Efficiency and equity issues in special fees for financing transportation infrastructure

Theoretically, charges for building and operating facilities and services should be efficient (proportional to one’s use of or benefit derived from the service) and equitable (proportional to one’s ability to pay). A number of ‘innovative’ financing techniques have been used recently, whereby the private sector (developers, property owners, businesses, and users) pays entirely or partially for the cost of building and operating transportation facilities or services. These techniques are particularly popular when the impact from the land use developments on the transportation system is such that substantial improvements are warranted in order to avoid serious congestion problems. The purpose of this paper is to investigate special fee assessments (a popular sub-set of ‘innovative’ financing techniques) used for financing highway and mass transportation in order to determine their efficiency and equity implications. The need for such an investigation arises from the fact that everyone residing or doing business in a particular area does not benefit equally from a given transportation system, and neither is everyone able to contribute equally toward that system’s building and operation. This paper presents some of the most commonly used special fee assessment techniques and suggests fee structures that are ‘optimal’ on the basis of the benefits that contributors derive from the given transportation system, as well as their ability to pay for it.