The Nation’s Transportation Future Is Increasingly Local

This post originally appeared in Law360. Reprinted with permission.

traffic jams in the city, road, rush hourThere is no debate that the gridlock in Congress has impacted national transportation policy. It was good news in December of 2015 when, after 36 short-term extensions, Congress passed and President Obama signed into law the “Fixing America’s Surface Transportation Act” (or, the FAST Act, Public Law 114-94). The law contains some changes in federal law that will drive policy, but, at $305 billion, doesn’t contain appreciable increases in transportation funding beyond inflation adjustments, and, perhaps worse of all, doesn’t address the structural issues in the way surface transportation is funded.

Instead of fixing the chronically out of balance Highway Trust Fund, the FAST Act addresses the issue through a series of “offsets” that include adjustments for inflation (section 32201(a)) and money for the national surface transportation program from, among other things, federal reserve bank funds (ss. 32202 and 32203), customs fees (s. 32201(b)), oil reserves (s. 32204) and the Leaking Underground Storage Tank Trust Fund (s. 31203). These provisions authorized a transfer of $51.9 billion to the trust fund’s highway account and $18.1 billion to the transit account so that, according to the latest published data, the fund looks healthy today. But, it only provides funding for the length of the authorization. The takeaway for most practitioners is that the FAST Act represents progress as a halt to what had seemed like a never-ending series of extensions of the federal program, but it’s a temporary reprieve since, without a long-term structural fix in the way the federal surface transportation program is funded, we will be right back at it in 2020.

But, we should move beyond this debate and stop waiting for money that is not going to come. That’s because we lack a compelling national vision for transportation and we are unlikely to get one soon. Today’s attention is focused on maintaining what we have and on completing projects that drive our economy. Fair enough. And, while rail transportation is a critical part of our transportation system, we lack a true national passenger rail system, high speed or otherwise, and instead have a series of important rail segments that serve our most densely populated regions, including, of course, the Northeast Corridor. That means that, since much of the nation lacks a robust transit system and with the Interstate highway system long complete, transportation has increasingly become a more local issue, driven by the states and focused primarily on their unique issues. There is evidence that the states that are helping themselves with surface transportation issues are doing better. That’s certainly the case in Massachusetts, where transportation has been a top of the agenda issue for more than a decade and where the motor fuels tax was raised in 2013.

In truth, people don’t think of our surface transportation system as a system at all. They think of it in terms of the portions they use — as in how they commute, their delay time and the ease at which their portions of the system works. Put another way, transportation is increasingly personal. What people are really saying when they support increased infrastructure investment is that they want their infrastructure fixed or they want their project funded. And, at a time when those needs are disparate, that means that it is increasingly unlikely that more transportation funding is coming from Washington, D.C..

For years, we have relied on federal transportation officials and the Congress to lead the way. They have provided us with great mobility. Thank you. But today, the trend is the opposite — transportation is getting more local. Massachusetts leaders have most recently responded with several proposals to involve local governments in what has, for longer than anyone can remember, been seen as a state responsibility. This past legislative session featured many proposals, two of which passed one branch of the Legislature, but died as the two-year legislative session came to a close this past weekend.

One is “value capture” legislation sponsored by Rep. Bill Straus, D-Mass., co-chairman of the Joint Committee on Transportation. Straus’ amendment would permit (not require) cities and towns, with the agreement of the U.S. Department of Transportation, to capture increases in assessed real estate values resulting from an infrastructure investment and devote some or all of that growth to the costs of the state-sponsored infrastructure. The second is a regional transportation funding proposal sponsored by Sen. Benjamin Downing, D-Mass., and Sen. Patricia Jehlen, D-Mass., that would create a new general law to fund the costs to, among other things, plan, design, construct, operate and maintain transportation projects through regional ballot initiatives. Both bills died this weekend in conference committees, but they will surely remain in the public debate and are part of a growing trend in Massachusetts that is contributing to an increasingly locally-driven policy, including:

  • The Commonwealth’s “MassWorks” program (Mass. Gen. L. c. 23A, s. 63, created in 2010) — a consolidated infrastructure grant program made up of six disparate but related programs that were created over time to support economic development and job creation. The program, increasingly supported by Gov. Charlie Baker’s administration, solicits proposals from grantees seeking to build public infrastructure on public land to support transportation improvements, multifamily housing, economic development in underperforming areas and community revitalization.
  • District Improvement Financing (Mass. Gen. L. c. 40Q; 402 CMR 3.00, adopted in 2004)— a program under which cities and towns can create, with the approval of the Economic Assistance Coordinating Council, a development district and accompanying development program. Once both are certified, the city or town may pledge some or all of the increment in property tax receipts and other revenues from program activities to fund public improvements, including infrastructure improvements, within the district.
  • Tax Increment Financing (TIF, Mass. Gen. L. c. 40, s. 59; 760 CMR 22.01, adopted in 1993) — a poorly-named program that is more about economic development than infrastructure development. It permits property owners to obtain exemptions from increases in property taxes realized through private investment in exchange for commitments to job creation and economic development. Not so much about “financing” and exemptions, the TIF program is designed to encourage private investment, must also be approved by the EACC, and must be shown to maximize the net economic benefit to the municipality.
  • Business Improvement Districts (BID, Mass. Gen. L. c. 40O, adopted in in 1994)— a program that permits a group of property owners to petition any city or town to formally organize under one organization governed by a board of directors. Property owners are assessed a fee that is paid to the BID. The revenues from the fee, capped at one-half of 1 percent of the assessed value of all real estate within the BID, are paid to the municipality and are over and above municipal property taxes. Those revenues are then distributed to the operator or manager of the BID and are used for a host of improvements within the BID, including capital improvements, landscaping and maintenance of the public realm.
  • The Infrastructure Investment Incentive Program (I-Cubed, first authorized in Chapter 293 of the Acts of 2006, amended several times since, 801 CMR 51.00)— a program under which state income and sales taxes from temporary (construction) and permanent jobs created by economic development projects are captured to fund public infrastructure improvements related to the project. This program differs from the others in that here, it is taxes paid to the Commonwealth that are being captured to fund the local improvement. The program features a disciplined job creation test that, boiled down, requires that the applicant demonstrate that “but for” the development, the jobs would not be in Massachusetts. That is to say, they must be new to the Commonwealth, not just the neighborhood.
  • The Local Infrastructure Development Program (LID, Mass. Gen. L. c. 23L, started in 2012) — a program under which cities and towns are authorized to partner with property owners to create development zones (which must include 100 percent of the owners) to set and charge assessments on property that will be used to finance infrastructure investments through the issuance of debt.

Taken together, these programs reflect the fact that local governments can become more active players in large infrastructure projects at the same time that national investment is not growing. To do that, they will need these and more tools. They got one on Aug. 1, 2016 from the Massachusetts Legislature when it included a 20 cent surcharge onto every ride hosted by a so-called “transportation network company” (such as Uber or Lyft). If the legislation is not vetoed, one half of the surcharge will go to the city or town in which the ride is initiated “to address the impact of transportation network services on municipal roads, bridges and other transportation infrastructure or any other public purpose substantially related to the operation of transportation network services in the city or town,” (H. 4570, s. 8(c), enacted, Aug. 1, 2016).

At a time when there are more projects than funds available and some states, including Massachusetts, can’t always spend what they have, getting help from those with the most at stake is a good policy and will result in better projects. The federal government has used this technique for decades — telling the states that if they truly support project, they need to “put some skin in the game.” In the end, what these old and new programs represent is the beginning a local match program.

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