European public transport in 2018: chasing value

Even in today’s sharing economy, the case for mass public transport remains uncontested. Public transport delivers many benefits to commuters, travellers and cities worldwide. It creates personal freedom through mobility, it improves the quality and resilience of the urban environment, and it unlocks the full economic potential of rapidly growing urban agglomerations.

The last decade has seen demand for public transport services increase substantially. More citizens expect more quality, more frequency, and better reach. As a consequence, governments need to spend more on public transport. Not only to invest in bigger and better infrastructure, but also to cover growing operational expenditures. In most cities, the burden of fuel, electricity, payroll and other costs weighs heavier ever year. The result is an ever growing funding challenge: where to find more money?

With this question in mind, during 2017, the organization of associated European Metropolitan Transport Authorities (EMTA) surveyed its members looking for the state of play with respect to public transport funding across the continent. With a particular interest in finding out how authorities pursue innovative funding solutions.

Rebel supported EMTA on survey implementation. In this one-pager we share three of the its key observations, followed by three core ideas to kick-off 2018.

I. Public transport fares are not keeping up with rising costs
Total expenditure on public transport has continued to grow. But income from public transport fares has not grown at the same pace. Survey data for the years 2012 to 2016 suggested that, in the overall mix of public transport funding sources, the relative share of fare revenue and related direct income streams decreased by approximately 7 percent.

II. The resulting funding gap is largely closed by subsidy and grant money
The survey suggests that there has not been an observable rise of successfully developed “innovative funding sources” such as levies on commercial developments or sophisticated area tax regimes aimed at covering public transport costs. As fare revenue growth lagged behind the growing costs of public transport, authorities responded by pouring more money into subsidies and grants.

III. But authorities are conceptualizing and piloting innovative value capture approaches
However, that is not to say that experimentation does not occur. The survey revealed that many authorities investigate and pilot the possibilities of additional funding from alternative revenue streams. Value capture concepts – concepts of public financing that allow for the recovery of some of the value that public transport generates for private parties and individuals – are particularly popular. Several cases were found, from station-linked development practically everywhere, to passenger volume-linked levies in Barcelona, to incremental tax decentralization and retention in the northern cities of the UK, to pooling and auctioning of corridor-linked land rights in London. There is much to learn from these cases.

IV. Thinking differently about value capture helps to make the most of these new approaches
Taking our cue from these survey findings and drawing lessons from its cases, we promote three ideas to inspire you at the start of the new year:

1. Value capture is not only there to support financing of investments in infrastructure. Many value capture approaches result in long-term revenue streams which can support operational expenditure just as well. In fact, most of the surveyed schemes wherein value capture income is used nominally to finance additional infrastructure do not even earmark this income for covering financing.
2. In addition, value capture becomes more powerful when integrated fully with urban planning and development. Not only with planning and development of commercial properties around stations, but also with reorganizing, pooling and development of existing land rights along entire corridors. Zonal levies or tax increment agreements can be used to capture part of the economic value generated by public transport connectivity across these corridors.
3. But besides setting levies, authorities should also make more and better use of market-based approaches to determining the amount of value that can be captured, instead of relying on the “paper reality” of public sector business cases. While useful, these business cases tend to result in under- or overestimation of value capture potential. Tenders, auctions or other market-based approaches on the other hand will enable more targeted and specific value capture by authorities – if done properly.

The full survey report is available on EMTAs website for further references under Publications
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EMTA and the authors can also be contacted for further queries or comments.
RebelGroup (Rotterdam, Antwerp, Washington DC, Johannesburg, Manila, Jakarta) helps public and private organizations bridge the gap between their infrastructure and service needs and financial resources, by focusing on optimization of public service concessions, PPPs and transaction processes, innovative capital financing, project delivery strategies, efficient management, and performance improvement.