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Fully fund the region’s transportation system

Fully fund the region’s transportation system

The region’s transportation system is facing significant challenges. Decades of underinvestment have created a significant backlog of projects to reach a state of good repair. Revenues underpinning the system no longer reflect current costs or ways of getting around. Federal and state revenues do not provide the support that they once did, and emerging federal policy indicates a growing reliance on state and local revenues. To maintain or improve the transportation system, the state and region must rethink current funding formulas and look for new revenues.

ON TO 2050 estimates that the cost of operating and maintaining the transportation system in its current condition -- retaining the current backlog -- will exceed the funds expected to be available under existing revenue sources. With that $24 billion gap through 2050, revenues under existing sources would not be sufficient to operate and maintain the transportation system, let alone enhance or expand it.

Northeastern Illinois needs to overcome various obstacles to ensure sufficient funding for transportation. Systemic shifts are leading to declining revenues, and structural problems make current revenue sources inadequate for maintaining and operating the system. For example, revenues generated from flat rates, such as the federal and state motor fuel taxes (MFTs), have lost significant purchasing power due to inflation. At the same time, average vehicle fuel economy has been rising and vehicle travel has been stagnant, resulting in less fuel consumption. These trends will almost certainly result in state MFT revenues dwindling in the upcoming years. Moreover, growth in motor vehicle registration revenue in Illinois has been mostly flat since the mid-2000s due to slowing population growth, even while registrations per resident have risen statewide.

Federal revenues relied on by roadway and transit agencies in the region have been stagnant, with revenues expected to grow slower than the cost of the system. These slower growing elements of the region’s transportation funding present real challenges to making necessary infrastructure improvements. The system could benefit from reliance on a modern user fee, such as one tied to vehicle miles travelled (VMT), which charges based on how far a car is driven. Drivers pay for what they use. Efforts to implement VMT fees are already taking shape in other states, and new technology is making it simpler to implement such fees; private sector per-mile prices are now widespread in the auto insurance market. Levied on a per-mile rather than per-gallon basis, VMT fees act as a direct user fee and also offer opportunities to integrate with other types of facility-level pricing. Eventually, VMT fees could vary on different types of facilities, at different times of day, and for different classes of vehicles.

Transit fares contribute more than 50 percent of transit operating revenues region-wide. In addition to fares, the transit system relies on a sales tax imposed by the Regional Transportation Authority. Structurally, sales taxes in Illinois are imposed on a narrow base, which includes tangible goods but few services. The sustainability of the sales tax base is precarious because consumption of services continues to rise faster than consumption of goods.

The region lacks a dedicated source of capital for its transit system, even as needs keep rising to maintain our aging system in its current state of repair. While improving the region’s infrastructure is a high priority, simply keeping the overall system of transit, roads, and bridges in its current condition will cost more than $200 billion over the 32-year planning period.

Changing demands and emerging needs call for new investments. Among many factors, the number of congested hours is increasing annually; freight traffic is on the rise due to changing supply chain patterns and increasing next-day deliveries; residents are demanding new bicycle and pedestrian infrastructure; and private operators are creating new options for seamless mobility across multiple modes. Failure to improve infrastructure has a negative impact on the region’s economy, which can only grow as fast as its transportation system will carry it. System enhancements are necessary so the region can continue to grow.

To surmount these challenges, we must continue to improve, modernize, enhance, and expand the system in a thoughtful manner. Because conditions would decline without additional revenues, the region must pursue new and enhanced sources and user fees that modernize and improve upon our existing funding structure. Leveraging sources like value capture or congestion pricing and other tolling opportunities can provide funding while contributing to larger goals such as transportation demand management and effectively matching the costs of the transportation system to those who benefit from its use. In fact, revenues generated from specific regionally significant transportation projects will be necessary to help fund those projects. The following table details the Draft ON TO 2050 Financial Plan for Transportation, including forecasted revenues, as well as funding allocations to planned investments on the system.

Forecasted transportation revenues and expenditure allocations, 2019-50, in billions (year of expenditure dollars)

Revenues

 

Federal revenues

$61.9

State revenues

$166.8

Local revenues

$233.0

Subtotal core revenues

$461.7

Increase state MFT and replace with VMT

$31.0

Expand the sales tax base to additional services

$11.0

Federal cost of freight services fee

$7.0

Regional revenue source

$5.0

Local parking pricing expansion

$2.0

Subtotal reasonably expected revenues

$56.0

Total revenues

$517.7

 

 

Expenditures

 

Operate and administer roadway system

$114.9

Operate and administer transit system

$162.9

Maintain current roadway condition

$126.8

Maintain current transit asset condition

$81.1

Subtotal cost to administer, operate, and maintain in current condition

$485.8

Improve system condition

$9.5

Make system enhancements

$17.6

Full cost of constrained regionally significant projects

$72.7

Capital cost allocated as maintenance and reconstruction

–$50.3

Offsetting revenues from tolling and value capture

–$17.5

Subtotal constrained new capacity cost of regionally significant projects

$4.8

Total expenditures

$517.7

Note: Expenditures do not add up to the totals due to rounding.

The region has had some recent successes in identifying and implementing new revenue sources. New legislation for transit facility improvement areas (TFIAs)[1] allows the implementation of value capture for certain transit projects, which has been used to fund the CTA’s Red and Purple Line Modernization (RPM). Completion of the west leg of the Elgin-O’Hare Western Access project saw a formerly free expressway converted to a tolled facility. Securing the enactment of other revenue sources to fully fund the transportation system will require much more work and advocacy by CMAP and its partners.

The following describes strategies and associated actions to implement this recommendation.

Implement sustainable, adequate revenue sources for transportation investments

Transportation revenue sources must be sufficient to maintain, operate, and improve the system; must provide stability in order to bond or fund multi-year transportation programs; and must be sustainable to ensure the source will grow in tandem with the cost of the system. Moreover, these need to be new revenues, not simply a transfer of funds from vital non-transportation programs and services.

Maintaining our transportation network requires sustainable, multimodal capital funding. Past state capital programs have only provided intermittent funding for transportation infrastructure and other capital needs, and they often have relied on taxes unrelated to transportation, such as taxes on alcohol or video poker. Revenues approved as part of a future state capital program or larger infrastructure funding legislation must be allocated through performance-based criteria that focus on areas of greatest need, including to significantly improve the condition of the region’s transit infrastructure.

In addition, revenues should be collected from those who benefit from the transportation system, via direct user fees such as tolling or revenue sources that capture benefits reaped from improvements to the system. To relieve congestion on the roadway system, revenues generated from automobile user fees should have the flexibility to address multimodal transportation problems and improve overall mobility in a corridor. New user fees must be implemented carefully to avoid undue burdens on lower income residents -- who may drive older, less efficient vehicles, depend on transit, or travel further to work, based on where affordable housing and employment opportunities are located.

The State of Illinois should establish adequate and sustainable multimodal capital funding that uses performance-based allocation of revenues.

The state, local governments, and other transportation implementers should rely on user fees for new revenues to create a modern transportation funding system.

Transportation implementers should allocate new revenues across modes to improve mobility for all users.

Increase the motor fuel tax and replace with a vehicle miles traveled fee

Of the many states that have enhanced their transportation revenues in recent years, most enacted a MFT increase. The State of Illinois should increase its MFT by at least 15 cents in the near term and index the overall rate to an inflationary measure to offset the long decline in purchasing power of the current 19-cent rate that has been in effect since 1990. Similarly, the federal gas tax, set at 18.4 cents per gallon in 1993, should be increased and indexed to an inflationary measure, improving solvency of the federal Highway Trust Fund without requiring non-transportation revenue infusions.

However, the MFT no longer reflects the way people travel or the many types of vehicles on the road. Fuel efficiency has increased, which erodes revenue despite its environmental and consumer benefits, and projections suggest electric vehicles will become a much larger part of the fleet. Over the long term, then, the state and the federal government should replace their MFTs with a mileage-based user fee that taxes actual use of the system, as with a fee for vehicle miles traveled (VMT). Drivers already pay per mile under the current MFT, but the rate just varies based on the vehicle’s fuel economy. For the Illinois MFT, instituting a fee of 2 cents per mile and indexing it to an inflationary measure would provide a sufficient, stable revenue source.

This revenue source would benefit from a streamlined national solution that allows each state to collect VMT fees from out-of-state drivers. In implementing a new revenue source, the state should also take the opportunity to lower the burden on lower income drivers by integrating measures not available in the current MFT structure. This strategy also appears in the Governance chapter under the recommendation Develop tax policies that strengthen communities and the region.

The State of Illinois should increase the MFT by at least 15 cents per gallon and index the overall rate to an inflationary measure.

The State of Illinois should begin necessary steps, including implementing pilot projects, to replace its MFT with a VMT fee of at least 2 cents per mile indexed to an inflationary measure.

The federal government should increase the federal gas tax rate, index it to an inflationary measure, and in the long-term replace it with a mileage-based user fee such as, for example, VMT.

The federal government should work with states to develop a national solution to implementing VMT fees at the state level.

The State of Illinois should explore innovative mechanisms and technologies to efficiently collect VMT fees, including potential private-sector collection.

Expand the sales tax base

Sales taxes in Illinois are imposed on a relatively narrow base, focused on tangible goods. Expanding the current base to include more services would generate additional revenue from existing state and local sources like the RTA sales tax, which supports transit operations in the RTA service area and other transportation and public safety purposes in the collar counties. The cost of operating the transit system continues to increase, yet consumption of services outside of the sales tax base is increasing faster than consumption of taxable goods. Expanding the base would also have the benefit of reducing economic distortions -- that is, inadvertently influencing consumers’ purchase of different goods and services based on whether or not they are taxed -- and volatility in the sales tax, as well as providing tax revenue from service-based commercial land uses. 

Implement a federal cost of freight service fee

Freight investment is an emerging transportation need across the U.S. The federal government should enact a national sales tax of 0.3 percent on the cost of shipping freight. These revenues should be disbursed to states based on their freight needs through a formula program, competitive program, or both. Such funding could benefit the region because it is North America’s freight hub and has significant freight-related transportation needs. A cost-of-freight service fee has a user-fee nexus to the freight system, and could be collected from shippers using any mode to move goods, including truck, rail, and water. A similar approach is currently used for air-freight shipments. Administration of a cost-of-freight service fee could be challenging and would require new rules and practices to accurately and efficiently collect the fee.

Create a regional revenue source

Other than the RTA sales tax, which provides funding for transit operations, northeastern Illinois does not have a dedicated source of regional funding to provide for capital infrastructure investments. The State should enact such a revenue source for our seven counties to meet regional transportation needs and to achieve comprehensive planning goals. The region faces significant transportation infrastructure needs that are unlikely to be addressed adequately by federal or state sources, even if increased and restructured. Moreover, many of the transportation system needs in northeastern Illinois are unique. The investments needed in the region to move the transit system toward a state of good repair, decrease freight delay, and reduce roadway congestion are significantly greater than the needs in other parts of Illinois. A regional source such as a regional vehicle registration fee or regional MFT could raise significant revenues at relatively low rates and build on existing collection mechanisms, although their use would be confined to transportation investments.

Expand priced parking

Despite priced parking in some denser areas, the majority of parking spaces in the region are free. Priced parking has many benefits in areas with significant demand for parking. Free parking obscures the cost of driving and the cost of supportive infrastructure. Priced parking would reduce the number of vehicle trips, helping to reduce vehicle emissions and alleviate congestion. Municipalities should price more publicly owned parking spaces on streets and in municipal parking lots and garages to provide revenue for local transportation improvements and allow land to be transitioned to revenue-generating uses. In addition, municipalities could choose to implement variable parking rates, with higher prices charged at times and locations of peak demand or for certain vehicle types such as delivery trucks in business districts, allowing for more efficient use of available parking spaces.

Innovative parking strategies have already been implemented by municipalities in the region. The City of Chicago launched a Downtown Loading Zone Reform pilot program in 2017 that changes how delivery trucks are charged in loading zones.[2]  Based on recommendations in a LTA project study, the Village of Hinsdale increased hourly parking rates.[3]

Implement tolling

The state and region have insufficient revenues to fund operations and maintenance of the existing transportation system. Broader implementation of tolling offers a clear path to rebuild the expressway system, while tying new fees to those who use it the most. Implementing managed lanes and additional tolling on the region’s existing expressway network would help relieve congestion, improve transit operations, and raise revenues to improve the condition of pavement and bridges. The Tollway and IDOT should work with CMAP to identify and then implement a system of managed lanes and tolling, as appropriate, on both existing and new expressway capacity.

On new expressway capacity, the Tollway and IDOT should pursue managed lanes and tolling to provide project funding as well as manage demand for the system. To defray the costs of reconstruction, IDOT and the Tollway should implement tolling in conjunction with planned reconstruction of existing, untolled facilities. Tolling on existing expressways will help pay for the costs of reconstruction, as well as free up existing revenues for the remainder of the system. With each transportation reauthorization, federal policy has increasingly embraced tolling on interstate expressways, and current participation by Illinois in the Value Pricing Pilot Program creates additional tolling opportunities. Over the longer term, the technology associated with mileage-based user fees may even allow differential pricing on managed lanes without requiring construction of the tolling infrastructure needed today.

IDOT should implement tolling on existing expressways following reconstruction projects, except on very short or isolated segments, to help finance the reconstruction project.

IDOT and the Tollway should flexibly use toll revenue to pursue multimodal transportation system goals such as providing high-speed, high-reliability transit service to improve expressway corridors.

The federal and state governments should expand authority to toll existing capacity.

IDOT and the Tollway should implement priced managed lanes on all but the shortest or most isolated new expressway capacity to help get the best performance from the new capacity.

IDOT and the Tollway should implement policies that ensure equitable access to tolled facilities, such as providing drivers a baseline of credits for free travel.

Further implement value capture

Value capture offers an innovative option for local governments to harness a portion of the new private property value created by public infrastructure. Adjacent property owners often benefit from the construction of a new or improved transportation facility through higher rents and property values. Project implementers should explore value capture to help fund capital costs associated with new, expanded transportation facilities, including transit service enhancements.

Value capture mechanisms currently available in Illinois include tax increment financing districts, special service areas (SSAs), impact fees, and business district taxes (BDs).[4]  Many communities already use these mechanisms for small scale transit and road improvements. For a select set of large projects, the state recently authorized TFIA districts that allow use of incremental property tax revenue to fund transit improvements. In addition to an established TFIA for the CTA North Red/Purple Line Modernization Project, other transit projects may also be ripe for the implementation of a value capture district. Adding further projects to the statute and broadening current value capture types at the community level can help provide much-needed local revenues to support the transportation system.

Arterial roadway capacity expansion projects are often implemented by either IDOT or county transportation departments. However, while these projects have regional mobility benefits, the need for expanded arterial capacity is driven partly by local conditions, such as increased retail, office, or industrial development. In addition, a portion of an arterial project's benefit accrues to the community or communities where the expansion is occurring, in the form of reduced congestion or increased revenues. The Tollway already requires that local governments applying for a new interchange contribute at least half of the project cost. IDOT and the counties could consider similar policies for the cost of additional arterial capacity, which would leverage local benefit to fund the project. Municipalities could utilize value capture districts such as BDs or SSAs to fund contributions or direct general fund revenues for this purpose. These policies should ensure that communities with limited financial resources are not disproportionately burdened for projects affecting multiple jurisdictions. CMAP’s LTA program can provide a model for flexible match requirements in high need communities.

The State should improve TFIA provisions to focus on criteria and need rather than on specific transportation investments.

Local governments should continue to implement and expand value capture for projects with sufficient travel benefits and tax base to support improvement costs.

CMAP, IDOT, and county DOTs should evaluate and consider a new policy to require equitable local contributions for major arterial expansions.

Use public-private partnerships strategically

Innovative financing mechanisms such as public-private partnerships (PPPs) provide a greater role for the private sector in the design, construction, and management of transportation facilities. Project implementers should continue to use PPPs strategically to finance transportation improvements where fiscally appropriate. ON TO 2050 emphasizes that PPPs are often a source of financing that must be repaid, rather than a new revenue source. They have the potential to deliver benefits to projects, but these arrangements are complex and must be carefully considered on a transparent, case-by-case basis.

Consideration of whether a project should be delivered via a PPP arrangement must be independent from merits of the transportation project itself. In short, projects must help implement regional priorities for transportation, land use, and other issues before being considered for a PPP. Project implementers should use best practices in comparing the use of a PPP to traditional project delivery, such as applying value-for-money approaches to analysis, assessing the risks of non-compete clauses, and providing formal public review in the evaluation of PPP proposals with appropriate checks on the disclosure of private financial information.

PPP agreements must be structured to protect the public interest, which should include maintaining a specified level of performance with penalties for non-performance, reasonable limits on public risk, and provisions for revenue sharing above certain thresholds. Transportation agencies must also retain their ability to effectively operate, maintain, enhance, and expand transportation infrastructure connected or adjacent to facilities under a PPP. Transportation agencies must maintain ownership of and the right to share all data collected as part of a PPP.  Other factors to consider include pricing policies, preferential access policies for law enforcement or transit vehicles, maintenance and operational standards, interoperability and coordination with public facilities, provisions that restrict the public sector’s ability to invest in related projects, and remediation provisions.

Footnotes

[1] Chicago Metropolitan Agency for Planning, “Legislation creates an innovative mechanism to fund major transit infrastructure,” July 8, 2016, http://www.cmap.illinois.gov/updates/all/-/asset_publisher/UIMfSLnFfMB6/content/legislation-creates-an-innovative-mechanism-to-fund-major-transit-infrastructure.

[2] Chicago Metropolitan Agency for Planning, “Chicago establishes the Downtown Loading Zone Reform Pilot Program,” October 26, 2016, http://www.cmap.illinois.gov/updates/all/-/asset_publisher/UIMfSLnFfMB6/content/chicago-establishes-the-downtown-loading-zone-reform-pilot-program.

[3] Annemarie Mannion, “Rate hike to discourage employees from parking downtown,” The Doings Hinsdale, October 14, 2014, http://www.chicagotribune.com/suburbs/hinsdale/ct-parking-boxes-hinsdale-tl-1023-20141014-story.html.

[4] Chicago Metropolitan Agency for Planning, “Transportation Value Capture Analysis for the CMAP Region,” June 2011, http://www.cmap.illinois.gov/documents/10180/27573/VC-Final-Report_7-26-11-Executive-Summary.pdf/5efa8c6f-da3b-4fe8-8a61-33d322850a01.




 
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