March 21, 2016

Show Me the Money: How a Country Should Fund its Rapid Transit Infrastructure

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In the coming weeks, a series of articles from ITDP will explore the detailed findings and implications of this research. The report offers key recommendations (see infographic), and helps cities identify tools to invest in smart, sustainable mobility.

Money matters. For rapid transit, how money is collected, budgeted, and allocated are some of the most important factors in the success of projects and the growth of infrastructure. The things that most transportation planners usually obsess about (data collection, demand modeling, operational plans, and streetscape design) matter eventually. But, long before the details of system planning and design take place, the policies regarding funding for transport infrastructure determines much of a city and country’s mobility outcomes.

ITDP’s recent report on Funding, Financing, and Capacity for growing rapid transit infrastructure explores into how various countries fund infrastructure and which practices are the most successful. Below are some of the report’s findings regarding funding for transportation infrastructure:

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How much should a country be spending on rapid transit infrastructure?

Colombia and China have two of the fastest levels of rapid transit growth in the developing world. Colombia spent an estimated 0.08% of its GDP from 2000-2014 on mostly highly cost-effective BRT rapid transit infrastructure, and China spent .15% on predominantly metro infrastructure. However, Mexico, India, and Indonesia each spent less than .03% of their GDP over that period on rapid transit infrastructure. For countries with high infrastructure deficits, spending 0.10-0.15% of GDP on rapid transit infrastructure is a sustainable level of spending for a developing country that will enable a shift to high infrastructure growth and an investment that will pay dividends in the future.

Who should fund rapid transit?

The countries that are the most successful in growing rapid transit – France and China – are those where city or regional governments determine how rapid transit funding is spent. Cities or metropolitan transport authorities have the most political accountability for ensuring such investments will improve mobility. In cases where cities lack the capacity for such projects, state or national governments may need to step in to support such projects and build capacity so cities may eventually take over.

image002Sources of Mass Rapid Transit Funding (as an average percent of total project cost)

Rapid transit investment responsibility has evolved differently in each country based on jurisdictional, legal, and public financial structures. In some countries, like in South Africa and Colombia, the national government plays a lead role in selecting and funding such projects. In many other countries state governments play a lead role in selecting and funding such projects, such as Indonesia and Mexico, and to a lesser degree, the US and Brazil. In India, where infrastructure growth has been low, responsibility for funding urban transport infrastructure funding is diffused between all levels of government and the private sector.

How should rapid transit be funded?

Sustained growth in rapid transit infrastructure requires reliable funding sources so governments can make sound financial investments, long-term urban plans, and maintain institutional capacity. The best way to ensure this reliability is to create dedicated funding streams related to the demand for such infrastructure. For example, France dedicates the revenue from a tax on employers to local transport authorities, ensuring a reliable funding source that allows them to make long-term investment plans and retain their institutional capacity. Conversely, in Brazil, where there are no dedicated funds for developing transport infrastructure, funds and capacity ebb and flow with politics. When the national government recently made additional support for rapid transit infrastructure available, very few cities had any project plans ready to receive financing and needed time to build up the capacity to make such plans.

Competitive or targeted national grant programs like those used by the France, the US, and Colombia can help to catalyze innovative new types infrastructure projects in a country. However these limited programs can often leave behind the areas with the lowest capacity to develop competitive proposals and cannot replace the type reliable funding needed for sustained infrastructure investment.

Finally, public funds should be used for rapid transit infrastructure while urban highway funding should come from user fees. User-funded highways have proved viable in developed and developing countries alike and ensure that only the private vehicle owners, who tend to be wealthier, pay for the urban highways that benefit them.

What projects should be funded? 

Check out our full report here.
Check out our full report here.

Funding for rapid transit stretches further when it is spent cost-effectively. High growth in rapid transit infrastructure was not only found from countries which had high spending on infrastructure, but also countries that spent in very cost-effective ways. China and Colombia had the same per capita growth in rapid transit from 2004-2014, though Colombia spent 60% less per capita because it built bus rapid transit while China built primarily more costly metros.

 

 

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