Consider innovative financing but issues to reflect on before implementation are: independence, costs of implementation, acceptability, and feasibility.
Innovative funding refers to a wide range of local taxes and charges, where some or all of the revenues are directly hypothecated to fund public transport. Examples of innovative funding methods that can be used in small and medium-sized cities:
Renting/sellingof premises and facilities
Providing additional services
Sponsored bus lines
Employer/employee-, local motoring- and consumption taxes
Fines and road and parking charges
Cross-utility financing from city-owned companies
Property-related taxes and development levies
Examples of innovative funding methods that may be most relevant in small and medium sized cities and for light rail investments are property-related taxes and development levies. For details see ► Background information: Innovative funding measures.
Providing resources to the public transport system through innovative financing measures may result in more stable fares and a maintained or improved HQPT as well as a higher level of public financing and lower level of cost coverage from the fare box.
Practically, it may not be that problematic to implement innovative funding schemes. Many rely on existing structures, which keep costs and complexity relatively low. However, certain categories are very much a ‘product’ of the local conditions and taxation systems prevailing.
Acceptability by the public is often low when new charges or taxes are imposed on them, but improves when the objective (to fund public transport) is explained. Therefore, transparency is a key issue. It helps when the public understands the need for revenue, and when the existing tax structure is regarded as not too onerous.
This area requires creative thinking, but at the same time taking care not to impose heavy future financial burdens on local public transport users or local taxpayers. A situation has to be avoided where due to innovative funding measures other sources of income are neglected. PROCEED’s analysis of cities applying innovative financing measures reveals relatively low cost coverage (about 25% - 40% in contrast to the average cost coverage of all cities of 52%).
Costs of implementing innovative funding schemes have to be studied carefully. Consider using cost-benefit analysis to support the decision of implementation.
A disadvantage of sponsored bus services can be seen in a dependency on sponsors for maintaining parts of the public transport system. Then, the public transport authority may have less ability to influence the planning process. A change in the sponsor’s policy (e.g. due to their own financial problems) may therefore lead to sudden gaps in the financing of public transport services.
Besançon (France): The Versement Transport (see ► Background information: Innovative funding measures) is used in many French towns to contribute to the financing of urban public transport. Besançon is a medium-sized to major city with about 120,000 inhabitants and has high public transport demand figures: each inhabitant makes about 198 trips per year on urban public transport.
Chur (Switzerland): All bus stops have the same design and all are painted red, like the buses. There is a national advertising company called “Allgemeine Plakatgesellschaft (APG)”, which finances and maintains the bus stops in Chur. It rents out the walls for advertising.
Oslo, Bergen, Trondheim (Norway): All these cities have an urban toll cordon. 20-100% of the revenue is dedicated to public transport investments, mainly in rail infrastructure and light rail.
Schaffhausen/Neuhausen (Switzerland): The area has about 45,000 inhabitants with a high number of passenger trips per inhabitant. 75% of the parking revenues are used for public transport: 20% of the public financing is contributed in this way.
UK: In some towns there are a number of free bus routes sponsored by large retailers aimed at conveying passengers between specific areas of the town and the retailer. This practice tends to occur most often when a large retail outlet is relatively new or where it faces local competition from other major retail companies.
Jaensirisak, S., Wardman, M.and Day, A.D. (2005) Explaining Variations in Public Acceptability of Road Pricing Schemes. Journal of Transport Economics and Policy. Vol: 30. Part 2.
Schade, J and Schlag, B. (2003) Acceptability of urban transport pricing strategies. Transportation Research Part F 6, 45-61.
Ubbels, Barry, Nijkamp, Peter, Verhoef, Eric, Potter, Steve and Enoch, Marcus (2001) Alternative Ways of Funding Public Transport. European Journal for Transport and Infrastructure Research No 1, 73-89.
Employer / employee tax: In Europe, employment taxes dedicated to public transport systems are in use, e.g. in France (“Versement transport”). This tax must be paid by all firms with more than nine employees, unless these are living on the premises or the firm provides its own transport for employees. The Versement Transport may (optionally) be levied by any urban authority with a population of over 10,000, but with different rates:
10,000 to 100,000 inhabitants: max. 0.55% of salaries
100,000 inhabitants: max. 1% of salaries
100,000 inhabitants with own infrastructure (e.g. busways or tram): 1.75% of salaries.
In some cases, this has led to neighbouring local authorities joining together in order to pass the population threshold allowing a higher public transport tax rate.
Parking charges and fines: Parking charges may be hypothecated to support public transport or as a part of a planned transport funding package. Revenues from parking charges in Milton Keynes, UK, are dedicated to supporting public transport, being part of a transport and parking strategy. Another scheme is implemented at London’s Heathrow, Stansted and Gatwick airports, where passengers contribute an average 25 pence from every parking transaction. These revenues are credited to a budget that goes towards improving public transport within and around each specific airport. Revenues from city-centre parking are also used in Amsterdam to partly fund a new tramline. Similar implementations are to be found in La Spezia, Verona and Milan in Italy. In Schaffhausen, Switzerland, three quarters of the parking revenue is used for investment in public transport.
A related source of funding to parking levies is that of parking fines. In France, additional revenues from parking fines and driving offences have been earmarked to pay for public transport infrastructure. In Athens, Greece, part of the charges imposed on private cars that violate bus lanes will be passed to the local public transport authority.
Sponsored bus lines: Bus routes that connect to stores and shopping malls may be sponsored by companies in the area. There may be several motivations for companies to sponsor bus lines - for instance sponsorship may be required as a prerequisite by the local authorities in order to authorise a building licence for a specific site).
Local motoring taxes: A local motoring tax is a tax levied on motorists by local jurisdictions for local purposes (one of them being public transport) and is collected in addition to state and federal motor fuel taxes. Public transport in Lisbon (Portugal) benefits from a levy on diesel fuel and in Germany national taxation has existed since 1967 which earmarks a tax on sold fuel for investment in urban roads and public transport.
Consumption taxes: Public Transport agencies often use consumption taxes to replace decreasing federal funding, to build significant capital projects, or to supplement operating revenue. These kinds of taxes are common in the United States where many counties or States have implemented these kinds of schemes after obtaining the required voter approval. There are mainly two forms of consumption taxes: the local sales tax and gambling taxes.
Cross-utility financing: Cross-utility financing is adopted on a localised basis, and earmarked to fund public transport. There are mainly two methods of how cross-utility financing operates in practice. The first is via a levy on utility use e.g. telephone, water and sewerage. The levy is collected by utility companies and transferred to the city, which then transfers revenues to the public transport department.
The second method is where a loss-making public transport department is cross-subsidised by a profitable utility department. In Germany, public transport systems are often municipal departments, and as such are often supported by revenues from other municipal departments, such as water, gas and electricity, that generate a revenue surplus. This effectively allows the municipality to offset any profits against the losses of the transport undertaking, meaning that these profits are not subject to corporation tax. However, in the long run the liberalisation of the EU will render such models impossible. Similar arrangements are in place in some Italian (e.g. Milan) and Austrian cities, as well as in Luxembourg.
Road charges: Road charges can be used to support public transport. Tolling in Norway is based on a cordon system, in which vehicles (except public transport) must pay for entry to the city centre, and the revenues are intended to fund a mixture of road and public transport investments. While the former examples were more aimed at raising revenues, there are also schemes initiated at reducing congestion, e.g. in London and Stockholm.
Property related taxes: The property tax is based on the concept that, by providing a public transport service, the occupants of the properties are provided with a benefit. This benefit is reflected in an increase in the real property value, which can be regarded as a comprehensive index of all the benefits generated by the development, including improved accessibility and increased business opportunities. The local or regional government may then earmark a specified amount to support public transport. Examples of earmarked property taxes outside North America are rare, but can be found, for example, in Spain (Barcelona).
Development levies: Development levies tend to operate within planning rules. Examples are development charges, whereby part of the cost of transport would be recovered by special charges on different land uses, usually levied at the time of new development of properties in the benefiting areas. In Europe, a development charge scheme can be found in Hamburg, Germany and Copenhagen, Denmark. A variation in the UK is that developers (of housing, retail, business or leisure sites) are sometimes required by the local authority to contribute to the funding of an adequate bus service for a certain number of years in order to obtain planning permission for the site.