Innovative Financing Strategies

Because mass transit is a public service, authorities rarely can charge market rates for public transportation, except in a few of the densest urban areas. The traditional American concept of public transportation, combined with declining overall government support, has resulted in a mass transit funding shortfall of more than $43 billion — a staggering sum that is increasing annually.

While federal funding often is available for mass transit capital expenditures, such as building a light-rail line or expanding access to bus routes through construction of park-and-ride facilities, federal funding rarely is available to support the ongoing operation of these programs. Perversely, this means that public authorities may be able to afford to build something they cannot afford to operate.

Unfortunately, these challenges loom as rising gasoline prices and sustained economic growth in the United States are increasing demand for mass transit. Mass transit is an indispensable element of most communities' economic growth and job creation opportunities because highways simply cannot provide all the necessary access within the desired commute times.

The addition of rail or bus rapid transit to a community's transportation infrastructure can improve commute times and air quality, and relieve congestion. In fact, during the past several years, use of public transportation has grown faster than vehicle and air miles traveled as a whole.

Although many mass transit officials feel they cannot afford to miss a golden opportunity to capitalize on the public's increased interest and acceptance of mass transit, they are frustrated by the glacial response of funding authorities. Some are beginning to look to financing models pioneered in the highway infrastructure industry as possible solutions.


Achieving 21st century public transportation goals will require mass transit authorities to grow — institutionally, experientially, intellectually and philosophically — beyond their traditional operational funding base of fares and advertising.

To overcome the challenges confronting the mass transit community there is a variety of opportunities, some of which may seem unusual to public transportation officials. Funding of highway, road and bridge construction increasingly takes advantage of innovative financing, such as public-private partnerships and tolling. Mass transit authorities should explore ways to leverage these emerging trends to support both capital and ongoing expenditures for public transportation. These innovative solutions include:

  1. Tax increment or benefit assessment financing that provides revenue needed to service debt for mass transit infrastructure improvements based on the future value of property appreciation and incremental property taxes; or benefits to property owners from new or improved public transportation services.
  2. Multimodal projects that piggyback traditional mass transit on private or other transportation projects, such as the T-REX project in Denver that includes a train line running down the median of Interstate 225.
  3. Public-private partnerships that allow transportation agencies to leverage private technical, management and financial resources to achieve public objectives, such as greater cost and schedule certainty, supplementing in-house staff, innovative technology applications, specialized expertise or access to private capital.

Compared to traditional procurement methods, public-private partnerships are any situation in which the private sector assumes a greater role in the planning, financing, design, construction, operation and maintenance of a transportation

  • *Public agencies and private interests may collaborate on the joint development of mass transit hubs and stations. Transit-oriented development (TOD) complexes typically include restaurants and cafes, convenience stores, greeting card shops, variety and electronic stores and newsstands. An anchor such as a museum, sports venue or movie theatre also is desirable.
  • *Mass transit officials can allow the private sector to own or lease profitable routes, using the revenue to support marginal routes or expansion of the public transportation network.
  • *A concession encompasses the up-front payment by a private developer in exchange for the privilege of designing, financing, building, operating and maintaining public transportation infrastructure. While the mass transit authority also could contribute funds, all reasonable profits accrue to the private developer.
  • *Revenue sharing allows the public transportation agency to earn a share of revenue generated after all the costs of running the transportation infrastructure — including debt service and maintenance — are covered.
  • *Tolling allows public agencies or private developers to collect fees from transportation infrastructure users. Shadow tolls allow for the private financing and construction of public transportation infrastructure, which is then paid for over time by the public transit agency's revenues or funds.
  • *By charging people more to travel at peak times, congestion pricing transforms commuters into cost-conscious consumers, spreading out demand and freeing capacity during rush hours.

Currently, fewer than half the states permit public-private transportation partnerships. Legislation can encourage private investment by eliminating legal barriers, including laws that limit the ability to impose tolls to special public authorities.

  • *The federal SAFETEA-LU reauthorization explicitly allows public agencies to leverage private funds. Examples include private activity bonds for highways; greater authority to use tolling to finance construction of interstate highways; expanded use of design-build contracting; and improvements to innovative finance programs, including the Transportation Infrastructure Finance and Innovation Act and State Infrastructure Banks.
  • *Legislators at the federal and state levels also can improve planning, streamline procurement, increase the flexibility of public funds use and coordinate mass transit with other public goals, such as human services, health, education, disability access and economic development.

There are many reasons to include private sources in a mass transit funding strategy. Among the primary reasons:

  • *Public agencies can develop high-priority projects sooner rather than later;
  • *Transit officials can enjoy faster project completion compared to conventional delivery methods;
  • *The public can save on maintenance costs by extending the private-sector role, not just through design and construction, but also through operations and maintenance;
  • *The public benefits from improved quality and system performance through innovative materials and management techniques;
  • *Resource-limited public officials can substitute private resources and personnel and earn access to new sources of private capital; and,
  • *Private ventures can share some of the risk of developing costly capital infrastructure because they have the opportunity to make a profit commensurate to that risk.

Partnering with the private sector illustrates some of the advantages and best practices involved in innovative financing of the public transportation network.

Mass transit authorities can generate new revenue streams over the long term, which can support transit operations or the expansion of the network. For example, integrating mass transit hubs or stations with TOD improves both a system's accessibility and the prosperity of participating private-sector developments.

Focusing on population density and development at mass transit stations increases ridership (and, therefore, revenue from fares as well as the advocacy base for public transportation) and enhances the system's efficiency and convenience.

To make joint development/TOD projects successful, mass transit officials must prove to the private sector that they are credible, reliable and responsive participants. Private developers require public partners with the ability and willingness to solicit, respond to and pursue joint development opportunities. Some approaches that can convince developers to partner with mass transit authorities include:

  • *Evaluate joint development opportunities. The transit agency can identify joint development opportunities at each station site, determine the agency's financial and operations goals and expectations for each development opportunity, and work with a developer to create a joint development strategy that will achieve those goals.
  • *Market joint development opportunities. The transit agency can package and market its TOD opportunities in the development market by using high-quality prospectuses, requests for proposal and other entrepreneurial media to generate interest in the broadest possible private participation in the agency's joint development projects.
  • *Negotiate and close joint development agreements. Mass transit agencies can prove their willingness and ability to succeed with joint development opportunities simply by closing mutually beneficial agreements with qualified developers.
  1. Focusing on performance may open new avenues to expanding use of, or access to, mass transit. As with charter schools or private trash hauling, public transportation agencies may find more efficient or affordable methods to accomplish their goals than direct funding or control. As an added benefit, increasing mass transit's reliability may attract additional users, which can create new revenue streams as well as an expanded base of advocates for public transportation.
  2. Technology can increase reliability, productivity and efficiency, as well as allow new forms of more lucrative advertising within the mass transit network. Technology also can provide incentives that increase ridership. In Austin, Texas, the transportation authority is deploying wireless broadband access on its buses so users can check e-mail, connect to their employers' virtual private networks or surf the Internet while traveling around the city.
  3. Promotion, advertising, marketing and education can expose more people and new users to the benefits of mass transit while creating an expanded advocacy base.

The items on this menu of solutions are neither exhaustive nor required. Each mass transit project requires careful consideration and analysis, and which solutions apply to which projects will vary based on unique local, state and situational demands.


Without funding, even the most logical or beneficial mass transit projects are doomed to fail. The following four-step funding strategy plan can help match the right solutions with the circumstances that define each individual project. It also identifies and leverages tools used to create the political will to support mass transit, including education, advocacy and the use of cost-benefit statistics to prove the value of mass transportation.


The first step in any strategy to secure funding for a mass transit project is to identify the costs and benefits of required capital improvements. This provides a consistent starting point for various stakeholders as the project sponsor seeks support from local, state and federal leaders, and funding decision makers. The building blocks necessary to develop such a funding strategy include:

  • * Develop a financial plan — including both capital and operating expenditures — and schedule for the project. The step includes developing a cost-benefit analysis that will assist with informational, promotional and advocacy communication strategies in Step Two.
  • *Identify potential funding sources, including federal, state, local, public-private and private, and the amount of money each source is likely to be able to contribute to the project. Pay particular attention to opportunities to leverage small (usually local or state) amounts with larger (usually federal) contributions.
  • *Identify financing techniques, such as bonds, tolls and loans.
  • *Develop several funding strategies that include local, state, private and federal sources.
  • *Open a frank dialogue with potential funding agencies about the project's funding options and share positive cost-benefit analyses.


Project sponsors must tell a clear, compelling story about why the capital improvements are vital to achieving a particular transportation goal. They must detail the need for the project, but focus on its impact: the benefits to local communities, the region and the nation.

Sponsors also should include honest assessments of the anticipated cost, schedule, funding plan and quantifiable benefits.

In today's complicated and busy world, sponsors must develop informational materials designed to present the project's benefits in an appealing way to the several specific audiences who must respond to the need, including funding agencies as well as civic leaders, users and potential users and anticipated opponents. Those messages must be simple, memorable and focus on the real-world impact of the project, as well as respond directly or indirectly to expected opposition. Sponsors also must design audience-specific messages to appeal through a variety of communication channels: brochures, videos, news coverage, the Internet, etc.


Once the project sponsor has developed funding strategies and ranked them in order of relative ease of implementation, and created the informational materials that support the project, its time to actually secure the funding. The sponsor's goal is to leverage the cost-benefit analyses, informational materials and public advocacy to negotiate commitments for both short- and long-term funding of capital and operating expenditures at the local, regional, state and federal levels, and among private sources, as appropriate.


Only after the various funding sources have agreed that the project is a priority and that the funding strategy is reasonable can a project sponsor successfully secure legislative support for a particular project.

Once a project has been agreed upon as a priority, a legislative strategy plan should be created, including an outline of the strategies and tasks necessary to bring the project to a swift and successful conclusion.

In 2002, the American Public Transportation Association (APTA) identified several legislative proposals to level the playing field between highway infrastructure and mass transit priorities that any particular project's legislative strategy should consider:

  • *Strengthen metropolitan planning organizations;
  • *Improve public involvement;
  • *Support use of major investment studies;
  • *Consolidate planning factors;
  • *Encourage land use/transit linkage; and,
  • *Improve the New Starts criteria and rankings.


In 2002, APTA noted that our national transportation policy should include:

  • * Safe, secure, reliable mobility options that create an integrated, balanced transportation system;
  • *Access to economic and social opportunities that provide all Americans, from all walks of life, the opportunity to enrich their lives and communities through expanded public transportation;
  • *Economic growth with reduced traffic congestion. America should significantly increase its investments in the development of transportation capacity to stimulate the economy and reduce traffic congestion and its adverse effects on families, economic productivity and the environment;
  • *Achieve greater national security, cleaner air and better health, reduction of America's dependence on foreign oil, more educational opportunities and a host of other national goals through public transportation investment; and
  • *Recognition of public transportation's role in reaching critical national policy goals.

Mass transit is an integral and indispensable element of the transportation system and the achievement of these important goals. However, today's public resource constraints so severely limit our ability to leverage the benefits of mass transit that we have no choice but to rely on innovative new financing strategies.

Taking advantage of new funding opportunities will require not only new thinking, but new strategies for overcoming institutional barriers, as well as intellectual and political inertia.

Fortunately, we can look to the public-private partnerships emerging in the highway infrastructure industry for inspiration and instruction.

We know that we will have to secure legislative authorization to accommodate the many forms of joint developments.

We will have to make careful, analytical decisions about the risks and rewards of new financing solutions and technologies.

We will have to leverage our existing assets and audiences to prove the value of mass transit as an enabler of economic opportunity and environmental improvement.

We will have to educate leaders and policymakers that mass transit funding from current and innovative sources can extend quality of life benefits to larger communities of riders and deliver even greater economies of scale than simple investments in the highway infrastructure.

The nontraditional funding sources detailed in this article are unlikely to displace traditional public funding, except in cases of outright privatization or concessions. However, innovative financing can help close the gap in regularly occurring shortfalls faced by public transportation authorities, extend the benefits of public transportation to more people and communities, and help to achieve the transportation goals of our country.

Linda Bohlinger is a vice president of HNTB Corp. and the company's national director of management consulting.