing the value of vehicles as a general revenue source continues (Mackey and Rafool 1998).
These disparate taxes are not usually generally grouped together as a single category of taxation. Other studies (including FHWA's Highway Statistics) group ad valorem vehicle taxes together with property taxes because both their origins and the present application of their revenues is quite distinct from the tradition of user fees. However, in the course of this research we found that the line separating the two was fuzzier than expected. Some states do earmark ad valorem taxes for transportation purposes, and others use flat vehicle fees as a general revenue source. Still others use a hybrid between the two types of taxation. For this reason, we have grouped all taxes on vehicles together and treated them as taxes on users of the transportation system.
Authority and Use
Thirty-three states authorize some type of annual vehicle license or registration tax. In many states, the implementation of vehicle taxes (including those imposed statewide) is delegated to the individual county governments. As a result of this, no centralized information is available on local tax rates and revenues, and we were not able to develop as detailed a picture as we could for some of the other taxes.
Local governments rely upon local option taxes for many different purposes, including general revenues, highway construction, public transit operations, air pollution control, and public safety programs. Here are some noteworthy findings from around the country:
Table 2: Local Option Vehicle License and Registration Taxes
Figure 2: Map of Local Option Vehicle Taxes for Transportation
Property (or ad valorem) taxes are the most important and universal local revenue source in the United States. Although they are also imposed by some state governments, their primary function is to fund services that are administered at the most local levels, such as schools and fire protection. They are particularly well-suited for financing local governments because they are based on immobile assets, such as land and buildings, and are therefore not easily evaded.
Because local governments administer land ownership records, it is relatively easy for them to administer the taxation of land as well. Property taxation is a generally a three-stage process. First, a tax assessor estimates the value of land and buildings in each parcel. This may be based on some periodic calculation of market value, or it may be frozen at a point in time. In the second step the assessor assigns an "assessed value" to the property, depending on the use of the land. Residential, commercial, agricultural, and industrial uses might all be assessed at different percentages of their market values. Finally, a taxation office (usually separate from the assessment office) sets a tax or "millage" rate by dividing the local government's total budget for the upcoming year by the total assessed valuation for the area. An individual parcel of land may face separate millage rates for each governmental entity serving it, including city and county governments, fire districts, school districts, water districts, et cetera. A parcel's property tax is the product of its assessed value and the sum of all applicable millage rates.[3]
Property taxes are broadly unpopular with taxpayers. There are many reasons for this: they seem high because they are paid in lump sums, instead of in small increments; they are used for services, such as schools, that are used by a limited segment of the population; their administration appears arbitrary; and the ultimate tax bills often bear no relation to household's income or ability to pay (Hovey 1996). As a result of this unpopularity, "taxpayer revolts" in several states have forced rollbacks of property taxes or limits on their growth. In California, passage of Proposition 13 in 1978 was a major contributing factor in the emergence of local option sales taxes as a way of funding local transportation improvements.
There are two primary rationales for the use of property taxes in transportation finance. The first is based on the idea that accessibility is a primary determinant of land value. By establishing access to land, the creation and maintenance of street and road networks play a major role in giving that land value, and therefore taxation of that value is an appropriate way to finance those networks. This principle, which dates back to the industrial revolution, remains at work today in the financing of city street repairs and the paving of rural roads in many states.
The second rationale is that transportation services (including public transit operations and street maintenance) are basic public services that provide broad public benefits. An individual may not use the bus system, but may have a relative who does (like the school system), or may rely on it on rare occasions (like the fire department). Similarly, an individual may not drive on the city streets, but benefits from the delivery of mail or emergency services along them. As the primary revenue source for other public services, it makes sense to use property taxes for these transportation services as well.
In some cases, public improvements benefit a very small area, and only residents or businesses in that area are willing to endure higher property taxes to pay for them. An increasingly popular arrangement is for areas that don't have their own governments (such as unincorporated parts of counties or neighborhoods within cities) to create special taxing districts to fund their desired improvements. These districts are typically created to perform a specific function (e.g., pave a particular stretch of road), and are dissolved upon completion of this task. Some such districts generate their revenue with uniform, area-wide taxes (usually property taxes or parcel taxes). Others allocate these costs according to indicators of which property owners are likely to benefit from the improvements, such as distance or road frontage.
Authority and Use
Property taxes proved extremely difficult to study, for two major reasons. First, they tend to be implemented at the most local levels of government, and few states have chosen to track local property tax rates, revenues, and uses. This was particularly true for special taxing districts. Some states possess many hundreds of improvement districts, but often no records exist on what types of improvements they were created to undertake.
A more fundamental reason why property taxes were difficult to study was that it proved impossible to find a workable standard for identifying which were "local option transportation taxes." In ways that we did not anticipate when we set out to do this study, we found that property taxes defied the types of definitions that worked for other types of taxes. In many places, property taxes are set based on the total budget, with no separate mill rates reported for transportation purposes. In other places, localities report property taxes by purpose (e.g. 1.3098 mills for roads, 4.3351 mills for schools, etc.), but it is impossible to tell whether the transportation-related part of the tax is an "earmark," or just a reflection of the road department's budget in a given year.
Because of these difficulties, we report all of the information about property taxes that we could find, recognizing that not all of these are true earmarks. Local governments in all 50 states use property taxes to fund streets, so the tables below summarizes some of the purposes other than local streets being funded with these taxes. These tables exclude states for which very limited information was available.
In several of these states, dedicated property taxes for transportation are found everywhere. While this suggests that the tax represents a fundamental, non-optional responsibility of the local government, we included these states because local governments may still decide what tax rates to adopt.
Some states employ highly differentiated systems of accounting for maintenance and improvement of different roadway classes:
Table 3a: Selected States With Dedicated Property Taxes for Roads
We found more than a dozen states had areas with dedicated property taxes for public transit operations. However, this figure is probably misleading. In most states, transit operations are primarily funded at the local level. In many other places, these services are funded with property taxes but built directly into the general levy.
Table 3b: Selected States With Dedicated Property Taxes for Transit
An important result of the tax revolts of the 1970's has been an shift in local finance away from property taxes and toward sales taxes (Krmenec 1991; Advisory Commission on Intergovernmental Relations 1989). This has been particularly true in transportation finance, where the sales tax has emerged as one of the most significant and politically feasible revenue options for metropolitan areas seeking to finance major new transportation infrastructure projects. The reason has been simple: taxpayers see sales taxes as fair, and don't mind voting to approve them.
An important characteristic of the sales tax is its broad base: the total amount of retail goods and services purchased within an area.[4] Despite some variation in this base from state to state (depending on whether or not food and services are included), it universally produces high revenues for a low marginal tax rate. In a metropolitan county, a sales tax of just one half of one percent can generate revenues of $50-75 per capita, more than sufficient to fund new services or infrastructure. The sting of sales taxes is further reduced because they are paid continually, throughout the year, rather than in a single lump sum. However, despite its ability to generate revenue with minimal pain, the practice of basing a tax system on retail activity does pose risks. For example, revenues can dip sharply during an economic downturn, since retail sales fall off faster than incomes or gasoline consumption. In the longer term, sales tax revenues may face erosion as a higher share of sales is captured by catalog and internet sales.
Another strength of the sales tax is that it is ensures "horizontal equity," because all individuals of comparable means pay roughly the same amount of tax. This contributes to a public perception of the sales tax as a "fair" tax, particularly suitable for financing transportation plans that invest in a mix of modes. When gasoline taxes are used to finance transportation infrastructure, transit riders, bicyclists, and others receiving a share of the tax revenues are perceived to get a "free ride" because they have not contributed tax dollars. Under a sales tax, all users of the transportation system contribute. If all transportation user groups do indeed benefit equally from the tax expenditures, then this may indeed be equitable. However, in many recent cases, investments in transit infrastructure have primarily served to benefit automobile commuters in congested corridors. In these situations, gasoline taxes may be more equitable and appropriate than sales taxes, since they preserve the critical link between the beneficiaries of the transportation system and the taxpayers that fund it.
Another "fairness" argument raised by some conservative groups is that sales taxes are inherently equitable because expenditures are a better reflection of ability to pay than income or wealth. This viewpoint appears to be held by a large segment of the population: in annual surveys conducted between 1972 and 1991, when asked to identify the "least fair" tax, respondents consistently listed the federal income tax and local property tax ahead of the state sales tax (Advisory Commission on Intergovernmental Relations 1991). Other surveys have also found a preference for sales taxes over other equivalent revenue options (Field and DiCamillo 1994).
Yet despite being evenhanded in these particular ways, the sales tax is also strongly regressive. Because retail purchases rise more slowly than income, sales taxes tend to impact lower-income households disproportionately. While most taxes fit this pattern to some degree, sales and gasoline taxes are more strongly regressive than most other alternatives. This is particularly true in states where groceries and other non-discretionary purchases are not exempt from the tax, such as Georgia, Missouri, and other states in the Southeast in which local option sales taxes have been popular (Ettlinger et al. 1996).
Despite its regressivity, several other characteristics have made sales taxes attractive. In some areas, a high share of retail sales are made to non-residents of the taxing district. This is particularly true of major central cities (which have large commercial districts that attract shoppers from surrounding counties) and other significant tourist destinations. In areas where non-residents are causing significant transportation impacts, the sales tax becomes an attractive way of forcing them to share in the cost of needed improvements. In sparsely-populated resort areas, visitors often account for the vast majority of retail activity, so sales taxes become an even more attractive option.
These characteristics help explain the relative popularity of local sales taxes, and the dramatic increase in their contribution to public finance over the past two decades. Motor fuel taxes have a much smaller base, so they must be set much higher to produce the same revenues. A 1% sales tax tends to be less visible and therefore more palatable to voters than a 15-cent gasoline tax (which is roughly a 8-12% tax on gasoline sales, depending on prices), even if it costs the average person roughly the same total amount. And high gasoline taxes are easily evaded by long-distance commuters, who may choose to purchase fuel in the lowest-tax jurisdiction.
Authority and Use
There are 33 states that have authorized local option sales taxes for transportation purposes (or for more general purposes that may include transportation). Unlike other local option taxes discussed in this report, sales taxes provide local governments with an opportunity to generate substantial tax revenues that are often earmarked for a particular transportation project. Although many local governments in various states simply use their sales tax revenues for general revenue purposes, it is quite common for local governments to earmark their sales tax revenues for transportation purposes.
States vary in the manner in which they delegate spending authority for local sales taxes. The most liberal approach is to set some ground rules for how the tax may be adopted, but not to require any specific earmark. In the states that have adopted this policy (e.g. New York, Ohio, Tennessee), some local governments have voluntarily chosen to adopt an earmark for transportation purposes. Other states (including Florida, Iowa, Louisiana, New Mexico, Oklahoma, and Texas) require that local sales tax revenues be earmarked, but otherwise give local governments broad leeway. Typically, the states will allow project categories to be named (e.g. "road improvements") rather than specific projects. A more restrictive approach (used in Arizona, California, South Carolina, and Wyoming) is to require the development of project-specific, legally-binding expenditure plans before a tax is adopted. A couple of states (Alabama and Minnesota) have authorized sales taxes only on a case-by-case basis, generally specifying particular projects within the authorizing legislation. Finally, in a few cases (including the San Francisco and New York metropolitan areas), the state government has directly intervened and created a transportation sales tax on its own, without waiting for local approval.
Here are some observations on the use of sales taxes around the country:
Table 4b: Local Option Sales Taxes for Transit
Figure 3: Map of Local Option Sales Taxes for Transportation
Most local income taxes have a flat rate, and their incidence can be said to be roughly income-neutral. The true incidence of a local income tax will depend on various exemptions, deductions, and credits that may disproportionately favor taxpayers at one end of the income spectrum or the other. In contrast, the federal income tax and many states' income taxes have graduated rates that rise with income, making them more strongly progressive.
Income taxes are generally considered to be horizontally equitable as well, since individuals of comparable incomes tend to pay comparable taxes. However, inequalities can arise when the tax is not levied uniformly across a metropolitan region. In cases where cities have higher income taxes than their surrounding suburbs, the tax may help drive higher-income residents out to the suburbs.
An alternative to the income tax that circumvents this problem is the payroll tax, which taxes employers based on the total of all salaries they pay out. It essentially taxes income based on a worker's place of employment, rather than place of residence, except that the tax is invisible because it is built into the employee's salary. This approach is particularly appropriate for supporting transit and other urban services because it ensures that commuters into a city contribute to services that benefit them. However, it is also controversial because commuters have no representation within the government imposing the tax, and therefore no control over its implementation. In addition, unless the tax is implemented region-wide, it may provide an incentive for businesses to relocate out to the suburbs.
Income taxes are not as stable as sales, gas, or property taxes, because they vary more with economic conditions. Revenues can spike during periods of strong economic growth as workers receive bonuses and investors reap capital gains. Similarly, revenues can fall sharply in areas experiencing high unemployment during a recession, just when tax revenues are most needed to fund public services. Income taxes do provide an advantage over gasoline taxes in that they keep pace with inflation.
Aside from income taxes, several states authorize occupational privilege taxes or business license taxes that vary according to profits, number of employees, or other factors. Because of these taxes' relationship to income and employment, we have included them here.
Authority and Use
The fifteen states that authorize local income or payroll taxes are primarily located in the Mid-Atlantic, the Midwest, and the South. The majority of these authorize income taxes as a general revenue source for their cities or counties.
The use of income taxes to generate transportation revenues is rather limited. Only four states (Kentucky, Indiana, Oregon, and Virginia) make a specific statutory connection between income taxes and transportation-related expenditures. In a fifth state, Ohio, one city voluntarily earmarked a portion of its income tax for transit purposes.
Here are highlights of our findings:
Table 5: Local Option Income and Payroll Taxes
Figure 4: Map of Local Option Employment Taxes for
Transportation
2.6. Other key taxes
Several other taxes emerged as important local revenue options in particular locations around the country.
Severance taxes are weight-based charges on natural resource extraction operations, such as the removal of timber, coal, or stone. Because these industries use some remote roads with few other users, and their heavy trucks cause disproportionate damage to roads, taxation of the removal of natural resources has become an important way of financing rural road repair. This tax might be considered a user fee, except that in many places it is also used to fund education and general government services. Most states that have severance taxes impose them at a uniform rate statewide, but a few states allow severance taxes to vary at the local level. Minnesota and Alabama impose severance taxes directly by state law in some counties (Alabama also authorizes local adoption of these taxes in a few other counties). Alaska, Tennessee and Virginia authorize severance taxes to be adopted anywhere.
Lodging taxes are charged as a percentage of the cost of hotel and motel rooms, and are authorized in many states throughout the country. They are very politically attractive, because their entire cost is paid by visitors from out of town. To prevent abuse, states generally limited the revenues from these taxes to tourism-related activities, such as tourism promotion bureaus and visitor information centers. However, in a few places they are also being used to fund major investments in transportation infrastructure. In Nevada a room tax is funding road improvements along the Las Vegas Strip, and the relocation to below grade of a freight rail line in downtown Reno. In Louisiana, a hotel tax will be used to restore service on an abandoned trolley line in New Orleans. In South Carolina, the Myrtle Beach area levies a "hospitality tax" to help fund the county's road program.
Several different taxes have been developed to ensure that newcomers to an area pay a fair share of the cost of the area's infrastructure and services. The most common is the use of one-time impact fees or development privilege taxes based on the floor area of new commercial or residential developments. While these are very common at the local level to pay for street improvement costs (e.g. traffic signals at new shopping centers), they are also being used in a few places to pay for significant infrastructure projects. After repeated voter rejection of sales tax proposals for the construction of new freeways, Orange County, California, created two highway authorities to build the roads with a combination of development fees and toll-financed bonds. San Francisco charges an impact fee for new downtown office construction to fund peak-hour transit services. In Nevada, Clark County has adopted development fees of $500 per new home and 50˘ per square foot of commercial space to fund a beltway around Las Vegas. Impact fees have also been used to fund transportation improvements in Colorado, Illinois, Idaho, Maryland, Nevada, Washington, and other states.
Another option is the real estate transfer tax, or mortgage recording tax, which is essentially a tax on the sale of property. All five of New York State's major metropolitan areas support transit operations using these taxes, which were imposed by a state act (some counties may choose to opt out, and have done so). At least four other states authorize similar taxes, including Colorado, Delaware, Illinois, and Washington.
Table 6: Other Local Option Transportation Taxes
Each of these various revenue options has a unique set of advantages and disadvantages from the standpoint of transportation finance. The table below summarizes some of the major characteristics of the most common local option taxes.
Table 7: Characteristics of Five Common Local Option Transportation Taxes
Equity
The most common concern over local option taxes is their equity, or fairness. There are many different ways of interpreting the "fairness" of a tax, and so there are many different measures of equity. Key types of equity include:
Figure 5: Income vs. Tax Incidence, U.S. Average
Stability
Another important concern is whether the tax will provide a strong and reliable revenue stream over time. There are several components to this:
Transportation Relevance
A third issue in the selection of a tax option is whether it has a logical connection to the benefit it is being used to provide. This incorporates lessons from the equity characteristics of the taxes, as well as simple common sense.
Earlier parts of this chapter explored the major uses of each of these taxes around the country, and noted how much revenue they generate on an average statewide basis. But how much money can an individual city, county, or taxing district hope to make from one of these taxes? That depends on the tax rate chosen and the characteristics of the area's tax base.
An overall pattern that emerged in the course of this study was a gradual shift toward sales taxes and away from user taxes. As discussed earlier, the sales tax generates a very large amount of revenue at a low marginal tax rate, and tends to meet less opposition from voters than most other revenue options.
Aware of the public's acceptance of local sales taxes elsewhere, many states passed new legislation over the past decade authorizing or expanding the use of local sales taxes: nine for public transit (Alabama, Arkansas, Colorado, Hawaii, Iowa, Missouri, New Mexico, North Carolina and Utah), and eight for roads or other capital improvements (Colorado, Illinois, Louisiana, Minnesota, New Mexico, Oklahoma, South Carolina, and Utah). The number of local governments adopting sales taxes for transportation purposes expanded significantly in Arizona, Colorado, Georgia, Iowa, Louisiana, Missouri, New Mexico, North Carolina, Ohio and Utah in the 1990s. Four other states (Minnesota, South Carolina, Vermont and Wyoming) put their toes in the water, experimenting with these taxes in a more limited way.
In contrast, taxes on motor fuels and vehicles have been relatively stagnant. Just four states passed legislation authorizing new local gas taxes during the 1990s: California, Montana, Tennessee, and Washington. In all four cases, local adoption of these taxes has been minimal or non-existent. Only in Illinois did major areas adopt new local gasoline taxes where none existed previously. Florida and Nevada, which have local fuel taxes everywhere, saw average tax rates rise over the course of the decade.
Over the past ten years, seven states (California, Colorado, Montana, Nevada, New Hampshire, North Carolina and Washington) passed new legislation authorizing local vehicle registration taxes, and five (Indiana, Kentucky, North Carolina, Utah and Washington) authorized new taxes on vehicle rentals. However, during the same time, a political backlash against high personal property taxes on motor vehicles led to their elimination in several states (including local taxes in Rhode Island and Virginia, and statewide taxes in Washington and elsewhere).
Tolls, another important local user charge, were not examined in this study. Several major new highway projects around the country are being financed with tolls (including projects in Colorado and California), so this form of user finance may be on the rise. However, our study found two examples, both in Florida, of sales taxes being used to abolish tolls, thus directly shifting user fees to non-user taxes.
Although user taxes on gasoline and motor vehicles have not been popular over the past decade, the idea remains strong that transportation investments should be paid for by those who use them. Some local governments have shown great creativity in identifying and taxing user groups who stand to benefit from particular transportation projects. Las Vegas has been particularly innovative, adopting an aviation fuel tax to fund airport access projects, a hotel tax to fund improvements to Las Vegas Boulevard, and a development tax to fund a regional beltway. Many other areas around the country have also adopted taxes targeted at tourism, mining, and real estate development to fund transportation infrastructure that serve these industries. While these are not "user taxes" in the traditional sense, they are similar from a benefit equity perspective.
Several trends that emerged in the late 1970s and continue to be felt today have helped influence the widespread adoption of local option taxes. First, a series of "tax revolts" around the country limited the ability of local governments to raise property taxes, and made state legislators wary of increasing other taxes. Today, it remains extremely difficult to win political support for increasing state gasoline taxes.
Meanwhile, a weak economy and high inflation and fuel prices hurt state and federal gasoline tax revenues, while raising the costs of meeting local capital investment needs. The purchasing power of traditional channels of transportation funding has been reduced by rapidly growing construction and right-of-way costs, escalating design and environmental standards, and eroding of gasoline tax revenues due to inflation and fuel efficiency improvements. Furthermore, as state and national highway systems have reached maturity (along with local water and sewer systems and other infrastructure), a growing share of these revenues has been needed for basic maintenance and repair of these systems.
State and federal motor fuel taxes are generally distributed to local governments using formulas that weigh each area's population, road mileage, and gasoline consumption, as well as other factors. But these formulas generally overlook congestion levels, economic and population growth rates, and other indicators of need.
The combination of these factors has led local governments to turn to local option taxes to provide the additional funding needed to undertake new transportation initiatives not possible with the traditional transportation revenue streams.
Another factor has been competitive pressures among local governments. Local governments have a strong interest in enhancing their relative political or economic positions through the pursuit of pro-development policies (Peterson 1981). Their pursuit of new jobs and land development has been another important factor leading to the wider adoption of local option transportation taxes.
Expansion of the local tax base has emerged as an important strategy for coping with the fiscal pressures described earlier. In their efforts to keep taxes low while satisfying constituent demands for services, local governments compete for forms of land development that will maximize tax revenues, such as large-scale commercial and high-income residential development. This process, known as the "fiscalization of land use" has intensified with the shift toward greater reliance on local sales taxes, and has been cited as a leading cause of the jobs-housing imbalances troubling many metropolitan areas.
The desire for economic development has long motivated local governments to seek transportation infrastructure improvements (Ward 1998; D. Brown 1999). Several state governments have made economic growth a central objective of their highway programs (Forkenbrock and Plazak 1986). During the 1980s, a growing number of states authorized local option sales taxes targeted for roads and other infrastructure, in order to allow local governments to finance their own economic development strategies.
These practices have continued over the past decade. One emerging trend has been a wave of medium-sized cities that have sought to strengthen their economic competitiveness by building light rail transit systems. Many of these cities have experienced weaker economic growth than the nation's larger cities; many also have lacked the home rule taxation powers enjoyed by larger, older cities. In recent years, however, several cities (including Charlotte, Phoenix and Salt Lake City) have won voter approval for new sales taxes to build these rail projects, and over a dozen others are planning to seek voter support for these taxes in the near future.
Today, cities and regions must also compete on the basis of public amenities. In order to broaden their coalition of support, transportation tax proponents are increasingly highlighting their quality-of-life benefits of their proposals. As a result, these plans are growing more diverse and innovative, with new emphasis on open space protection, recreational trails, bicycle facilities, urban design and other nontraditional investments. Of course, traditional economic development also remains an important objective.
Another central trend in transportation policy has been devolution--the de-centralization of control over transportation planning and decision-making to more local levels of government. Congress and several states have passed sweeping reforms aimed at providing lower levels of government with more authority and flexibility to make transportation investment decisions reflective of local priorities.
One factor behind this shift has been an evolving set of federal policy goals in transportation finance. In the 1950s, at the outset of the Interstate era, the federal government's goal was simple: construct a uniform system of long-distance, intercity highways for commerce and national defense. Because many state highway departments already had decades of experience in road construction, they were given responsibility for planning and building this system. In the 1960s and 1970s, as the highways' purpose evolved toward facilitating suburban expansion, the federal government created metropolitan planning organizations (MPOs) to advise the states on regional policy coordination.
With the completion of the Interstates, a new set of federal transportation objectives began to emerge. The Intermodal Surface Transportation Efficiency Act of 1991 shifted federal policy to emphasize a far wider range of goals, including efficient resource management, intermodal linkages, environmental protection, and the economic and quality of life objectives of local communities. Because of their institutional ability to include a range of stakeholders and disciplinary approaches, MPOs' authority over planning decisions has been greatly expanded.
However, federal legislation can only delegate powers related to the expenditure of federal funds; it cannot grant powers of taxation. Any more fundamental policy devolution -- including the power for an area to determine how much to tax itself and spend for transportation purposes -- requires authorization from state governments.
States have also devolved unprecedented degrees of authority over transportation finance to the local level. As noted in this study, many state governments have granted revenue and taxation powers to local and regional governments, in the form of local option transportation taxes. Many states have also taken steps to devolve existing revenue streams, such as California's recent law shifting control over 75% of all state gasoline tax revenues to the local level. Yet when state legislatures have delegated these powers, very few have created a role for MPOs in their implementation:
There are several reasons why states favor traditional local governments over MPOs. To begin with, many policymakers see cities and counties as more accountable to the voters because they are directly elected and their actions tend to be closely monitored by the press. Some state lawmakers may also see MPOs as a federal intrusion on a transportation planning process that they used to control. Whether or not states object to the new role of MPOs in programming federal transportation funds, they have no incentive to further expand MPOs' powers.
Another reason states route local funds around MPOs is to avoid getting entangled in the MPOs' complex planning mandates. Supporters of local option taxation argue that self-funded local projects can be delivered more quickly and cost-effectively than those funded through traditional mechanisms, because they avoid some time-consuming federal planning requirements and bureaucratic delays in state transportation departments. Also, by focusing a dedicated revenue stream on projects more quickly, they can significantly reduce the costs of issuing bonds. They can also circumvent the expensive federal labor requirements that MPOs must follow.
Of course, locally-financed projects don't have completely free reign. They must perform all of the standard environmental impact reviews, and must follow state administrative procedures for contracting practices. Furthermore, if any state or federal matching funds are required, the projects are subject to the full range of federal planning requirements. Metropolitan planning organizations (or state governments in rural areas) retain the authority to direct how any federal matching funds are used.
However, by the time voters have approved a local option tax and legally-binding expenditure plan, MPOs are left with little political and legal flexibility to consider alternative investment scenarios. In general, then, the use of local option taxes is determined outside of MPO planning procedures. To the extent that many region's major new infrastructure plans are being adopted through these voter-approved local tax initiatives, some important questions need to be addressed. First, to what degree is there interaction between these two parallel planning processes -- those led by MPOs for the allocation of state and federal funds on one hand, and those led by ad hoc committees of political and civic leaders proposing new local option taxes? And to what extent are transportation system efficiency, integration of transportation and air quality goals, and other broad public policy objectives addressed if MPOs are no longer driving the metropolitan transportation planning process?[6]
In designing local option tax policies, one of the most difficult issues faced by state legislatures is the apparent trade-off between ensuring accountability and preserving flexibility.
As a general rule, local option taxes everywhere require voter support, even if the law does not require an official referendum. For local governments seeking to undertake new investments in transportation infrastructure or services, the greatest challenge may be reassuring the public that the new tax revenues won't be squandered. To help build this confidence, policymakers have developed a variety of ways to guarantee that the implementation of the tax remains accountable to the voters. Some of these include:
Unfortunately, some of these constraints can have unintended consequences. A voter approval requirement creates incentives for political leaders to seek to maximize votes by appealing to parochial interests over regional ones. The end result is often a set of investments that favors tax-rich areas on the metropolitan edge over more densely populated cities and older suburbs. This approach typically provides greater geographic equity at the expense of vertical equity and overall cost-effectiveness. In places with supermajority voter approval requirements, the incentives for poll-driven project selection are even stronger.
In some cases, the practice of earmarking taxes for specific projects has proven too restrictive and inflexible in light of changing needs or more detailed study. In North Dakota, counties have found themselves legally bound to voter-approved rural road building programs, despite shifting population patterns that have created greater needs near growing cities and towns. In California, counties have found it difficult to substitute alternative projects after the projects specified in their expenditure plans proved infeasible or controversial. These experiences suggest that the desire to give voters greater control over their tax dollars needs to be balanced against the need for flexibility in transportation planning and programming.
Several areas have found innovative strategies for providing flexibility in their local option tax expenditure programs, while still maintaining accountability. By not earmarking the projects in advance for specific projects, the implementation of these taxes can become supportive of, rather than competitive with, the regional planning process.
As discussed earlier, economic development has been a major motivation for the adoption of local option taxes. It might be expected that local option taxes would create a difficult dilemma for cities and counties, particularly those in areas with struggling economies. Higher taxes might be expected to generate an unfavorable business climate, leading to losses of retail sales to neighboring areas, loss of retail employment, and ultimately reductions in new retail investment. These costs must be balanced against any benefits from transportation investments. Yet in many states where they have been given the choice, metropolitan counties have chosen to adopt local option transportation taxes. Many successful campaigns for transportation taxes in these areas have relied on the financial support of real estate and development interests or major downtown employers (Beale, Bishop and Marley 1997), suggesting that at least some elements of the private sector expect to see benefits from the taxes despite the costs.
Yet despite these strong economic pressures to adopt local option transportation taxes, the theory that these programs bring overall economic benefits remains unproven. Although a county's transportation investments can bring it significant economic rewards, they also tend to cause comparable negative spillover effects further afield, as economic activity relocates to take advantage of the new facilities (Boarnet 1998). If many counties seek to promote economic development through transportation improvements, then their net effects will likely cancel out.
This raises an interesting policy question: do local option taxes create perverse incentives to over-tax? As noted earlier, a significant share of the tax burden of certain local option sales taxes is often paid by people living outside the taxing district. If the net result of the tax is also the attraction of economic activity from locations outside the district, then a local option tax would appear to be a win-win situation for local residents and businesses. In contrast, residents of surrounding areas may get the dubious privilege of paying for projects that result in net harm to their own local economies.
In the course of this research, we found that most state departments of transportation had incomplete or inaccurate understandings of local transportation finance. Most states collect local finance data only in response to requests from the Federal Highway Administration (FHWA). As part of its effort to compile an annual picture of transportation finance in its Highway Statistics series, the FHWA asks state governments to compile data on local transportation finance at least every other year. To comply with this request, some states keep detailed databases on revenues and expenditures by all local governments, but most do not.[7] Instead, a majority of states base their reports to the FHWA on surveys of a sample of cities and counties.[8] In the past four reporting cycles, 12 to 20% of states provided no local highway finance reports at all to the FHWA.[9]
Despite FHWA instructions to include all local revenue sources and all levels of government, many states fail to be comprehensive in their examination of local transportation revenues. Many states told us that they collect data only on the taxes that they directly administer, but not on taxes administered locally. Others reported that they look only at the revenues of cities or counties, but not gather data on the activities of certain special districts, which may administer very significant transportation revenue and expenditure programs.
Because of the lack of underlying data; major differences in tax policies, definitions, and data characteristics among the various states; and the twin goals of cross-sectional comparability and longitudinal continuity, FHWA faces a challenge in its annual effort to compile the fiscal data in Highway Statistics. The task requires FHWA to use numerous estimates and assumptions, and to adjust the data it receives state by state to achieve uniformity and comparability. While this effort is necessary and worthwhile, its end product often differs from the data reported by the states. The result can be confusing to users of these data, especially since FHWA does not publish complete documentation of its assumptions and techniques.[10]
Another problem is the fragmentation of highway and transit finance data. Of the eight states from which we received detailed local transportation finance databases, only California and Washington included transit data. In the federal government and most state governments, statistics on highway and transit finance are maintained separately, and are not generally comparable. FHWA's Highway Statistics attempts to include the full range of transit services provided in each state, but does not provide revenue data at the same level of detail as it does for highways. The Federal Transit Administration's National Transit Database has information on the finances of major transit agencies, but does not include transit services provided directly by city and county governments.
Given the trend toward devolution, there is a growing need for more accurate and comprehensive statistics on local transportation finance. It would be useful for states to begin considering more systematic data collection efforts, so that they can better understand and assist local governments' efforts to improve their transportation systems.
Because this study attempted to build a picture of local option transportation taxes from the bottom up, using local level data rather than aggregate data from state departments of transportation, we decided to minimize our use of the aggregate data published by the federal government. Instead, we used these data to help guide our search for important revenue sources. For comparative purposes, we used the federal data to develop comparative indicators of the use of local option transportation taxes in highway and transit finance. These can be found in Appendix A.
Although the local transportation finance data published by the federal government is not directly comparable to the data used in this study, it is still useful for developing an aggregate picture of local option taxation.
One way in which these data are useful is for tracking trends over time. Figure 6 tracks the share of all highway revenues (as defined by the Federal Highway Administration) that has originated at the federal, state, and local levels of government over the past 48 years. It clearly shows the sharp rise of the federal government's role in highway finance that began with the Interstate era in 1956, as well as the rising local role that came with the growth of local option taxes and other sources in the 1970s and 1980s. Unfortunately, comparable historical data for transit funding are not available.
Federal data can also be used to draw inter-state comparisons on the use of different local revenue sources. In Table 8 and Table 9, we derived a series of indicators of the use of different types of local options taxes in each state, on a percentage and per capita basis. Because of differences in data collection methodology and the definitions of different types of revenue sources, these data should not be considered directly comparable to the data presented earlier in this study. They are, however, reasonably internally consistent.
Figure 6: Sources of Revenues for U.S. Highways, 1950-1998
Table 8: Indicators of the Use of Local Option Highway Taxes, 1998
Table 9: Indicators of the Use of Local Option Transit Taxes, 1998
Advisory Commission on Intergovernmental Relations. Local revenue diversification: User charges: A staff report. SR-6. Washington: Advisory Commission on Intergovernmental Relations (1987).
Advisory Commission on Intergovernmental Relations. Local revenue diversification: Local sales taxes: A staff report. SR-12. Washington: Advisory Commission on Intergovernmental Relations (1989).
Advisory Commission on Intergovernmental Relations. Changing public attitudes on governments and taxes. S-20. Washington: Advisory Commission on Intergovernmental Relations (1991).
Advisory Commission on Intergovernmental Relations. Significant features of fiscal federalism: Volume I: Budget processes and tax systems. M-197. Washington: Advisory Commission on Intergovernmental Relations (1995).
Beale, Henry B. R., Elbert R. Bishop, and William G. Marley. "How to pass local option taxes to finance transportation projects." Transportation Research Record. 1558 (1997).
Boarnet, Marlon G. "Spillovers and the locational effects of public infrastructure," Journal of Regional Science. 38:3 (August 1998).
Brown, Jeffrey, Michele DiFrancia, Mary C. Hill, Philip Law, Jeffrey Olson, Brian D. Taylor, Martin Wachs, and Asha Weinstein. The future of California highway finance. Berkeley: California Policy Research Center (1999).
Brown, Dennis M. Highway investment and rural economic development: An annotated bibliography. Bibliographies and Literature of Agriculture No. 133. Food and Rural Economic Division, Economic Research Service, U.S. Department of Agriculture (1999). [http://www.ers.usda.gov/publications/bla133/]
Darche, Benjamin Mark, and Keith D. Curry. "Benefit assessment district financing for transit projects," PTI Journal. 4:2 (March/April 1990).
Demery, Leroy W., Jr. "A retrospect of rail transit financing votes in the U.S., 1962-1994: Part 1: Metropolitan regions outside of California." Headlights 58:1-2 (January-February, 1996).
Demery, Leroy W., Jr. "A retrospect of rail transit financing votes in the U.S., 1962-1994: Part 2: Seattle, (Washington) and California." Headlights 58:3-4 (March-April, 1996).
Demery, Leroy W., Jr. "A retrospective of rail transit financing votes in the United States: Part 3." Headlights 58:7-8 (May-June, 1996).
Ettlinger, Michael P. et al. "Who Pays?: A Distributional Analysis of the Tax Systems of All 50 States." Washington: Citizens for Tax Justice and the Institute on Taxation and Economic Policy (1996). [http://www.ctj.org/html/whopay.htm]
Field, Mervin D. and Mark DiCamillo. "Public less willing now than following 1989 Loma Prieta to increase sales or gasoline taxes to pay for earthquake relief and repair." The Field poll release #1700, San Francisco: The Field Institute (1994).
Forkenbrock, David J., and David Plazak. "Economic development and state-level transportation policy," Transportation Quarterly. 40:2 (1986).
Foster, Kathryn A. The political economy of special-purpose government. Washington: Georgetown University Press (1997).
Haas, Peter J., Kristen Sullivan Massey, Linda O. Valenty, and Richard Verbel. "Why campaigns for local transportation funding initiatives succeed or fail: An analysis of four communities and national data." Report 00-1, San Jose: Mineta Transportation Institute (June, 2000).
Hovey, Hal. "The property tax in the 21st Century." Washington: The Finance Project (May, 1996) [http://www.financeproject.org/property.html]
Krmenec, Andrew J. "Sales tax as property tax relief? The shifting onus of local revenue generation." Professional Geographer (February 1991), p. 60.
Mackey, Scott and Mandy Rafool. "State and local value-based taxes on motor vehicles." Denver: National Conference of State Legislatures (1998). [http://www.ncsl.org/programs/fiscal/autotaxs.htm]
Mackey, Scott R. Critical issues in state-local fiscal policy: A guide to local option taxes. Denver: National Conference of State Legislatures (1997).
Mullins, Daniel R., and Kimberley A. Cox. Tax and expenditure limits on local governments. M-194. Washington: Advisory Commission on Intergovernmental Relations (1995).
Navai, Reza. "Transportation financing: a critical review of transportation pricing." Transportation Quarterly. 52:1 (1998): 71-83.
Nelson, Bonnie Weinstein, and Steven B. Colman. "Transportation sales taxes: The California experience." 44th Annual Meeting, District 6, Compendium of Technical Papers. Anaheim, California: Institute of Transportation Engineers (1991).
Pérez, Arturo and Ronald Snell. "Earmarking state taxes." Denver: National Conference of State Legislatures (1995).
Peters, Robert A. "The politics of enacting state legislation to enable local impact fees." Journal of the American Planning Association. 60:1 (1994).
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1: Section 1.4 examines in greater detail what this definition includes and excludes. Throughout this paper, we have generally used the term local to designate any area smaller than a state, including cities, counties, transit districts, and multi-county regions. When we wish to specify the smallest or lowest level of elected government, we have used the terms city or municipality.
2: Elsewhere (e.g. Alaska) earmarked local taxes are forbidden by state law, but certain revenue streams are set aside anyway for transportation purposes.
3: These tax rates are typically expressed either as percentages (i.e., dollars of tax per $100 dollars of assessed valuation) or as "mills" (i.e. dollars of tax per $1,000 dollars of assessed valuation). A one-mill tax on a home assessed at $1 million would result in a tax bill of $1,000.
4: In this study, "sales taxes" include use, transactions, retail privilege, excise, gross receipts, and other similar taxes.
5: For property taxes, this will depend on a state's reassessment policies. In states that reassess property frequently, property tax revenues will rise and fall with market values. In states where property is not reassessed unless it is sold, property tax revenues tend to be much more stable than overall market prices.
6: The present study was not designed to address these questions, but other research currently underway by the authors will do so.
7: Arizona, California, Colorado, Connecticut, Idaho, Michigan, Oregon, and Washington maintain comprehensive databases on the road and highway-related finances of all local governments, and assisted our study by making these available.
8: Although sampling can provide valid estimates of local government finances, not all states use robust sampling procedures. In the course of our research, we found that the most populated cities and counties in a given state are sufficiently different from one another that it is not possible to generalize about their local transportation revenue sources on the basis of a limited sample.
9: This percentage is based on the footnotes of Highway Statistics, Table LGF-21, for the years 1991, 1993, 1995, and 1997.
10: Analysts in at least a half-dozen states complained that they did not know how the FHWA arrived at their published figures.
This research was funded with a generous grant from the University of California Transportation Center, and conducted at the Institute of Transportation Studies, University of California at Berkeley.
The authors would like to thank to Marieke Baan, Aimee Chong, Rachel Hiatt, Justine Lam, and David Weinreich for their helpful research assistance. We would also like to express our deep gratitude to the hundreds of transportation and public finance professionals in government and private associations who provided us with data, explanations, and feedback throughout this research project. This research would not have been possible without their generous and insightful assistance.
Todd Goldman and Sam Corbett are graduate students in the Department of City and Regional Planning at the University of California, Berkeley. Martin Wachs is Professor of City and Regional Planning, Professor of Civil and Environmental Engineering, and Director of the Institute of Transportation Studies at the University of California, Berkeley.
ITS Berkeley is a multidisciplinary research institute that has supported transportation research since 1948, when it was established by the University with funding from the California Department of Transportation. Today, about 40 faculty members, 40 staff researchers and 100 graduate students are involved the Institute's research and technology transfer programs. The Institute is home to one of the world's largest transportation libraries, and leading research programs on intelligent transportation systems, pavements, and aviation operations. ITS Berkeley has sister institutes on the Davis, Irvine and Los Angeles campuses.
The University of California Transportation Center (UCTC) supports research and education throughout the University of California system. It provides fellowships that support U.C. Berkeley graduate students along with those on the Davis, Irvine and Los Angeles campuses. It also funds major research projects in transportation policy that are directed by UC faculty members. As one of 13 federally-chartered transportation centers established by congressional mandate in 1988, the center is funded equally by the U. S. Department of Transportation and the California Department of Transportation.
