Local governments often fund roads, bridges and traffic signals with revenues from development impact fees. However, this innovative financing mechanism is rarely used to pay for new or expanded public transit. California and Florida are leading the way by developing more comprehensive development impact fee policies that allow these revenues to fund new public transit, sidewalks, bike lanes, trails – and roads and bridges.

What is a development impact fee? 

A development impact fee is a one-time charge to developers to defray or cover the costs of providing infrastructure needed to serve the people who live or work at a new residential or commercial development. Typically, the fee is assessed based on the square footage of the development, and most often revenues are used to build roads and water/sewer systems, but also sometimes parks, schools and transit. Including Illinois and Indiana, 28 states allow development impact fees for residential and commercial developments.

Trailblazers: San Francisco and Florida

San Francisco is a trailblazer in using development impact fees for transit. In 1981, recognizing that new office construction downtown would mean more commuters using transit, the San Francisco Board of Supervisors established the Transit Impact Development Fee (TIDF). The fee covers the marginal costs to move additional transit riders to and from newly constructed downtown office space. In 2004, the city expanded the use of the fee to include most non-residential developments city-wide, not just downtown.

Developers pay a one-time fee on all new commercial and office development on a square footage basis, ranging from $9.65 to $12.06 (indexed yearly to inflation). Funds support capital and operations, including new rolling stock (buses, streetcars, etc.), additional transit lines, increased service hours, and maintenance, repair and replacement. There is no time limit on using fee receipts.

The TIDF is a reliable source of revenue that has generated more than $100 million since its inception, to support projects such as expanding transit service hours in the South of Market neighborhood where many technology based firms operate outside the normal 9 to 5 office day.

San Francisco is reviewing its development impact fee policy to keep pace with changing transportation demand: The San Francisco Planning Commission just released the Transportation Sustainability Program, which proposes replacing the TIDF with a Transportation Sustainability Fee (TSF) on new development. TSF revenues could only be spent on projects that directly improve transit service and bicycle and pedestrian safety. Developers would receive discounts on the TSF if they build less car parking than allowable and/or construct small commercial developments on vacant land (known as “infill development”.) The fee would be expanded to residential buildings (except affordable housing) at $5.53 per sq. ft. The expanded TSF would generate $630 million over 20 years and attract $820 million more in other funding. This revenue will pay for “a comprehensive and strictly regulated $1.4 billion plan targeted at highly-efficient transportation system improvements,” including two Bus Rapid Transit lines, bike and pedestrian programs to shift mode share from auto, and converting existing diesel rolling stock to electric. The program is set to be voted on by the San Francisco Board of Supervisors in fall 2013.

On the opposite side of the country, the State of Florida recently recognized that allocating development impact fees only for road construction does not alleviate congestion. On June 1, 2009, SB 360 (the “Community Renew Act”) became law, requiring Florida to evaluate and consider the implementation of a mobility fee to replace the existing transportation concurrency system [Florida’s development impact fee program] because the program was “focused on expanding roadway capacity instead of extending mobility across all modes such as transit.”

The Florida Depts. of Community Affairs and Transportation propose basing the new mobility fee in part on vehicle miles travelled (VMT), rather than square footage, to account for the increase in transportation resulting from new development. This fee structure favors developments in urban areas, which tend to result in shorter car trips and more public transit trips. The state’s analysis suggests that mobility fees should be assessed at the county level, at minimum, to account for the regional nature of transit systems. In August 2011, Pasco County was the first in Florida to adopt a mobility Fee. By replacing traditional impact fees with mobility fees, the county has more leverage to allocate funds for mass transit, sidewalks, and trails.

Development impact fees for Chicago-area transit 

The Illinois Highway Code (605 ILCS 5/Art. 5 Div. 9) allows counties between 400,000 and 1 million people to create Transportation Impact Districts (TIDs) to collect fees, but only for highway improvements. Under the law, persons who construct a new development that has either direct or indirect access to the county or state highway systems are subject to an impact fee if the county board uses the enabling legislation. Fees are assessed based on the amount of estimated new traffic generated by the development as well as the types of improvements needed to maintain a reasonable level of service on the existing highway system. Each TID has its own fund, and each fund’s monies must be spent on improvements within, or in areas immediately adjacent to, that TID. For example, in 2010, DuPage County development impact fees generated more than $400,000 in revenue for highways. Funds are allocated to DuPage’s Comprehensive Road Improvement Plan for Impact Fees focused primarily on highway and road development.

It’s worth noting that home rule entities in Illinois can impose impact fees for other types of infrastructure, such as water, sewer, stormwater, parks, fire, police, libraries and schools.

San Francisco and Florida are proving that development impact fees are a valuable tool for financing local infrastructure, including public transit, particularly when used as one tactic to advance a comprehensive mobility program. Fees can meet the transit demands of new residents and workers and curb congestion, while reducing the burden on the existing tax base. Using development impact fees to expand transit service in the Chicago region, for example in a bus rapid transit corridor, is a viable option to provide greater and more efficient transit access for resident and workers.

News

Local

$7.3 million OKed for downtown ‘bus rapid transit’
Mayor Rahm Emanuel’s administration announced plans to direct more than $7.3 million in TIF finds towards a bus-rapid transit (BRT) line in Chicago’s downtown. This funding is in addition to $24.6 million from the Federal Transit Administration. The project goal is to establish BRT between Union Station, the Ogilvie Transportation Center, Streeterville, Navy Pier, and existing CTA lines.

Durbin: GOP Transportation Bill Would Slash Chicago Transit
U.S. Senator Richard Durbin spoke out against the House Transportation Bill, warning that it will impose significant costs on Illinois. Senator Durbin explained that the proposed bill will not only affect the CTA, but also the Metra, transit in Springfield, and Amtrak funding, presenting serious consequences for Chicago and the state.

IDOT chief sees challenging future down the road
An interview with Ann Schneider, Illinois Secretary of Transportation, discussing the impact of federal transportation legislation, upcoming projects for the state, funding challenges, the possibility for express lanes and toll pricing, and more.

Chicago Transit Approved to Pursue Public Private Partnerships
The CTA secured approval to pursue innovative financing options for transit, including public private partnerships. The CTA is looking at more than $5 billion in capital costs for the proposed Red Line updates and hopes that its new ability to secure financing will ease the burden on traditional funding sources, while allowing the project to move ahead. 

Red Line Extension Moving Forward, But Funding Uncertain
The CTA Red Line expansion south of 95^th street will launch its official environmental impact study next month, a requirement for securing federal funding. CTA officials anticipate the study will take 18-24 months to complete. Though funding for the project is still uncertain given upcoming changes in federal transportation funding, south side residents are optimistic about the new step forward for project.

National

Transpo Bills Delayed in House and Senate as Congress Enters Recess
The Senate and the House are in recess, delaying progress on hotly-debated transportation legislation. The House recently split its transportation bill in an effort to improve the chance of passage. Senate Democrats continues to work with Senate Republicans to bring together a comprehensive bill, given numerous amendments stalling progress.

GAO study looks at impact of highway tolls
The Government Accountability Office (GAO) issued a study on the use of congestion tolling on highways, finding that variable pricing can reduce highway congestion. The study looked at pricing models, such as high-occupancy toll lanes and tolls based on time of day, as well as the fairness of those pricing structures for drivers.

P3 is key: Many proposals' fates could rest on public-private partnership bills
Pennsylvania is considering use of public-private partnerships to pay for transportation projects. The state currently is underfunding transportation by $3 billion. A bill allowing public-private partnerships is up for debate in the House in the coming weeks.

New toll lanes planned for I-35E 
The Minnesota Department of Transportation announced plans open for public comment and legislative approval to begin a congestion pricing program on the I-35E highway. The plan includes dynamically priced MnPASS lanes as a way of managing congestion. The project also includes new park-and-ride lots along I-35 in an effort to divert drivers to public transit.

To Rebuild America, Call On China?
During his recent visit to the U.S., Chinese Vice President, Xi Jinping, expressed the Chinese interest in supporting U.S. infrastructure development and improvements via public-private financing. U.S. Vice President, Joe Biden, and U.S. Undersecretary for Economic Growth, Energy, and the Environment, Robert Hormats, both expressed support for increased investment in U.S. infrastructure by Chinese private partners.

Global 

UK: London 2012 Launches Get Ahead Of The Games Website
In anticipation of the 2012 Olympic games in London and its potential to overwhelm the transit and roadway systems in the city, the government has launched a website called “Get Ahead of the Games.” The site highlights areas of potential congestion and encourages companies to establish strategies, such as having employees work from home, to avoid further congestion. London has already spent some 6.5 million pounds updating its transportation network before this summer’s games.

India: BRTs to become reality soon?
Mumbai, India is considering Bus Rapid Transit, according to Chief Minister Prithviraj Chavan. He noted that it may be a viable solution to Mumbai’s congestion problems, particularly on the north-south corridor, despite recent emphasis on the Metro and monorail projects. BRT has already been implemented in India in Delhi and Ahmedabad.

Malaysia leads in public-private partnership initiatives
Malaysia has been recognized as an Asian leader in the use of public-private partnerships for the development of infrastructure. Malaysia has used public-private partnerships to establish tollways, airports, and urban transit projects, in addition to numerous other infrastructure updates. The country has seen these partnerships as a critical tool in keeping infrastructure up-to-date without being burdened by large budget outlays to finance capital projects. 

South Africa: New KwaZulu Natal Infrastructure Welcomed But Concerns About Delivery Remain
The South African province of KwaZulu Natal announced a renewed commitment to infrastructure updates, including new rail construction, via a State of the Province Address. However, management has proved to be a significant challenge in the implementation of similar projects, and concern remains about the viability of the new commitment to infrastructure.