The Transit Trust Fund: a 21st century solution

Cities and towns all over the United States are demanding more transit infrastructure. But a lack of funding has stymied transit expansion. Finding a solution to this problem is essential.

Since its invention the mid-19th century, transit has been a powerful economic development tool. Some of our most celebrated cities grew up around their rail systems: the New York City Subway, Los Angeles’s extensive pre-war streetcar system, and most recently, the Washington Metro was a main ingredient in our region’s dramatic revival in the 2000’s.

If there is so much demand for more transit, and it builds healthy cities and towns, how do we fund more? The answer lies in harnessing transit’s power to increase land values.

The Federal Transit Administration’s New Starts Program does not have enough money to fund every transit project currently being planned. It can take decades for a new project to make it through the funding pipeline. The Silver Line extension of the Washington Metro, for instance, has been in the works for approximately forty years. The Purple Line in Montgomery and Prince George’s counties has been in planning since 1986.

In order to be eligible for federal funding, all projects must meet very strict criteria. These criteria are very tilted towards fulfilling immediate need rather than planning livable, vibrant, economically healthy towns/cities in perpetuity. Yet, using transit infrastructure as a planning tool is exactly how New York City grew into a world capital a century ago.

The FTA’s New Starts program receives a very small fraction of the federal transportation budget, which mostly consists of gas tax receipts. The gas tax was conceived as a mechanism to have motorists pay for road costs. A car owner has to buy gasoline in order to use the roads. As more roads were built, more motorists drove more miles. The government then used the higher gas tax receipts to build more roads, causing higher gas tax receipts, etc. It was a very intelligent system when it was conceived. The gas tax’s purpose was to provide funding for roads. It was never meant to provide construction money for transit. As long as transit funding is connected to the gas tax, its construction will remain anemic.

Transportation infrastructure (including roads) is not a profitable endeavor in the United States, except for some purely freight uses. The only time in history it was profitable was between the Civil War and World War II. A company would build a streetcar or subway line from a city center to land that was too remote to be worth anything to someone who commuted to work on foot. When streetcar service began, the value of the land surrounding the stations greatly increased because it was then connected to the city center. The streetcar builder would then sell the greatly appreciated land and make a profit. While our remote places are now dozens of miles more remote than they were in the late 19th and early 20th centuries, new transit infrastructure can still dramatically increase property values.

The creation of the gas tax was a clever way to repurpose some of the economic activity created by new road infrastructure towards funding roads. Similarly, a better way to fund new transit infrastructure would be to capture some of the new economic activity created by transit. It worked a century ago when done by private companies. It will work in the near future when done by the citizenry through its elected government. In Arlington County, Virginia, 33% of all tax receipts are collected in the Rosslyn-Ballston Corridor, which takes up only 8% of the county’s land area. The positive difference in tax receipts between what the Rosslyn-Ballston Corridor now generates compared to what the dying strip malls that used to line the corridor would be generating is immeasurable.

We should set aside a small fraction of all tax receipts from new transit-oriented development into a Transit Trust Fund. There will be more transit-oriented development as more transit is constructed. Tax receipts from new transit-oriented development that go into the Transit Trust Fund would then be used to build more transit. The new transit would then generate more transit-oriented development, further adding to the fund. It will create a positive feedback loop and a snowball effect similar to how the gas tax once filled the Highway Trust Fund. Just as all levels of government were once incentivized to build more roads to increase gas tax receipts so they would have more road money, government would then be incentivized to build a starter transit line so they could increase the money in the Transit Trust Fund, and so on.

Once the Transit Trust Fund becomes large enough, the federal government could start offering to contribute some large fraction of the construction costs towards building transit projects, subject to well-defined metrics. Back in the 20th century, the federal government provided 90% of the funding for the construction of Interstate Highways. Unsurprisingly, lots of Interstates were built over three decades. It is probably not realistic to expect the federal government to be so generous with new transit projects in the near future. A vastly different fiscal situation, combined with higher materials and labor costs implies a different construction timeline. The first decade would be much slower as the fund fills up from the first tax receipts from the first projects that are currently being planned.

Transit-oriented development that has already been built should NOT be subject to the Transit Trust Fund. Most local and state governments around the country are in trying fiscal situations because of the ongoing Great Recession. I doubt that most could afford even the small fraction of tax receipts that would go into the Transit Trust Fund. Rather, I propose that new transit-oriented developments around new transit stations should pay into the Transit Trust Fund. There should be no subtraction from any local government’s already tight budget.

The expansion of our road network in the 20th century provided lots of construction contracts, in addition to more economic activity related to building cars and car-dependent sprawl. The Transit Trust Fund would similarly provide decades of transit construction contracts, in addition to more economic activity related to building transit vehicles and transit-oriented development. The former was a novel idea in the mid-20th century. While we now understand that its model of land use is unsustainable, it provided a backbone for economic growth for decades. While the details of the Transit Trust Fund would have to be ironed out in the political process, the model would work on the local, state and/or federal levels. The Transit Trust Fund would incorporate the most successful infrastructure funding strategies of the 20th century and put them towards a sustainable 21st century template for decades-long economic growth.