Innovative Financing Strategies

• *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.