CPB

Corporate Partnership
Board

The Future of
Public Transport
FundingThe Future of
Public Transport
Funding

Research Report2024

The International Transport ForumThe International Transport Forum is an intergovernmental organisation with 66 member countries. It acts
as a think tank for transport policy and organises the Annual Summit of transport ministers. ITF is the only
global body that covers all transport modes. The ITF is politically autonomous and administratively
integrated with the OECD.
The ITF works for transport policies that improve peoples’ lives. Our mission is to foster a deeper
understanding of the role of transport in economic growth, environmental sustainability, and social
inclusion and to raise the public profile of transport policy.
The ITF organises global dialogue for better transport. We act as a platform for discussion and prenegotiation of policy issues across all transport modes. We analyse trends, share knowledge, and promoteexchange among transport decision makers and civil society. The ITF’s Annual Summit is the world’s largest
gathering of transport ministers and the leading global platform for dialogue on transport policy.
The Members of the Forum are Albania, Armenia, Argentina, Australia, Austria, Azerbaijan, Belarus,
Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Cambodia, Canada, Chile, China (People’s Republic of),
Colombia, Costa Rica, Croatia, Czechia, Denmark, Estonia, Finland, France, Georgia, Germany, Greece,
Hungary, Iceland, India, Ireland, Israel, Italy, Japan, Kazakhstan, Korea, Latvia, Liechtenstein, Lithuania,
Luxembourg, Malta, Mexico, Republic of Moldova, Mongolia, Montenegro, Morocco, the Netherlands,
New Zealand, North Macedonia, Norway, Poland, Portugal, Romania, Russian Federation, Serbia,
Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Tunisia, Türkiye, Ukraine, the United Arab Emirates,
the United Kingdom, the United States, and Uzbekistan.
International Transport Forum
2 rue André Pascal
F-75775 Paris Cedex 16
contact@itf-oecd.org
www.itf-oecd.org

ITF Research Reports
ITF Research Reports are in-depth studies of transport policy issues of concern to ITF member countries.
They present the findings of dedicated ITF Working Groups, which bring together international experts
over a period of one to two years, and are vetted by the ITF Transport Research Committee. Any findings,
interpretations and conclusions expressed herein are those of the authors and do not necessarily reflect
the views of the International Transport Forum, the OECD or the World Bank. Neither the OECD, the ITF,
the World Bank nor the authors guarantee the accuracy of any data or other information contained in thispublication and accept no responsibility whatsoever for any consequence of their use. This document iswithout prejudice to the status of or sovereignty over any territory, to the delimitation of international
frontiers and boundaries and to the name of any territory, city or area.
Cite this work as: ITF (2024), The Future of Public Transport Funding, ITF Research Reports, OECD
Publishing, Paris.

Acknowledgements
This report sets out the findings of an ITF Working Group, “Funding Public Transport”, which met between
June 2022 and June 2023. Jean Coldefy (Transdev, France) and Jonathan Saks (Department for Transport,
United Kingdom) co-chaired the Working Group.
At the ITF, Rex Deighton-Smith acted as principal author of the report, with assistance from Corinne Mulley(University of Sydney) and Josephine Macharia and substantial guidance from the co-chairs. Jagoda
Egeland and Stephen Perkins provided quality control. David Prater copyedited the report and coordinated the publication process.
The ITF would like to thank all members of the Working Group for their contributions. In addition, thereport draws extensively on a number of presentations made to the Working Group by both groupmembers and invited experts, including Chris Campbell (United Kingdom), Jean Coldefy (France), Ben
Condry (Imperial College London), Yves Crozet (France), Rex Deighton-Smith (ITF), Thorsteinn
Hermannsson (Iceland), John Hultén (Sweden), Fumio Kurosaki (Japan), Paul Lindwall (Australia), TomO’Driscoll (United Kingdom), Rhona Glazer-Munck (United Kingdom), Corinne Mulley (University ofSydney), Bard Norheim (Norway), Phillippe Poinsot (France), Stef Proost (KU Leuven), Roger Pyddoke(Sweden) and Mallory Trouvé (ITF).
The Working Group brought together 40 experts from 19 ITF member countries, the World Bank and theEuropean Union. For a list of Working Group participants and their affiliations, see the Annex.
This Research Report is part of the ITF’s Programme of Work for 2022-23, co-ordinated by Jagoda Egeland,
and has been approved by the ITF’s Transport Research Committee.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

3

FOREWORD

Foreword
Public transport has always played a crucial role providing mobility for communities, economies and wider
society, serving local, regional and national objectives. This role is now central to the global mission to
decarbonise mobility.
The transport sector currently accounts for 23% of emissions globally and these emissions are yet to startfalling in the face of rising demand for mobility and the difficulty of decarbonising all modes of transport
at the pace required. Electrifying the private vehicle fleet will contribute to the decarbonisation effort, but
deployment cannot happen fast enough, and it still leaves the issue of severe congestion in our cities.
Electrification could exacerbate inequality and there are still significant embedded emissions in their global
supply chain.
Modal shift from the car to public transport must therefore be at the heart of decarbonisation strategies,
particularly for journeys linking cities and peri-urban areas. Achieving this shift requires fresh strategies
aiming for substantial increases in efficient and user-facing public transport offers, deployed in parallelwith constraints on car use, either through journey times or costs.
The challenge facing this mission is one of funding and financing, particularly at the pace required.
Modelling by numerous institutions suggests a global funding need of well over USD 2 trillion per year
between now and 2050, with close to two-thirds of that funding needed in emerging economies. The
recent COVID-19 pandemic and price inflation have led to an increased cost of borrowing for governments,
the private sector and households, making this challenge even greater.
This report was drawn up by a group of more than 40 experts from 19 countries, who worked for
18 months on possible funding mechanisms for public transport. The report distinguishes between newinvestments and the operation of public transport services, without sidestepping the crucial challenges of
their efficiency and user considerations.
In our deliberations we found numerous practical and well documented funding options and models, witha rich availability of good and bad use case studies. The report attempts to summarise these findings,
providing steers towards some generally applicable policy recommendations, focused on aiding the rapid
delivery required.
The size of the public transport funding challenge requires policy makers and funders to be ambitious, tobe spatially and strategically focused, and to provide ongoing commitments to a clear set of solid
objectives. This will lay the critical groundwork for a successful funding model: driving confidence to fundproviders, public or private; enabling long-term and transparent fare strategies to create a balance
between generating sustainable revenue streams and a clear user focus, including targeted concessions
supporting equity in mobility; and ensuring upfront investment financing is not the only consideration,
implying a long-term vision for construction through to operating and maintenance.
We also found that numerous efficiencies still go unrealised across many programmes, which suggests theneed for national and international benchmarking and a focus on evaluation, essential to capitalise on bestpractices and free up vital funds.
4

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

FOREWORD

Strengthening resilience in the event of a crisis in the financing of decarbonised, democratic mobility isessential for our societies, as mobility is at the heart of people’s lives. This should be one of the objectivesof any financing strategy. Decarbonising mobility will be no mean feat, and will require action on bothtransport demand, notably in urban planning via transit-oriented development, and major investment indecarbonised mobility services.
The aim is to guarantee low-carbon accessibility to the city for all, with acceptable journey times and costs,
and minimise the impact on public space for more pleasant cities. It is not out of reach, but it requires new
strategies for funding and financing our mobility, for the common good.
Jean Coldefy and Jonathan Saks, Working Group Co-Chairs

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

5

TABLE OF CONTENTS

Table of contents
Executive summary ........................................................................................................................ 9
1. The role of public transport funding in a decarbonised future ................................................... 12
Decarbonisation requires a shift to sustainable modes ................................................................ 12
Achieving modal shift requires more investment in public transport ........................................... 14
Effective strategies are needed to achieve sustainability goals .................................................... 16
Sustainable mobility and public transport are interconnected ..................................................... 18
The current and future funding environment ............................................................................... 19
2. Improving the efficiency of public transport.............................................................................. 22
Co-ordination between institutions is crucial................................................................................ 22
Effective competition can increase efficiency gains ...................................................................... 23
Making better modal choices also improves efficiency................................................................. 24
Measuring performance is a prerequisite to increased efficiency ................................................ 25
3. User funding: Creating fairer, more efficient fare systems ........................................................ 28
User funding is in long-term decline ............................................................................................. 28
More passengers and better fare policy can increase user funding.............................................. 30
Current fare-setting policies are deficient..................................................................................... 34
Fare-setting policies should reflect efficiency and equity principles ............................................. 36
Improving fare-setting processes .................................................................................................. 40
4. Ensuring indirect beneficiaries contribute to public transport funding ....................................... 43
What is land-value capture?.......................................................................................................... 43
Multiple factors can influence land-value uplift ............................................................................ 44
Land-value capture instruments ................................................................................................... 47
Land-value capture in action ......................................................................................................... 49
Implementing land-value capture poses equity challenges .......................................................... 54
Lessons from land-value capture for public transport .................................................................. 55
5. Improving the government funding base: The role of earmarked taxes .................................... 57
Congestion charges and urban tolls .............................................................................................. 57
Other road-user charges ............................................................................................................... 60
The versement mobilité in France ................................................................................................. 62
Other earmarked tax revenues ..................................................................................................... 63
Criticisms of earmarking ................................................................................................................ 63
6. Combining funding sources ...................................................................................................... 65
7. Other revenue sources ............................................................................................................. 67
Advertising is a small but growing revenue source ....................................................................... 67
Sponsorship models vary in terms of risk and success .................................................................. 68

6

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

TABLE OF CONTENTS

8. Transport infrastructure financing ............................................................................................ 70
Addressing financing issues ........................................................................................................... 72
Conclusions and recommendations .............................................................................................. 76
Recommendations ........................................................................................................................ 77
References ................................................................................................................................... 80
Annex. Working Group members ................................................................................................. 90

FiguresFigure 1. Potential measures to reduce carbon dioxide emissions from transport ......................... 13
Figure 2. Changes in urban passenger transport mode share by scenario ...................................... 14
Figure 3. Transport infrastructure investments in ITF countries, 2001-21 ...................................... 15
Figure 4. Public transport’s share of motorised transport in Sweden, 2010-19 .............................. 16
Figure 5. Modal shift in Oslo and Akershus, 2007-22 ..................................................................... 17
Figure 6. The distribution of vehicle emissions across urban areas ................................................ 18
Figure 7. Revenue/operating cost ratio trends, United States, 2013-19 ......................................... 29
Figure 8. Average revenue/operating cost ratios in French cities, 1975-2009 ................................ 29
Figure 9. Revenue/operating cost ratios, Australian capital cities, 2015-21.................................... 30
Figure 10. Modal share of public transport for commuter trips in Australian cities, 1976-2016 ...... 31
Figure 11. Evolution of transport modal shares in the United Kingdom, 2002-22 ........................... 31
Figure 12. Change in modal shares in Île-de-France, 1976-2018 .................................................... 32
Figure 13. Conceptualising land-value uplift and land-value capture ............................................. 44
Figure 14. Land-value uplift due to access to a rapid transit service in the United States ............... 45
Figure 14. Proposed light-rail network for Dublin, 2042 ................................................................ 49
Figure 15. Private rail infrastructure development under Japan’s KOBAYASHI-Ichizo Model........... 51
Figure 16. Revenue sources for Japanese private rail operators, 2019-20 ...................................... 52
Figure 17. Total funding for transport growth agreements in Norway, 2019-29 ............................. 59
Figure 18. Crossrail funding and financing sources, 2021 .............................................................. 65

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

7

TABLE OF CONTENTS

TablesTable 1. A taxonomy of public transport funding sources .............................................................. 21
Table 2. Success dimensions and key performance indicators ....................................................... 26
Table 3. Efficiency dimensions and metrics ................................................................................... 27
Table 4. Potential benefits of optimisation of public and private transport pricing in Stockholm .... 34
Table 5. Alternative fare structures in Nancy, France .................................................................... 37
Table 6. Demand impact of peak pricing ....................................................................................... 38
Table 7. Average value uplift by public transport mode ................................................................. 45
Table 8. Summary of estimated value uplift for different property types ....................................... 46
Table 9. Congestion charges: Stated objectives and use of revenues ............................................. 58
Table 10. Project benefits and challenges in capturing them ......................................................... 70
Table 11. Initial financing and ultimate funding sources ................................................................ 71

Boxes
Box 1. The ITF Transport Outlook 2023 ......................................................................................... 13
Box 2. Funding and financing ........................................................................................................ 20
Box 3. Benchmarking in practice: Imperial College London’s Transport Strategy Centre................. 25
Box 4. Political pressures on fare levels......................................................................................... 35
Box 5. Transit-oriented development: Serving multiple policy ends ............................................... 54

8

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

EXECUTIVE SUMMARY

Executive summary
Key messages
Invest more
Greenhouse gas emissions from transport must decline rapidly to meet the Paris Agreement goals. As well
as renewing vehicle fleets with electric vehicles, this requires modal shift towards public transport andactive mobility. Public transport investments must increase significantly to enable the required modal shift.
Focus on efficiency
More efficient infrastructure and service provision will contain the funding requirement. This requires coordinated institutional management arrangements, a strong focus on competition, a well-functioning
multimodal mobility system, public investment decisions determined with efficiency in mind, and efficientfinancing choices.
Fund from all sources
Sustainable public transport requires funding from three sources: users, through fares; governments,
through general budgets and earmarked taxes; and taxes on indirect beneficiaries, including owners ofland that increases in value when its accessibility improves.

Main findings
Governments must address future public transport funding in the context of the urgency of the climate
crisis. Meeting the goals of the Paris Agreement requires rapid decarbonisation of all sectors of theeconomy, including transport, which is one of the largest emitters. Decarbonising transport requires a
rapid shift to electric vehicles powered by green electricity. However, this alone will not be sufficient, given
the long lifespan of the vehicle fleet and the time needed to move to low-carbon electricity sources.
Significant shifts away from car-dependency will need to occur. Public transport must at least retain its
modal share in city centres. Much of the change must occur in peri-urban areas and between these areasand city centres. Here, less-dense demand patterns imply that only a multi-modal transport system willachieve the required shift. Such a system centres on public transport with efficient links to shared andmicromobility systems. An increased share of active mobility is essential.
Governments are increasingly adopting sustainable urban mobility plans, which emphasise shifting
towards public, shared and active transport. As well as helping achieve decarbonisation, such shifts provide
more equitable access to transport by replanning cities to improve accessibility for those without accessto private vehicles. They also aim to enhance urban environments by reducing congestion, noise and air
pollution, reallocating urban road space to public transport, active mobility and alternative uses.
These objectives have fundamental implications for the future funding of public transport. Large, sustained
increases in investment are required to fund the needed increases in the public transport task. However,THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

9

EXECUTIVE SUMMARY

recent events, including the Covid-19 pandemic, have strained public transport authority finances and theability of governments to commit additional funds. In the longer term, pressure on public budgets will
increase with demands for health care from ageing populations. These factors highlight the importance ofproviding public transport services efficiently to minimise the overall funding requirement.
Strategic funding policy must optimise revenues from all sources, including the fares paid by direct
beneficiaries (i.e. transport users) and taxes levied on indirect beneficiaries (e.g. adjacent landholders).
Funding via general taxation should reflect payment for the broader social benefits of public transport
projects, including contributions to economic development and social equity goals. Governments shouldbase funding policies on clearly identified principles developed in consultation with all stakeholders. Thisrequires explicit, formal processes using the best available data and detailed, expert analysis.
Fare policies and fare-setting processes are crucial areas for reform. In most countries, fare revenue has
declined as a proportion of operating costs for several decades. Growing private motorisation and urban
sprawl have reduced load factors on public transport, while fare increases are politically unpopular. Setting
and maintaining fares at efficient levels optimises user contributions and makes expanded services easierto fund. Free public transport initiatives do little to divert demand from less sustainable modes and risk
undermining the sustainability of public transport.
There is increasing interest in taxing the indirect gains public transport investments provide to adjacentlandowners and businesses. Various land value-capture mechanisms could contribute substantially tofunding larger transport infrastructure projects, particularly those that create links to major, existing
networks. Examples include contributions from property development through planning systems, local tax
increments and integrated “rail plus property” development models.
Given the limited use of taxes on indirect beneficiaries, general government revenue usually funds mostof the difference between costs and fare revenues. This situation creates funding uncertainty, as public
transport must compete with other government priorities, such as health and education. Such uncertainty
can impede investment and service planning. Earmarked taxes are relatively little used but can potentiallycreate a more predictable funding base. Some cities earmark revenues from congestion charges and otherimposts on private vehicles to fund public transport improvements.
Public transport authorities have long raised revenue from advertising, sponsorship and related activities.
However, despite a few examples of significant increases in revenue in recent years, they make only
modest contributions to overall funding, which rarely exceed 2% of revenue and are unlikely to become
substantial future funding sources.
The size of the investments needed may strain the ability of some governments to finance the initial capital
expenditures required. This may encourage greater use of private finance initiatives, remunerated with
future payments from public budgets. A focus on financial efficiency is essential in contracting suchliabilities. Decisions to use private finance or other innovative financing methods should be based on theneed to achieve a clearly stated objective and accompanied by a transparently communicated analysis, by
the public authority, of the public funding implications over the life of the investment. Project financeshould add value beyond circumventing rules that limit apparent liabilities on public balance sheets.

10

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

EXECUTIVE SUMMARY

Top recommendations
Fund public transport as a crucial part of a sustainable, decarbonised and accessible transport system
The core policy priorities of decarbonisation, sustainability and equitable accessibility require a significant
reorientation of transport policy, entailing a more prominent role for public transport. Policy makers
should consider this broader policy perspective when planning and allocating funding for public transport.
Formulate integrated funding strategies for future public transport services
Governments should develop explicit funding strategies for public transport consistent with its crucial rolein a sustainable transport system. Such strategies should set out the contributions of each significant
funding source, based on stated principles and policies. Funding should be diversified to include
contributions from fare revenues, general taxation and specific local taxes on the indirect beneficiaries ofpublic transport investments, which may involve changes to legislation in some contexts.
Ensure effective co-ordination between levels of government when funding public transport investments
The trend towards decentralised public transport planning powers and the limited tax-raising capacities ofstate and local governments make effective funding co-ordination essential. Planning for significant
transport infrastructure projects should include allocating funding responsibilities. Governments should
consider using explicit framework agreements to ensure co-ordination of funding flows and maintainaccountability for their use.
Improve the efficiency of public transport infrastructure investments and service provision
Efficient infrastructure and services reduce demand for public subsidies. Efficiency is even more crucial
given the more prominent role of public transport in a decarbonised and sustainable transport future. Procompetitive reforms of infrastructure development and service provision are essential to improving
efficiency. Systematic approaches to measuring efficiency performance, using structured benchmarking
tools, can provide the insights needed to best direct efforts to make further gains.
Adopt explicit fare policies and implement them via formal processes
Explicit fare-setting policies, implemented via formal processes, can make user funding from fares lessvulnerable to political pressure and more efficient over time. Incorporating extensive stakeholder
consultation in fare policy development, especially with users, will enhance acceptability. Governments
should also consider incorporating independent, expert advice into fare-setting processes.
Use structured fare policies for more equitable accessibility
Unlike blanket low fares, well-targeted concessionary fares can improve accessibility withoutcompromising overall fare revenue. Eligibility for concession fares should be based primarily on need (i.e.
income levels) rather than membership of particular social groups. This applies to middle-income countries
as much as high-income countries, as the example of Bogotá demonstrates.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 202411

THE ROLE OF PUBLIC TRANSPORT FUNDING IN A DECARBONISED FUTURE

1. The role of public transport funding in a
decarbonised future
The role of public transport within the broader transport system is undergoing major change, which will
accelerate in the coming decades. A clear understanding of public transport’s future role, including its
relationship with other modes, is essential to developing an efficient, equitable and sustainable long-term
funding model. Changes in of the ways public transport services are provided also have important
implications for future funding requirements.

Decarbonisation requires a shift to sustainable modes
The climate crisis presents governments worldwide with a significant challenge in addressing future public
transport funding. Meeting the Paris Agreement goal of limiting global warming to “well below” 2 degrees
Celsius above pre-industrial levels requires the rapid decarbonisation of all sectors of the economy (UN,2015). The transport sector accounts for 23% of emissions globally and 30% in developed countries, andtotal transport emissions have not yet begun to fall (UN, 2021).
Decarbonising transport requires a rapid shift to electric vehicles (EVs) fuelled by green electricity.
However, this alone will not be sufficient, given the long lifespan of the vehicle fleet and the time required
to build a green electricity grid. Therefore, significant shifts to more sustainable modes, including public
transport, are also needed.
Since public transport already has high modal shares in many city centres, much of the required changemust occur in peri-urban areas and between these areas and city centres. However, demand patterns in
non-urban areas are less dense. For this reason, only a multimodal transport system, with public transport
at its core and efficient links to shared mobility and micromobility systems, can achieve the required shift.
More people need to use active transport modes as well. Continued improvements in vehicle energy
efficiency across all transport modes and action to reduce travel demand are also essential (ITF, 2023b).
This context has fundamental implications for the future funding of public transport. Substantial expected
growth in overall transport activity in the coming decades significantly increases the decarbonisation
challenge. The ITF Transport Outlook 2023 predicts that, on current trends, passenger and freight transport
activity will double between 2019 and 2050 (see Box 1).
Dramatic increases in transport activity mean that current transport decarbonisation commitments are
insufficient to put transport on a sustainable path. ITF modelling shows that, even if governments fully
implement these commitments, transport’s total carbon dioxide (CO2) emissions would still increase by
14% by 2050 (ITF, 2023b). Therefore, significant additional policy change, as modelled in the ITF Transport
Outlook 2023 under the High Ambition scenario, is needed.

12

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

THE ROLE OF PUBLIC TRANSPORT FUNDING IN A DECARBONISED FUTURE

Box 1. The ITF Transport Outlook 2023
The ITF Transport Outlook 2023 focuses on how the global transport sector can reduce carbon dioxide
emissions in line with the Paris Agreement goals between now and 2050. Using the ITF’s in-house global
transport models, it projects the potential effects of two policy scenarios: a Current Ambition scenario
and a High Ambition scenario.
The Current Ambition scenario provides insights into how transport demand and emissions could evolve
over the coming decades if transport policy continues along its current path. It reflects a general
recognition that the transport sector needs to decarbonise and considers existing and forthcoming
policy commitments in national and regional governance directives, government strategies and laws.
The High Ambition scenario, by contrast, looks at the impact of adopting more ambitious policies todecarbonise the transport sector. It takes the Current Ambition policies and imagines a policy trajectorywith accelerated implementation timelines and bolder policies to encourage more sustainable
developments and travel behaviour.
Source: ITF (2023b).

The Avoid-Shift-Improve (ASI) framework is the most widely applied approach to decarbonisation. This
paradigm prescribes avoiding unnecessary trips, shifting to less energy-intensive modes, and improving
vehicle efficiency (see e.g. TUMI, 2019). Figure 1 conceptualises the potential contribution of key policy
and behavioural changes to reducing carbon emissions from transport.
Figure 1. Potential measures to reduce carbon dioxide emissions from transport

Source: K2 (2022).

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 202413

THE ROLE OF PUBLIC TRANSPORT FUNDING IN A DECARBONISED FUTURE

Figure 2. Changes in urban passenger transport mode share by scenario

Note: Figure depicts ITF modelled estimates. Active mobility and micromobility include walking, biking, andscooter and bike sharing. Public transport includes rail, metro, bus, light rail transit and bus rapid transit. Informal
PT includes informal buses and three-wheeled public transport. Shared vehicle includes motorcycle and carsharing.
Private vehicles include motorcycles and cars. Shared mobility includes taxis, ridesharing and taxi buses.
Source: ITF (2023b).

ITF modelling shows ambitious decarbonisation policies could reduce transport CO2 emissions by 80% by
2050, compared to 2019. However, achieving this goal requires a multi-faceted approach. Figure 2
compares the evolution of urban passenger transport modal shares under the ITF’s two scenarios. It showsthat while public transport’s mode share increases in both scenarios, the increase is smaller in the High
Ambition scenario, mainly due to higher assumed growth in active and shared mobility and micromobility.
At the same time, given the significant expected increase in total demand, public transport demand would
more than double in the High Ambition scenario. Public transport would also play a crucial role as thecentrepiece of a multi-modal sustainable mobility model, combining with active, shared and micromobility
to make complex trips feasible and efficient.

Achieving modal shift requires more investment in public transport
Substantial investments are needed to decarbonise transport. As SLOCAT (2021) states: “Globally,
investments of USD 2.7 trillion per year from 2016 to 2030 (or USD 40.5 trillion in total) will be needed toachieve low carbon transport pathways, with 60-70% of these investments in emerging economies.”
Similarly, the ITF estimates that realising the High Ambition scenario would require investing 1.5% of global
gross domestic product (GDP) between 2019 and 2050, or around USD 2.4 trillion annually (ITF, 2023b).
The enhanced role of public transport has significant implications for investment allocation. Investment
spending and operational subsidies for public transport must rise significantly from current levels, implying
a reversal of long-term trends, and more coherence in transport policies to make investment as efficientas possible. Between 2010 and 2018 alone, road transport infrastructure investment in OECD countries
increased by 91% (SLOCAT, 2021). Figure 3 shows that roads dominate total transport infrastructure
investment in a majority of ITF countries (where data are available).
14

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

THE ROLE OF PUBLIC TRANSPORT FUNDING IN A DECARBONISED FUTURE

Figure 3. Transport infrastructure investments in ITF countries, 2001-21
12 000EUR (100 millions)

10 000
8 000

Road
Rail

6 000

Inland waterways
Maritime ports

4 000

Airports

0

2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021

2 000

Source: ITF (2023).

The modal shift from private vehicle use under decarbonised transport scenarios implies reductions inrequired road investments. However, additional spending will be needed to enable this shift, including
road-space reallocation to create new bus priority lanes, cycling and micromobility lanes, and footpaths.
The ITF (2023b) estimates that the road spending required under its High Ambition scenario would be
about 6.5% less than under the Current Ambition scenario. Expected reductions in private vehicle
ownership partly drive this result, as average distances travelled fall. At the same time, the use of sharedvehicles rises, and private transport spending moves towards buying services rather than assets.
In the medium term, reduced road spending should offset public and active transport investment
increases. However, the long time horizons of major infrastructure investments may create shorter-term
challenges due to the costs and difficulties involved in revisiting already committed expenditures.
Moving to sustainable transport could reduce total investment needs in the long term. The ITF estimates
overall transport investment needs would fall 5% from current levels under the High Ambition scenario(ITF, 2023b). Other researchers reach similar conclusions. For example, Fisch-Romito and Guivarch (2020)conclude that “the expenditure needed for transportation infrastructure is lower in low-carbon pathways
than in baseline scenarios. This result holds true at both the global and regional scales and is robust to theuncertainties considered”.
Expected reductions in fossil-fuel subsidies should expand the fiscal space to fund necessary investments.
For example, the Group of 20 (G20) countries have pledged to end such support. However, by 2020,
G20 fossil-fuel subsidies had only fallen by 9% from peak levels and continued to amount to almost over
USD 5 trillion globally. This situation highlights the potential gains from more meaningful reform (SLOCAT,
2021).
In summary, moving towards sustainable transport should not increase total transport investment needs.
It will require a significant funding shift between modes and supporting policies within the “Avoid, Shift,
Improve” framework. Governments must prioritise strategic planning, data collection and analysis, and

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 202415

THE ROLE OF PUBLIC TRANSPORT FUNDING IN A DECARBONISED FUTURE

forecasting, to provide sound evidence for decision-making and thus achieve this shift promptly andefficiently.
Redirecting transport spending will be particularly challenging in the short- to medium-term, as manylarge-scale investments have extended lead times and significant expenditures are already committed.
However, the urgent need to move to sustainable transport implies governments should carefully review
investment commitments currently directed to less sustainable modes.

Effective strategies are needed to achieve sustainability goals
Some OECD countries have already set ambitious targets for increased public transport mode shares andsignificantly changed investment allocations. France’s public transport investment tripled fromEUR 2.3 billion in 2010 to EUR 6.9 billion in 2019. More than one-third of the 2019 total was devoted to
the Grand Paris Express, a project intended to transform mobility in the greater Paris region.
The European Union’s 2021 Sustainable and Smart Mobility Strategy sets several specific modal shiftobjectives. These include doubling high-speed rail traffic by 2030 (and tripling it by 2050) and completing
the Trans-European Transport Network (TEN-T) as a comprehensive, sustainable multi-modal network (EC,2020). The newly elected German government also established targets related to modal shift in its 2021
coalition agreement, committing to “strive to invest considerably more in the railways than in the roads”(Clinnick, 2021; Ibold and Bongardt, 2021).
While increases in public transport investments have not always produced the desired modal shifts, somecountries have achieved encouraging results. Sweden set a target of doubling public transport’s modal
share, from 18% of motorised travel in 2006 to 36% by 2030. Public transport’s share had reached 32% by2019 (see Figure 4). This result was enabled by a 60% increase in public funding for public transport (fromSEK 17 billion to SEK 27 billion) and new legislation, adopted in 2012, shifting the main source of public
transport funding from the local to the regional level of government (Hultén, 2023).
Figure 4. Public transport’s share of motorised transport in Sweden, 2010-19

Note: The market share results for 2016 exclude Stockholm due to unavailability of data.
Source: Hultén (2023), data from Kollektivtrafikbarometern (2020).

16

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

THE ROLE OF PUBLIC TRANSPORT FUNDING IN A DECARBONISED FUTURE

Figure 5. Modal shift in Oslo and Akershus, 2007-22

Source: Norheim (2023).

A similar shift towards public transport modes has occurred in Norway. Public transport ridership increased
by 68% in Oslo and 86% in Akershus between 2007 and 2022, while road traffic within the Oslo toll cordon
area fell (see Figure 5) over the same period. The Norwegian government’s decision to use urban toll
revenues to fund increased public transport investment and improved services significantly contributed tothis shift (Norheim, 2023).
In Canada’s Ontario Province, the City of Brampton has significantly increased public transport’s modal
share through local rather than national government initiatives. Between 2009 and 2019, public transport
ridership grew by 160% while the population grew by 27% (City of Brampton, 2021). This result is notablebecause development patterns remain largely low-density, single-use and suburban. Over half of theprivate dwellings in the city are detached houses (City of Brampton, 2019). This form of spatial
development is not typically associated with high public transport performance.
However, the city invested heavily in improved services, adopting a network with high-frequency trunklines, many with limited stops or operating in priority corridors (Marshall, 2018). Before Covid-19 the city
had the fastest-growing ridership in Canada, and ridership in the first five months of 2023 was up 25% on
the same period in 2019 (City of Brampton, 2023). The city has also adopted specific targets (e.g. 71 public
transport rides per capita by 2041) in its sustainable development strategy. Gupta (2023) also cites highand rising car ownership costs as a factor in this modal shift.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 202417

THE ROLE OF PUBLIC TRANSPORT FUNDING IN A DECARBONISED FUTURE

Sustainable mobility and public transport are interconnected
Many governments are adopting sustainable urban mobility plans (SUMPs) in the broader planning
context. SUMPs play a significant role in decarbonisation and seek to ensure equitable access to transport
for those without access to private vehicles. SUMPs also focus on improving urban environments by
reducing congestion, noise and air pollution. Specific actions include reallocating urban road space topublic transport, active mobility and alternative uses (see e.g. Eltis, 2021).
Hultén (2023) describes this as adopting a changed social contract, with the objective of “enabling
everyone to get all around cities, as well as to important places outside cities, at a reasonable time and areasonable cost, without having to own a vehicle”. Hultén argues that this objective implies reorienting
transport resources from private to shared modes, and moving from investing in products to paying forservices.
Achieving sustainable urban mobility also implies implementing strategies to reduce transport demand.
Integrating land-use and transport planning, including adopting the “15-minute neighbourhood” concept
through mixed-use zoning, can reduce travel distances. Working with other government service providers(e.g. health and social services) to modify service planning and delivery models can also reduce travel
distances and increase accessibility (Jones and Blackadder, 2022). Maximising virtual accessibility can
reduce travel needs while maintaining or improving accessibility.
Equity is also a central issue. Researchers have long highlighted (see e.g. ITF, 2020b) that people without
access to private cars often face “transport poverty”, leading to social exclusion and the need for equitable
accessibility policies. Increased road-user taxes and other policies designed to restrict private vehicle use
will deepen this inequity by reducing the affordability of private vehicles. This inequity underlines the needto improve other transport options.
Figure 6. The distribution of vehicle emissions across urban areas

Source: Based on Coldefy and Gendre (2020).

18

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

THE ROLE OF PUBLIC TRANSPORT FUNDING IN A DECARBONISED FUTURE

Reduced private car use is implicit in sustainable mobility. Figure 6 shows that car use needs to decline inperi-urban areas. While 80% of vehicle emissions occur in urban areas, the high modal share of public
transport in city centres means that only 2% of emissions relate to trips within these areas. The major
targets for emissions reductions must be journeys within outer urban areas (33% of emissions), between
outer urban areas and suburban zones (25%) and between suburban areas and centres (25%).
The methods used to shift to sustainable modes will vary by context. For example, rapid bus services
require limited infrastructure investments and can quickly expand service offers. A recent study (Coldefy
and Gendre, 2020) found that express coach services with few stops can provide similar journey times toprivate cars in most cases, while dedicated bus lanes can bring significant time savings.
User costs for express bus passengers are also 85% lower than for drivers, with savings of EUR 200 per
month for a 30-kilometre daily commute. Furthermore, the costs of CO2 emission avoidance are low oreven negative (after accounting for the service’s other benefits). Public transport operators can maximise
the benefits of the shift to express coaches and other modes if they integrate services. Effective integration
could involve providing freeway-adjacent park-and-ride facilities in suburban areas, or bus terminals colocated with metro and tram services in city centres (Coldefy and Gendre, 2020).
Maintaining accessibility across urban, peri-urban and extra-urban environments entails developing andintegrating all alternative modes, including public, shared and active transport. Governments must
increase both capital investments in public transport infrastructure and operating subsidies. They should
also invest in efficient, multi-modal transport systems based on the Mobility as a Service (MaaS) concept,
with public transport at their centres (see e.g. ITF, 2021d, 2021e).
Despite much experimentation, no commercially self-sustaining, mass-market MaaS offer has yet
emerged. The long-term viability of MaaS business models thus remains unproven. Hultén (2022) suggests
governments could lead and subsidise the initial development and delivery of MaaS systems. Nongovernment entities that have engaged in MaaS lack the resources to support its timely development andare not well-placed to take a strategic view of the broader role of MaaS in transport policy.
A government-led MaaS model would also overcome many public transport authorities’ reluctance toengage with commercial MaaS providers (due to concerns that they could profit unreasonably fromreselling a subsidised service). However, should governments adopt this approach, maintaining the
medium-term contestability of the market by enabling entry by competing providers is essential to ensure
the sector’s dynamic efficiency.

The current and future funding environment
This report focuses primarily on funding public transport. However, because major public transport
investments require substantial capital spending to develop essential infrastructure, it is important todistinguish between funding and financing (see Box 2). Many cities currently experience long-term public
transport investment backlogs. Public transport networks often failed to keep pace with urban growthduring the decades in which car ownership and private vehicles’ mode share ballooned. Despite more
recent moves to promote public transport use, particularly in major cities, much of this backlog remains.
Public transport authorities also faced significant financial pressures during the Covid-19 pandemic; many
are financially fragile. Almost all saw major downturns in ridership and revenue, initially due to lockdowns
and subsequently to consumer reluctance to use public transport. Government-provided emergency
funding rarely fully offsets revenue losses. Patronage levels and revenues have yet to recover in many

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

19

THE ROLE OF PUBLIC TRANSPORT FUNDING IN A DECARBONISED FUTURE

towns and cities. The recent re-emergence of inflation has also raised pressure on public transportbudgets, increasing operating and investment costs.
The combined impact of these factors means many public transport authorities face budgetary stress. In
the longer term, ageing populations will further pressure public budgets. In this context, identifying
sustainable, efficient and equitable long-term funding models for public transport becomes an urgent task.
Any model must meet two broad requirements. First, it must minimise costs by ensuring investment andservice provision efficiency (see Chapter 2). Second, it must optimise the contributions of all funding
sources.
Box 2. Funding and financing
To enable major infrastructure investments, it is crucial to determine who will ultimately pay for theservice, in what proportions and over what periods; and who will mobilise the resources to implement
it. The first aspect, funding, has to do with the project’s ability to generate a sufficient revenue stream
over its lifetime, not only to cover the required capital investments, but also operating and maintenancecosts. The second, infrastructure financing, refers to the capacity to mobilise the investment andresources needed to meet the project’s initial requirements (Vassallo and Garrido, 2023).
Two conditions determine whether a project is fundable. First, it must generate benefits at least equalin value to its total cost. Second, it must be possible to capture a sufficient proportion of these benefits
to meet these costs.
Over a project’s lifetime, the funding requirement comprises all capital and operating costs, plus therequired rate of return on investment. The latter is equal to the opportunity cost of the capital
employed, and includes the relevant discount rate, as most capital costs arise before the project begins
to provide services, while repayments of these costs occur progressively over the project’s lifespan. The
funding requirement can be represented as follows:

Funding requirement = capital investment + return on capital + operating costs + maintenance costs
The time difference between the large initial expenditure and the flow of benefits creates the distinction
between funding and financing. A project may produce enough funding (revenue to cover costs) over
its lifespan but have problems obtaining finance at the outset when the capital investment is needed.
If project proponents cannot mobilise adequate resources, there is no way to develop the project andenjoy its benefits. In developed countries with efficient capital markets, problems when financing
potentially fundable projects usually result from difficulties in capturing the project benefits. These may
be political or technological, or some combination of the two.
Furthermore, the near universality of operating-cost deficits means major transport infrastructure
projects impose large, ongoing funding requirements. However, many innovative funding sources used
to fund projects’ capital costs projects are ill-suited to providing ongoing funding. Even those potentiallyusable in this way (e.g. various property taxes) may be difficult to apply to generate operating subsidies
if significant ongoing charges have already been levied to contribute to capital funding.
This highlights the need for project budgeting to focus systematically on the long-term fundability of the
project rather than simply the capital costs. This means including estimates of the likely ongoing
operational subsidies required to maintain services on new infrastructure in project appraisals.
For a more in-depth discussion of public transport financing see Chapter 8 of this report.

20

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

THE ROLE OF PUBLIC TRANSPORT FUNDING IN A DECARBONISED FUTURE

Vassallo and Garrido (2023) identify three general sources of public transport funding: public transport
users, indirect beneficiaries of public transport services and infrastructure, and taxpayers (discussed in
Chapters 3-5, respectively). Other sources such as advertising and sponsorship provide a smaller share ofrevenue (see Chapter 7). A recent systematic review identifies and evaluates 19 specific funding options(see Table 1), concluding that “no new options . . . are particularly cost-effective and easy to implement;each has disadvantages and constraints. As a result . . . various funding options should be used to help
finance the local share of transportation improvements to ensure stability and distribute costs broadly”(Litman, 2022).
Table 1. A taxonomy of public transport funding sources
Funding source

Specific funding options

Public transport users

Fare increases
Discounted access passes (to increase user numbers)

Indirect beneficiaries of public transport
services and infrastructure

Property taxes
Land-value capture
Development or transport-impact fees
Station rents
Sale of air rights
Employee levies (i.e. payroll tax surcharges)
Regional sales taxes

Taxpayers

Vehicle levies (registration surcharges)
Fuel taxes
Vehicle distance charging
Selective road tolling
Congestion charges
Parking pricing
Parking levies
Parking taxes
Utility levies (paid by electricity users)
Income taxes

Source: Based on Litman (2022).

In summary, the complexities of the current funding environment imply that governments should consider
all of the following strategies:•

increasing user contributions (i.e. fare revenue) by adopting well-designed fare policies and faresetting processes•

increasing contributions from the indirect beneficiaries of public transport, especially by more
systematically applying land-value capture (LVC) mechanisms•

reorienting transport infrastructure investments away from the road sector and towards public,
shared and active modes•

using earmarked taxes, where appropriate, as a medium-term initiative to encourage and enable
timely moves to sustainable transport•

ensuring adequate financing capacity is available, potentially by calling on private financing
options or other innovative financing tools (see Chapter 8 of this report).

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

21

IMPROVING THE EFFICIENCY OF PUBLIC TRANSPORT

2. Improving the efficiency of public transport
Significant expenditure increases are needed to establish and operate sustainable transport systems.
Spending these funds effectively will minimise funding requirements, maximise value to consumers andyield sustainable modal shift. Achieving efficiency gains remains a serious challenge for public transport
operators and funders. However, the objective to improve efficiency should not come at the cost of otherservice planning and delivery objectives, such as accessibility for all, and modal shift. Public transport
authorities should equally consider the trade-offs between improving efficiency and meeting otherobjectives or priorities.
New public transport services generate capital costs and ongoing operational costs. Efficiency gains areneeded in both areas to maximise the size and competitiveness of the public transport service offer. In thisrespect, increased efficiency can be regarded as equivalent to a fourth source of funding for public
transport that can greatly assist in closing current and future funding gaps.
Improving the operational efficiency of public transport reduces the need for subsidies. For example,
benchmarking work (Condry, 2023) shows that costs per train-capacity-kilometre vary more than threefold
across the International Suburban Rail Benchmarking Group (ISBeRG), suggesting the scope for efficiency
gains (although operating environments and remits vary). However, very few public transport operatorsand funders have introduced benchmarking or performance indicators that would enable them to measureand understand service efficiency.
This chapter explores three factors that improving efficiency depends on: the institutional organisation ofservice planning and delivery; the role of competition in promoting and maintaining efficiency; and the
management of supply issues, including effective service planning and modal integration. It then moves toa discussion of the importance of benchmarking.

Co-ordination between institutions is crucial
The ITF has previously documented key trends in institutional approaches to public transport service
planning and procurement (ITF, 2020a). Planning functions in many ITF countries have tended to movefrom national to regional and local government levels. This reflects broader trends towards
decentralisation to address local needs and preferences and improve value for money.
However, because transport patterns do not necessarily reflect local government boundaries, many
countries have found it necessary to create co-ordination mechanisms that cover the entire functionaltransport area of a city or region (i.e. the areas between people’s homes, workplaces and other vital
destinations). Examples include creating metropolitan transport authorities (MTAs), pooling funding andregulatory authorities, and negotiating agreements between local and regional governments.
Coldefy (2023c) identifies three ways to ensure co-ordinated planning across functional areas:
1. extend the boundaries of metropolitan areas, or their transport authorities, across the wholetransport area

22

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

IMPROVING THE EFFICIENCY OF PUBLIC TRANSPORT

2. empower metropolitan public transport authorities to implement public transport planning for
inbound passengers beyond their jurisdictional boundaries
3. encourage co-operation between metropolitan and regional public transport authorities.
France’s 2019 Loi d’Orientations des Mobilités [Mobility Orientation Law, LOM] takes the third approach(Republic of France, 2019). Coldefy argues that the results are poor, with few regions making co-operative
agreements with neighbouring metropolises, as the LOM envisages. The resulting risk is that metropolises
manage their transport and land-use policies without weighing their impacts on neighbouring regions,which frequently house many metropolitan area workers. Demographic changes increase the costs of poor
co-ordination when a higher proportion of the population lives outside metropolitan areas (often due tometropolitan house price inflation) and commutes to city jobs. That is, jobs are more concentrated in themetropolis, while housing has become more dispersed.
Similar dynamics exist in many places. In Canada’s Greater Toronto and Hamilton Area (GTHA), changing
trip generators and increasing housing costs have resulted in more complex travel patterns, especially forcommuters. For example, the GTHA’s second-largest employment cluster, the Pearson Airport
Employment Zone in Mississauga, is adjacent to two other municipalities, each with public transport
networks. Intercity buses operated by GTHA’s regional transport authority, Metrolinx, also serve theemployment zone. The result is a complex network of bus services operating outside their municipal
borders, limited service integration and connectivity gaps.
Legislative constraints on cross-boundary operations result in service duplication and higher operating
costs and fares. Addressing these issues requires co-ordination between service providers, includingaligning operational practices and integrating ticketing. This co-ordination currently occurs via separate
inter-municipality agreements. However, following several pilot projects, provincial authorities have begun
reforming legislation limiting cross-boundary service integration (Province of Ontario, 2022).
By contrast, in the Metro Vancouver area of British Columbia, the MTA, TransLink, has jurisdiction over all
public transport services. Service and infrastructure improvements are planned and implemented by asingle authority in co-operation with the metropolitan area’s municipalities, and services and fares are fully
integrated. TransLink has sole authority to establish and operate services but can also approve
independent services (Province of British Columbia, 2023). The cities of Barcelona, London and Paris offer
further contrasting examples of integrated regional MTAs (see ITF, 2018a).

Effective competition can increase efficiency gains
There has been a clear trend away from public monopoly provision of public transport services, with hybrid
models of regulated competition now widespread. This reflects a broader trend towards ensuring more
efficient delivery of public services. However, while this trend is well-established, good competitive
processes are often absent. Transport authorities should ensure well-designed competitive processes,
which are critical to establishing and maintaining workable competition.
A fundamental lesson for urban transport is that competition for the market is preferable to competitionin the market (ITF, 2020a). Operators competing for passengers on identical or similar bus routes (asoccurred, for example, during a reform process in Santiago, Chile) creates safety issues and congestionand pollution concerns. Crucially, it also reduces load factors, endangering the services’ fundability.
Conversely, allocating concessions to operate route networks via periodically repeated competitive tender
processes improves service quality and lowers costs (Hurtubia and Leonhardt, 2021). Barcelona’s

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

23

IMPROVING THE EFFICIENCY OF PUBLIC TRANSPORT

experience of a mixed (i.e. public and private) service provision model highlights the potential efficiency
gains. Services contracted via competitive tendering showed significantly lower average costs per buskilometre than those provided under public monopoly conditions (EUR 3.50-5.50 versus EUR 6.70).
Passenger satisfaction scores were higher for tendered services, and average public subsidies were around
one-third lower (EUR 1.35 per passenger versus EUR 1.98). These differences led to a progressive movetowards more competitive tendering (ITF, 2020a).
Following the reports from the French Court of Auditors, as well as the French National Transport
Authority, Coldefy (2023b) argues the monopoly status of France’s national state-owned railway company,
SNCF, is a core reason for observed differences in productivity and costs between it and other countries
such as Germany and Sweden. He notes the SNCF has 1.73 employees per kilometre of line, among thehighest in Europe and almost twice that of Deutsche Bahn. French regional train drivers drive for around400-600 hours per year, compared with about 1 000 in Germany.
A well-designed tendering process is essential to achieving the potential efficiency gains from competition
in practice. A primary goal is to establish and maintain workably competitive markets by reducing barriers
to entry. Achieving this goal requires maximising the number of qualified bidders, by:•setting the size and length of concessions appropriately•

separating service provision from asset ownership (e.g. depots, buses)•

providing adequate information to tenderers•

ensuring contracts include adequate incentive mechanisms and performance standards that
address all significant service quality requirements (ITF, 2020a).

Making better modal choices also improves efficiency
Efficient public transport supply also requires the scope of services to be appropriate and sound modal
choices to address different circumstances. Coldefy (2023a) describes the evolution of the public transportoffer in France in recent decades, highlighting the need to match demand conditions and modal choices.
For example, the regional rail network (TER) has an average load factor of only 26%; many lines with low
traffic levels continue to be served by rail rather than coaches. Coldefy points out that coach services
would often be cheaper and yield lower emissions per passenger (when replacing diesel trains).
Conversely, the potential diversion of demand to private vehicles (or discouraged travel) due to shifts tobus services, generally less preferred by consumers, must also be considered.
France’s urban public transport services have expanded into many relatively low-density areas, mainly via
major expansions in bus routes. Public transport accessibility has also increased, but high costs and low
load factors imply large operational subsidies. For example, while the operating cost of a bus is around
EUR 7 per vehicle kilometre, average loads on many services are below five passengers. The high subsidy
cost implies low service frequencies, reducing the prospect of increasing patronage due to low perceived
service quality.
Service planning must address this trade-off between efficiency and accessibility within a strategic
framework (Coldefy, 2023a). For example, an alternative approach could potentially provide more
frequent services and increase patronage. This would involve developing a multi-modal model that
integrates public transport with other modes, including active and shared transport. Buses or trams would
provide trunk services, fed by other modes. Such a model requires investment in quality walking andcycling infrastructure (ITF, 2024). It also requires enabling regulatory environments for shared and24

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

IMPROVING THE EFFICIENCY OF PUBLIC TRANSPORT

micromobility. Minimising the time and monetary costs of multimodality is at the heart of the MaaS
concept. An enabling regulatory environment makes sustainable MaaS models more likely to emerge,
encouraging multimodality.

Measuring performance is a prerequisite to increased efficiency
Effective performance measurement is essential to maintaining and improving efficiency. Both crosssectional (static) and time-series (dynamic) data can be used. A static measure, comparing efficiency
metrics against similar service providers can assess efficiency relative to current benchmarks. Dynamic
measures track changes in efficiency performance and help assess reform progress. Comparative timeseries assessments enable measuring an operator’s efficiency improvement rate against relevantbenchmarks.
Efficiency measures are most helpful if they measure performance against comparable service providers.
Many public transport authorities conduct little comparative assessment. However, a large body ofknowledge has emerged from the benchmarking work undertaken in recent decades, particularly by
Imperial College London’s Transport Strategy Centre (see Box 3). This work identifies and specifies
indicators covering numerous performance dimensions.
Benchmarking includes broader performance measurement

Benchmarking goes beyond efficiency, addressing all objectives pursued by public transport services,
including safety, service quality, accessibility, and sustainability. Table 2 provides an example, showing key
success dimensions for public transport operators and KPIs for each dimension (with multiple KPIs in eacharea). The “internal processes” and “financial success” dimensions relate most directly to efficiency. The“growth and learning”, “customer” and “safety” dimensions relate to other vital outputs (which typicallyinvolve trade-offs against efficiency).

Box 3. Benchmarking in practice: Imperial College London’s Transport Strategy Centre
The Transport Strategy Centre (TSC) at Imperial College London has been benchmarking public transport
for over 25 years. The TSC includes over 120 member groups covering metro, rail, light rail, buses andairports. Rail benchmarking groups covering mainline and suburban rail operations have operated since2010 and 2016, respectively. The TSC also convenes a Railway Infrastructure Asset Management Group.
The benchmarking groups work on an annual cycle combining measurement and analysis of key
performance indicators (KPIs), in-depth research, and information sharing. A core insight is that
efficiency measurement is a complex and multi-dimensional task, requiring a detailed understanding of
the specific characteristics of each operator and their operational context, and consistent andcomparable data.
Source: www.imperial.ac.uk/transport-engineering/transport-strategy-centre.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

25

IMPROVING THE EFFICIENCY OF PUBLIC TRANSPORT

Table 2. Success dimensions and key performance indicators
Success dimension

Areas covered by key performance indicators*

Background and context

Network, services and passengers

Growth and learning

Change in demand and service
Staff training

Customer

Capacity provision and utilisation
Trains: Service delivery and punctuality
Train delays (e.g. delay minutes)
Passenger punctuality and delays

SafetyPassenger safety
Staff safety
Signals passed at danger (SPADs)

Internal processes

Fleet availability and utilisation
Reliability (delay incidents by cause)
Staff productivity
Staff absenteeism rate
Energy consumption

Financial

Operating cost/efficiency (by category)Labour cost/efficiency (by category)
Revenue (fares and subsidy)
Fare evasion

Note: *Multiple key performance indicators can exist within each of these areas.
Source: Condry (2023).

Some of these success dimensions conflict, at least partly. Good benchmarking practice involves
developing metrics for each dimension and determining how to combine them to obtain the richest
insights into current performance, performance trends and their determinants. This method provides
essential management information to support performance improvement.
Given the trade-offs between performance objectives, it is essential to understand how individualtransport networks or operators perform from an overall perspective when comparing efficiency. For
example, if a high level of quality is required (e.g. high punctuality standards) or services operate in lowdensity areas, lower performance on some efficiency metrics is likely. For example, staff productivity may
appear to decrease if operators provide additional staff to ensure on-time departures.
Combining efficiency metrics for better insights

Condry (2023) highlights a basic distinction between technical efficiency (maximising outputs from a given
set of inputs) and allocative efficiency (minimising the inputs needed to achieve a given output). He notes
successful railways typically use both measures. The operating environment significantly affects potential
efficiency, complicating comparisons. For example, widely differing demand densities mean railways withsimilar costs per train-kilometre can exhibit considerable differences in cost per passenger-kilometre.
Combining efficiency metrics helps address comparability issues and improve understanding of different
aspects of system performance. It is important to distinguish between efficiency-related factors that areat least partly within the operator’s control and exogenous factors. Understanding the tools available toaffect performance against each metric is also essential.

26

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

IMPROVING THE EFFICIENCY OF PUBLIC TRANSPORT

Table 3. Efficiency dimensions and metrics
Efficiency dimension

Key measures

Efficiency of rolling stock utilisation

Proportion of fleet available for peak service
Distance travelled per annum (km/car)
Passenger-kilometre/car
Passenger-kilometre/car-kilometre
Cost/car (by category)
Cost/car-kilometre (by category)

Efficiency of labour utilisation

Passenger-kilometre/labour hour
Train-kilometre/labour hour

Cost performance

Operating cost/hour, per passenger-kilometre, per car
Labour cost/train hour, passenger-kilometre, or station
Energy cost/ passenger-kilometre (or capacity-kilometre)
Annual investment rate

Revenue performance

Cost recovery (fare and non-fare revenue)/operating expenditure (OPEX)
Fare and non-fare revenue/passenger-kilometre, or per passenger journey
Fare evasion rate

Source: Based on Condry (2023).

Condry (2023) identifies four broad perspectives on efficiency and highlights their relationships withelements of the rail operating environment. In general, rail operators expend resources to provide aservice that meets passenger demand. The resources required include infrastructure, stations, rollingstock, staff, maintenance facilities and energy. The service consists of timetables, routes, operating hours,
distances travelled, capacity, speeds and service types. Demand refers to passenger journeys and distances
travelled, network usage, travel times, the purpose of journeys, and a passenger’s willingness to pay.
A first efficiency perspective considers the relationship between resources and service: in other words, theextent to which resources are used efficiently to deliver the train service. A second, connected perspective
reflects the relationship between service and demand: in other words, the extent to which an efficienttrain service is delivered that meets (and grows) demand. Both perspectives relate largely to establishinga sustainable future funding base for public transport.
A third perspective considers the relationship between resources and demand: in other words, the extent
to which resources are used efficiently to meet (and grow) demand. A fourth, connected perspective
considers the link between financial efficiency and profitability: in other words, between costs andrevenues. Both perspectives focus on growing demand through efficient resource use and service
provision.
All four perspective are vital in ensuring public transport plays its part in a sustainable transport system.
Simply minimising costs risks entering a vicious circle of declining service levels and quality, reduced
demand, and lower revenue. By contrast, maximising financial sustainability requires focus on both costs(resource) and revenues (demand).
In summary, focusing on efficiency helps minimise the size of the funding challenge, and benchmarking
plays an important role in enabling efficiency gains. The following chapters turn to the three main sourcesof public transport funding, and to the challenge of optimising contributions from these sources.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

27

USER FUNDING: CREATING FAIRER, MORE EFFICIENT FARE SYSTEMS

3. User funding: Creating fairer,
more efficient fare systems
Public transport users are a primary funding source for public transport services and infrastructure. This
chapter discusses recent trends in fare revenues and factors affecting future revenues. It also discusses
fare policies and fare-setting processes, focusing on the challenge of optimising user contributions.

User funding is in long-term decline
Before the 1960s, many operators’ fare revenues covered all operating costs, while fare revenues were
sufficient to fully fund some services. However, rapidly rising incomes led to significant increases in car
ownership, a trend facilitated by increased government spending on road infrastructure. This trend
progressively reduced public transport load factors and encouraged low-density settlement patterns andurban sprawl. Public transport networks typically did not expand in line with rapidly increasing urban
footprints. This resulted in a dramatic deterioration in their competitiveness and financial performance,
particularly in developed countries (ITF, 2020a).
In the 1980s and 1990s, many governments sought to reverse this shift towards private transport. They
responded to increasing concerns about congestion, pollution and safety issues as well as the need toaddress the rapidly increasing budgetary costs of public transport subsidies (ITF, 2020a). Policies at thetime focused on improving efficiency and service quality and discouraging private vehicle use in innercities.
However, the ratio of fare revenue to operating costs in many countries has either continued to declineor, at best, stabilised. Figure 7, for example, shows generally static or declining trends across various public
transport modes in the United States before the Covid-19 pandemic.
Figure 8, meanwhile, illustrates the long-term decline in France’s revenue/operating cost ratio, from 70%
in the mid-1970s to 50% in 1994 and 30% in 2009. The rate of decline subsequently moderated, but the
pre-pandemic level was only 27% (Coldefy, 2022). However, city-to-city variation is high, with current
ratios of up to 60% (e.g. in Lyon).

28

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

USER FUNDING: CREATING FAIRER, MORE EFFICIENT FARE SYSTEMS

Figure 7. Revenue/operating cost ratio trends, United States, 2013-19
70
60

Heavy rail
Commuter rail

50

Light rail

40

Streetcar rail
Hybrid rail

30

Commuter bus

20

Motor bus
BRT

10
0

Trolley bus
2013

2014

2015

2016

2017

2018

2019

Source: Federal Transit Administration (2022).

Figure 8. Average revenue/operating cost ratios in French cities, 1975-2009

Notes: Figure includes data for French cities with populations greater than 100 000.
Source: Coldefy (2022).

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

29

USER FUNDING: CREATING FAIRER, MORE EFFICIENT FARE SYSTEMS

Figure 9. Revenue/operating cost ratios, Australian capital cities, 2015-21

Source: Productivity Commission (2021).

The decline is also evident in other countries. Hebel et al. (2019) observe a declining trend in the sameratio for selected Polish cities: average revenue fell from over 60% to around 35% of operating costs
between 2000 and 2016. In Australia, revenue/operating cost ratios in capital cities have generally declined
in recent years, varying between 10% and 35%. Only Sydney achieves a ratio above 30% (see Figure 9).
There is wide variation within and between countries. Fares typically recover a higher proportion ofoperating costs in large, dense cities (e.g. London, New York) and very low proportions in small towns andrural areas. However, even in large cities, fare revenues typically cover only 30-40% of costs. Responses to
a Working Group questionnaire show average pre-pandemic fare/operating cost ratios of 30% in Italy, 27%
in France, and 34-43% in major Finnish cities. In Germany and Sweden, fare revenues cover 50% of
operating costs on average, but with wide regional variations. In summary, the proportion of operating
costs recovered from fare-box revenue has continued its long-term decline in most countries. Its inverseis steadily increasing public subsidies per passenger journey. For example, in France, they rose from
EUR 0.80 to EUR 1.90 between 1999 and 2017 (Coldefy, 2023c).

More passengers and better fare policy can increase user funding
Despite these long-term trends, there is potential to increase the funding contribution of fare revenue by
increasing patronage and improving fare-setting policies and processes.
Public transport’s modal share has begun to increase

Policies aiming to increase public transport use in major cities have largely halted, and in some cases begun
to reverse, the long-term decline in public transport’s modal share. For example, most Australian cities
reached their minimum public transport modal share for commuter journeys in the late 1990s, withsignificant increases seen since then (see Figure 10).

30

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

USER FUNDING: CREATING FAIRER, MORE EFFICIENT FARE SYSTEMS

Figure 10. Modal share of public transport for commuter trips in Australian cities, 1976-2016
35%
30%
Sydney, 26%

25%
20%

Melbourne, 18%

15%

Brisbane, 14%
Perth, 12%

10%

Darwin, 11%Adelaide, 10%
Canberra, 8%

5%0%

Hobart, 6%

1976 m1981 m1986 m1991 m1996 e2001 e

2006

2011

2016

Notes: Data for years labelled “m” are missing estimated portions of aggregate categories (slight underestimates).
Data for years labelled “e” include estimated portions of aggregated categories.
Source: Loader (2017).

Similarly, in the United Kingdom, the modal share of private cars, vans, and taxis plateaued in the 2000s,
gradually declining by 3 percentage points (except for 2020, due to Covid-19). Rail’s modal share has also
risen, from around 7% to 10%, despite a slight dip in 2020 due to the pandemic (see Figure 11).
Figure 11. Evolution of transport modal shares in the United Kingdom, 2002-22
100%
90%
80%
70%

Rail (incl. London
underground)

60%

Bus

50%

Car or van (incl. taxi)

40%

Pedal Cycle

30%

Walk

20%

0%

2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

10%

Source: UK DfT (2023).

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

31

USER FUNDING: CREATING FAIRER, MORE EFFICIENT FARE SYSTEMS

Figure 12. Change in modal shares in Île-de-France, 1976-2018

Source: Based on APUR (2021).

Meanwhile, Figure 12 shows the change in modal shares within the greater Paris region (i.e. Île-de-France),
where the number of journeys by car fell 25% between 2001 and 2018, reflecting a broader trend awayfrom motorisation, visible in a 25% reduction in the number of vehicles per household, from 0.52 in 1990
to 0.39 in 2017 (APUR, 2021).
Two factors suggest that patronage levels will increase in most countries. First, climate change andsustainability policies target further modal shifts towards public, active and shared transport. These
include reforming vehicle taxes, improving public transport’s quality and accessibility, and integrating
public transport into a multimodal MaaS system.
Second, urbanisation and the densification of cities are expected to continue. The United Nations predicts
the global urban population will increase by 2.3 billion, or more than 50%, by 2050, while rural populations
decline (UNDESA, 2019). This trend will further pressure policy makers to meet travel demands sustainably
and integrate transport and development planning (ITF, 2023b). Larger, denser cities typically achieve
higher load factors and higher cost contributions from fare revenues.
Post-Covid changes in travel patterns, if durable, may have some lasting negative impact on public
transport demand. For example, widespread regular teleworking may have a long-term negative impact
on commuter travel demand. However, recent research finds that increased teleworking is not associatedwith reduced physical travel by households, as increased non-work-related travel offsets reduced
commuting. Longer-term research also suggests that increased digitisation is unlikely to reduce travel.
Thus, changing travel patterns may have a limited impact on load factors. However, a challenge will be toensure public and multimodal transport options can accommodate more diverse non-work-related travel(ITF, 2023a).
Average public transport fares are too low

Fares are often set well below optimal levels. This reflects the political sensitivity of fare-setting and thealmost universal use of ad hoc fare-setting policies and processes. Adopting explicit fare policies and formal
fare-setting processes could help systematically to increase farebox contributions to operating costs. The
successful adoption of such reforms in a few cities (e.g. Sydney) attests to their feasibility.

32

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

USER FUNDING: CREATING FAIRER, MORE EFFICIENT FARE SYSTEMS

A second explanation for low fare levels is that they are often adopted as a “second best” strategy in theabsence of road pricing. That is, the political difficulty of adopting road pricing leads policy makers to seek
to reduce the external costs of urban road transport by encouraging mode shift towards public transport
through artificially low fares. However, such “second-best” pricing strategies are relatively inefficientbecause the “diversion ratio” – the proportion of additional public transport users diverted from car use –is low (typically 15-35%). Thus, the cost of reduced fares is typically higher than the benefits of the lower
external costs of car use (Proost, 2023).
The urgent need to reform vehicle and road-user taxation suggests this dynamic may soon change,
particularly given the strongly negative impact of vehicle electrification on fuel tax revenue. A recent ITF
report notes that many experts are now advocating distance-based charges, supplemented by morewidespread congestion charging (ITF, 2023c). Such initiatives would ensure EV drivers contribute to
infrastructure costs. They would also avoid incentives for more intensive vehicle use (due to the lower
variable costs of EVs) and reap efficiency benefits by better internalising the external costs of vehicle use.
Distance-based charges would also contribute to modal shift by increasing the costs of private vehicle use.
Adopting them would also enable higher fares to be set without harming public transport’s attractiveness
relative to private cars.
Proost (2018, 2023) shows that, where such reforms are adopted, there are welfare benefits fromincreasing public transport fares and differentiating peak and off-peak fares. He notes that, in many innermetropolitan areas, public transport already has a larger modal share than private transport. This highmodal share is associated with heavily congested peak-period services. These characteristics mean there
are considerable potential benefits from reforming public transport pricing and service provision in
conjunction with vehicle and road-use taxes.
Modelling based on Stockholm, which has a closely monitored urban tolling system, demonstrates thepotential benefits of a joint optimisation approach to transport pricing. Table 4 shows that restructuring
bus fares, with a higher peak fare and a zero off-peak fare, yields welfare gains of around EUR 12 580 perday. Joint optimization through increased urban tolls and restructured bus fares triples these welfare gains(to EUR 36 970 per day). In this scenario, optimal bus frequency increases from 67 to 84 services per hourin peak periods and decreases from 48 to 20 services per hour in off-peak periods. Meanwhile, the current
operating cost deficit for the bus service is eliminated.
In summary, continued urbanisation and densification plus vehicle and road-user taxation reforms should
provide opportunities to increase farebox revenues. Still, these gains are unlikely to be fully realised unlessgovernments reform fare-setting policies and processes.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

33

USER FUNDING: CREATING FAIRER, MORE EFFICIENT FARE SYSTEMS

Table 4. Potential benefits of optimisation of public and private transport pricing in Stockholm
ScenarioRoad
toll(peak)€/tripRoad
toll(offpeak)€/tripBus
fare(peak)€/tripBus
fare(offpeak)€/tripFrequencyof peakbuses/hour

Frequency
of off-peakbuses/hour

Deficit(€/day)Welfare gain(€/day)Reference

1.80

1.00

2.18

2.18

67

48

25 860Optimal bus
fare

1.80

1.00

4.50

0.00

67

48

26 540

12 580

Only change
frequency

1.80

1.00

2.18

2.18

92

13

15 38022 200Optimal toll,bus andfrequency

4.31

3.32

4.90

0.97

84

20

-2 95036 970

Zero car tolland optimalbus fare

0

0

4.10

0.00

67

48

30 19014 120Source: Börjesson, Fung and Proost (2017). Reproduced in Proost (2023).

Current fare-setting policies are deficient
Responses to the Working Group’s survey suggest few countries have explicitly identified a comprehensive
set of fare-policy principles or objectives. Formal, detailed fare-setting policies and processes are also rare.
Some responses identified one or more principles guiding fare-setting but the extent to which they are
respected in practice differs.
Several countries set targets for revenue/operating cost ratios, which could be viewed as a central faresetting principle. For example, in Italy, a 1997 legislative decree (Parlamento Italiano, 1997) requires farerevenue to recover at least 35% of operating costs. The average ratio achieved is reported to be around30%. Iceland recently set a 40% target for the Reykjavik region. In Japan, private rail operators must
generally recover 100% of their operating costs from fare revenue, with subsidies provided in lesspopulated areas.
A second principle that appears widely adopted, at least informally, is maintaining fare stability (see Box 4).
Questionnaire responses from France, Spain and Sweden highlighted the political sensitivity of fare-setting
and the view that high or increased fares reduce patronage. Australian data provides quantitative evidenceof the political sensitivity of fare-setting. It shows that, on average, the real value of fares remains constantin the year before an election, declines during an election year, and rises in the early years of the political
cycle (Productivity Commission, 2021).

34

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

USER FUNDING: CREATING FAIRER, MORE EFFICIENT FARE SYSTEMS

Box 4. Political pressures on fare levels
Political dynamics can erode fare revenues. Politicians sometimes initiate fare freezes that can last
several years. For example, Transport for London (TfL) froze fares from 2016 to 2020 due to a pledge
made during the mayoral election campaign (Topham, 2016). Madrid’s fare freeze, which began in
2013, was also attributed to political factors and was followed in early 2023 by large fare reductions(MetroMadrid, 2023). Vienna reduced the cost of an annual public transport pass to EUR 365 in 2012,
which has remained unchanged.
Moves towards providing free public transport services are also common. Free travel has been available
in Luxembourg since 2020, and in Malta since 2022 (subject to a EUR 15 registration charge). Individual
cities (e.g. Talinn in Estonia and Calais, Dunkirk and Montpelier in France) have also adopted free travel
policies. Parts of Finland, Iceland, Italy, Spain and the United Kingdom provide free travel to specificgroups, such as children, low-income students, and seniors. Public discussions in several other countries
about the merits of extending free public transport more widely are underway.
Free public transport can expand public transport patronage but risks undermining its financial
sustainability. Where patronage increases occur, they frequently divert demand from active transport,thus failing to contribute to sustainability. The ITF has previously argued service quality is a moresignificant determinant of patronage than fare levels (ITF, 2020c).
A related trend is to offer heavily subsidised periodical tickets. For example, Berlin adopted a EUR 29
monthly ticket for all urban public transport in October 2022. It was superseded in April 2023 by a
EUR 49 monthly ticket providing unlimited travel on most regional and metropolitan services
throughout Germany, at an estimated budgetary cost of EUR 3-5 billion annually. Austria’s KlimaTicket[Climate Ticket] provides unlimited travel nationally for EUR 1 095 annually. Both schemes arepromoted partly as helping achieve national emission-reduction commitments, but critics argue thecosts outweigh the environmental benefits. The German initiative has also been partly justified as a
response to rapid inflation, having been introduced alongside fuel excise reductions for motorists(Deutche Welle, 2023).
This political sensitivity likely explains the widespread use of regular inflation-based adjustments tomaintain real fare levels. Frequent, small adjustments seem more politically palatable than larger,
infrequent changes. Countries adopting this approach include Iceland, Sweden, the United Kingdom andthe United States. A recent review of fare-setting in Australia found that “most jurisdictions rely on
simplistic annual reviews that tend not to assess the fundamental fare structures where reforms are mostneeded” (Productivity Commission, 2021). Moreover, “policy inertia has been widely observed in recent
years, with the exception of ad hoc changes stemming from electoral commitments that frequently movefurther away from efficient pricing”.
A few jurisdictions have achieved significant revenue increases by modifying the inflation-based approach.
For example, by regularly increasing fares by slightly more than inflation, Lyon (France) has doubled its
fare ratio, from 30% in 2000 to 60% at present, with minimal opposition. This ratio is more than twice
France’s (pre-Covid) average of 27%.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

35

USER FUNDING: CREATING FAIRER, MORE EFFICIENT FARE SYSTEMS

Fare-setting policies should reflect efficiency and equity principles
Fare-setting policies should systematically focus on setting prices in line with economic efficiency
principles – for example, adopting marginal cost-based pricing and addressing relevant incentive effects.
Fare-setting policies should also ensure equity by providing concessional fares to maintain accessibility.
The role of marginal cost-based pricing

Australia’s Productivity Commission (2021) notes: “Taxpayer-funded subsidies are generally the mostefficient way of recovering the large, fixed costs of public transport networks, as the pricing options
available for most other large networks like electricity and water are not feasible.” It argues for a
combination of fares and subsidies to cover operating costs. Determining the proportionate contributionsof these two sources should depend on the outcome of short-run marginal cost-based pricing, modified
by applying an appropriate concessional fare policy.
The recommended application of this “social marginal costs” pricing model involves setting prices to:• the operating costs of running a service, for example, the fuel and driver costs of a bus for a given
trip or kilometre of travel• less the incremental benefits of reducing road congestion, recognising that an increase in fares
can make some people drive, which at the margin, decreases traffic flows and increases trip
duration for all motorists• less the gains from more frequent services, recognising that cheaper fares encourage morepatronage, which allows more buses or trains on a route, thereby increasing service frequency tothe benefit of all customers• plus the costs of overcrowding on public transport, recognising that people do not like standing
or being jostled on public transport so that prices should be higher at times where this occurs,
typically peak travel• plus the efficiency losses from the taxes used to fund the subsidies to public transport – the‘marginal excess burden’ of taxation, which recognises that taxes distort consumption, investment
and labour supply and demand (Productivity Commission, 2021: 49).
Policy makers must balance three specific considerations in applying these general principles in practice.
First, the potential efficiency gains from greater fare differentiation (particularly peak, modal and distancepricing). Second, the benefits of simplicity and ease of implementation in terms of administrative cost
reduction and avoidance of consumer confusion. Third, the need to ensure adequate accessibility for all(i.e. equity).
Although widely accepted by researchers, these principles are not commonly applied in practice. This likely
results from the political sensitivity of fare-setting, the need for specialist expertise to apply the principles
in practice, and the lack of detailed, formal fare-setting processes.
Applying these principles systematically would be an important step towards optimising the contributionof fare revenues to public transport funding. However, it is more likely to occur if governments adopt longterm fare-setting strategies that explain the objectives and principles guiding fare-setting and their
expected results. Engaging with stakeholders when developing a strategy could help generate broader
support. Ideally, a fare policy integrated into overall transport policy would feature clear links between thepolicy and public transport’s strategic role.

36

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

USER FUNDING: CREATING FAIRER, MORE EFFICIENT FARE SYSTEMSFare structures should provide efficient incentives

Fare policies should also address fare structures and the incentives they create. Issues regarding farestructures include the relative prices charged to subscribers (i.e. periodic ticket holders) and casual users;
the incentive effects of providing travel at zero marginal user cost to subscribers; and price relativities
between pricing of peak and non-peak travel and between different modes.
Subscription pricing needs reform

Coldefy (2022) identifies two core weaknesses of most public transport fare systems. First, regular users’
periodic passes effectively provide them with additional trips at zero marginal user cost. Second,occasional users face higher prices for individual trips, making public transport uncompetitive with private
car use. He notes that, in France, regular users – who buy periodic passes for their significant pricediscounts – also take the most journeys. While the average cost per journey is EUR 0.05/km for subscribers,
it is EUR 0.25/km for occasional users – similar to the cost of car use. Such differences suggest revisiting
the relative pricing of periodic and single-use fares on equity grounds.
Zero marginal user-cost travel for periodic ticketholders also imposes efficiency costs by promoting overconsumption. Evidence suggests this over-consumption is significant. For example, in Bordeaux and Lyon,
25% of metro or tram journeys are of one to two stations, with little journey time saving over walking.
These short journeys contribute to overcrowding, discouraging system use by those who could substitutepublic transport for private cars for longer journeys.
Pricing structures that avoid incentivising over-consumption could, therefore, contribute to a further shift
to public transport. For example, the city of Nancy’s pricing structure combines fixed and variable costelements. Users pay a monthly network access charge plus a price per journey, which varies between peakand off-peak times. Different fixed and variable fare combinations exist for regular and occasional users(see Table 5).
As Coldefy (2022) notes, this fare structure resembles that widely used for utility tariffs. Recent
technological advances give policy makers other options with appropriate incentives. For example,
account-based fare systems allow more sophisticated pricing structures (Productivity Commission, 2021).

Table 5. Alternative fare structures in Nancy, France
Network access (month)

Journey (peak)

Journey (off-peak)

Regular user

EUR 5 (Zero if unused)

EUR 0.98

EUR 0.65

Occasional user

EUR 1 (Zero if unused)

EUR 1.00

EUR 0.90

Source: Coldefy (2022).

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

37

USER FUNDING: CREATING FAIRER, MORE EFFICIENT FARE SYSTEMS

Peak-period pricing can produce efficiency and equity gains

Differentiating between peak and off-peak fares has potential efficiency and equity benefits. In capacityconstrained systems, efficiency gains arise from smoothing demand patterns. Higher peak prices can shiftdemand from peak to non-peak times, reducing investments required to cope with peak demands (ordelaying the need for new investments as demand increases).
Reducing non-peak fares also leads to equity gains, given that a significantly higher proportion of non-peakusers belong to low-income groups (Productivity Commission, 2021; Pucher and Renne, 2003). However,care is needed to ensure fare rebalancing does not result in lower total fare revenue. The size of the impactof peak pricing on demand patterns is uncertain and varies with several factors. Table 6 summarises
evidence on this issue from several published studies.
More recently, Japan Rail East adopted a peak pricing initiative combining a 10% price reduction for offpeak commuter passes with a small (1.4%) increase in the price of peak passes. Their modelling suggests
around 5% of pass-holders will shift to off-peak travel (JR East, 2022). The apparent price elasticity ofdemand (around 0.4 for pass-holders) is higher than found in some of the earlier studies cited in Table 6.
More flexible post-Covid-19 working arrangements may have increased commuters’ demand elasticities,
increasing the scope for peak/off-peak price differentiation to yield efficiency gains.

Table 6. Demand impact of peak pricing
Study

Location

Form of peak pricing

Demand impact

Anupriya et al (2020),
Halvorson et al (2019, 2016).

Hong Kong

25% discount on weekday trips
terminating by 8.15am

3% decrease in morning
peak-time trips

Zou et al (2019)

Beijing

50% discount on morning prepeak trips

5% reduction in peak-periodridership over six months

Peer et al (2016)

The Netherlands

Travel distance-based monetary
rewards of EUR 1.5-4.5

22% fall in relative share ofpeak trips during the reward
period, falling to 10% by theend of the period

Pluntke & Prabhakar (2013)

Singapore

Travel distance-based reward withcredits for peak travel or triple
credits if used off-peak

7.5% reduction in overall
percentage of peak trips

Currie (2010)

MelbourneFree trips if completed before
7am

1.2-1.5% reduction in peakdemand

McCollom & Pratt (2004)

Denver and Trenton(United States)

Free non-peak trips in central
business districts and universities

20% fall in peak ridership in
Denver (from 50% to 30%),
13% in Trenton

Source: Productivity Commission (2021).

38

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

USER FUNDING: CREATING FAIRER, MORE EFFICIENT FARE SYSTEMS

Differentiating fares can facilitate multimodality

Some fare policy reviews recommend modally differentiating fares to reflect the different demandconditions for different modes and differences in user characteristics. Such proposals usually involve bus
fares set lower than train, metro or tram fares. This differentiation reflects the significant excess capacity
on many bus routes, the low infrastructure costs of increasing bus system capacity, and lower-income
groups’ more intensive use of buses. Bus demand is also more strongly driven by shopping and recreational
travel, whereas train demand focuses on commuting. As a result, bus demand is more elastic.
Infrastructure Victoria (2020) argues:
While flat fares have the appeal of simplicity, our research shows that pricing all modes of public
transport travel with a single fare contributes to the imbalance in the public transport system,
increases road and public transport congestion and reduces equity. This is because each mode isunique – not just in the service it provides, but also in trip purpose, level of crowding, income levelsof users and the benefits from reduced road congestion, pollution and increased active transport.
Our analysis shows that the costs on society from increased bus use are much lower than for train
use, with trams sitting in the middle.
It notes that modally differentiated fares are widely used, for example in Hong Kong, London and Sydney.
The report also recommends that fare structures avoid providing access to public transport at zeromarginal user cost to avoid incentivising over-consumption.
Modally differentiated fares can coexist with integrated ticketing. It remains possible to attain the benefitsof integrated ticketing in encouraging patronage by providing simple, readily understood ticketing andfares. Smart ticketing systems can automatically calculate the best available fare combinations, and online
portals can provide fare information. These mechanisms will become increasingly important as public
transport is increasingly integrated into MaaS systems featuring service offers from multiple providers.
Concessionary fare policies should be targeted for cost-effectivenessIf reforms lead to higher overall fare levels, using concessionary fare policies to maintain high levels ofaccessibility for all will be increasingly important. Most current concession policies provide a fixed discounton standard fares (commonly 50%) to several broadly defined groups. Most systems offer concessions toa similar range of groups, yet the proportion of users benefiting from concessional fares varies widely. For
example, the share of journeys taken using concessional fares varies between 49% and 80% across theAustralian States (Productivity Commission, 2021).
This variation highlights the importance of effectively targeting eligibility to contain revenue impacts while
ensuring accessibility for all. Better-targeted concessionary fare policies might link eligibility directly toincome rather than membership of a particular group (e.g. students or older people). This avoids giving
concessions to those who do not need them, or excluding low-income individuals who are not membersof a targeted group. Another option is to vary the size of the concessionary discount by income level(Productivity Commission, 2021).
Both approaches are now widely used in France. Most French cities have adopted tarification solidaire[solidarity pricing]. These schemes usually assess family income via the quotient familial [family quotient]used for tax and benefit eligibility purposes. Taxable income is divided by the number of household
members, with each adult counting as 1 unit, each of the first two children as 0.5 units and the third andeach subsequent child counting as 1 unit (Government of France, 2023). Different fare discounts areapplied accordingly. For example, Bordeaux provides discounts of 30, 50 and 100% (Transports Bordeaux

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

39

USER FUNDING: CREATING FAIRER, MORE EFFICIENT FARE SYSTEMS

Métropole, n.d.). Grenoble has four levels of concession fare. Monthly fares range from EUR 2.50 to
EUR 19.70 (a standard fare is EUR 63.70). Notably, while the discount can be more than 95%, no one iseligible for free travel (M TAG, n.d.).
Bogotá in Colombia introduced its Pro Poor tariff in 2014, to prevent low-income populations from being
priced off the Transmilenio bus and BRT network by the national legal requirement that fares cover thecosts of operation, maintenance and replacement. The subsidy targets the poorest users through anelectronic payment card that stores information from the national System of Identification of Social
Program Beneficiaries (SISBEN). This system determines eligibility for free health and other social services
in Colombia. It uses metrics related to health, education, housing and vulnerability to calculate anaggregate “score” and determine eligibility for social programmes. Bogotá’s public transport operator has
adopted it as the basis for its concessionary fare policy. Members of households scoring 40% or less on thescale pay 50% of the normal fare and 40% of peak fares (Peralta-Quiros and Hernandez, 2016; ITF, 2017).
Changes to fare structures could also make fares more progressive. Because low-income groups are most
likely to travel at off-peak times and to use buses, adopting peak/off-peak fare differentiation and modally
differentiated pricing would improve progressivity. For example, modelling of a broadly revenue-neutral
fare reform incorporating these two changes found the lowest-income groups would pay 26% less thanunder current fare settings (Infrastructure Victoria, 2020). While the modellers intended the scenario tobe revenue-neutral, results showed an estimated 11% revenue reduction. However, the average
26% reduction in fares paid by the lowest income quintile significantly exceeded this reduction,
demonstrating a clear improvement in progressivity.

Improving fare-setting processes
Detailed, formalised fare-setting processes are rare. Stakeholder consultation is often required, but only a
few cities (e.g. Slovenia and New York City) regularly include the public in this process. Responsibility for
approving fare changes lies with various parties, including the public transport authority’s board (New York
City), the Ministry of Transport (Japan), the mayor (London) and the rail service contracting authority (UKDepartment for Transport).
Two recent reviews published in Australia recommend adopting explicit fare-setting policies identifying
relevant principles and objectives, complemented by transparent, formal fare-setting processes(Productivity Commission, 2021; Infrastructure Victoria, 2020). The Productivity Commission review
identifies fare-setting practices in the Australian state of New South Wales (NSW) as broadly consistent
with its recommendations. Both recommend a central role for independent, expert advisory bodies.
Adopt explicit fare-setting policies

The absence of explicit principles reduces the likelihood a strategic approach to fare-setting will be taken,
particularly given the political sensitivities involved. Thus, adopting a formal policy or, at least,
comprehensive fare-setting principles would constitute a significant improvement. Governments should
publish, periodically review and revise these policies or principles.
Adopting clear principles comes with several advantages. They make fare-setting decisions moreconsistent by providing decision makers with explicit guidance. Furthermore, they have more ability towithstand short-term political pressures on fares. They also create stakeholder support for fare policies
due to a greater understanding of their rationale and objectives. Finally, they encourage better policy
development by enabling informed and effective stakeholder engagement.
40

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

USER FUNDING: CREATING FAIRER, MORE EFFICIENT FARE SYSTEMSInfrastructure Victoria (2020), an independent infrastructure advisor to the Victorian state government,
recommends a best practice approach should have three elements:
1. Establishing explicit fare-setting objectives
2. Setting fares transparently, using clearly defined objectives
3. Appointing an independent body to advise on and monitor transport prices.
It also proposes three specific fare-setting objectives:
1. Make the best use of the public transport system
2. Take equity into account
3. Ensure people can make informed travel choices.
Establish independent, expert advisory bodies

Formal processes that incorporate expert, external advice via transparent mechanisms can help insulate
decision-making processes from short-term political pressures, ensuring decisions are guided by soundanalysis using rigorous methods. The ITF has previously recommended governments consider establishing
independent infrastructure advisory bodies to provide transparent, expert advice on strategic
infrastructure planning (ITF, 2021b). Such bodies are an effective, low-cost means of improving processes,
providing frank and expert advice, and increasing credibility. This recommendation responded to the needfor consistent, long-term decision-making, which avoids the risk of being distorted by short-term politicalpressures. It applies directly to major infrastructure decisions, such as public transport investments, and ishighly relevant to the fare-setting context.
Australia’s Productivity Commission (2021) has similarly argued that “independent fare regulators mayhelp to overcome many of the issues inherent in other institutional approaches to fare-setting”.
Specifically, “social marginal cost modelling or cost-benefit analysis by an independent agency could help
overcome structural policy inertia and fare stagnation”.
Independent bodies are responsible for fare setting in Singapore (the Public Transport Council), New York
City (the Metropolitan Transit Authority), and the Australian state of NSW. The Productivity Commission(2021) argues that NSW’s model, incorporating independent advice from the Independent Pricing andRegulatory Tribunal (IPART), can be regarded as an “exemplar” internationally.
In the NSW model, the government sets pricing policy, while IPART, a multi-sectoral economic regulator,
recommends price changes and improved fare structures, and publishes information on fare decisions. In
practice, the Minister asks IPART to determine the maximum rate of fare increase (set as a weightedaverage fare cap). The Minister makes the final decision, maintaining political accountability, but IPART’s
independent advice is fully transparent.
The relevant legislation, the Passenger Transport Act 2014 sets out the matters that IPART must consider
in making its recommendation:(a) the cost of providing the services(b) the need for greater efficiency in the supply of services to reduce costs, for the benefit ofconsumers and taxpayers(c) the protection of consumers from abuses of monopoly power in terms of prices, pricing policies,
and standards of service

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

41

USER FUNDING: CREATING FAIRER, MORE EFFICIENT FARE SYSTEMS(d) the social impact of the determination or recommendation(e) the impact of the determination or recommendation on the use of the public passenger
transport network and the need to increase the proportion of travel undertaken by sustainablemodes(f) standards of quality, reliability, and safety of the service(g) the effect of the determination or recommendation on the level of Government funding . . .
(State of New South Wales, 2014: s. 124)
The Productivity Commission argues that “this model reduces short-run pressures on governments andimproves transparency and accountability. Other jurisdictions, particularly those with cities experiencing
crowding and congestion, could benefit from this approach” (Productivity Commission, 2021).
In carrying out its role, IPART conducts modelling of both service provision costs and public transport’s
external costs and benefits. It models the impact of fare proposals on future cost recovery and conducts
public consultation. It is the only government body in Australia that explicitly adopts the social marginal
cost framework when setting fares. In practice, fare increases are often smaller than the maximum
recommended by IPART. Noting this, the Productivity Commission argues that requiring IPART torecommend both maximum and minimum fare increases would improve the model.
Consider other process improvements

While independent expert advisory bodies offer advantages, they are less suitable in some institutional
and legal contexts. The resources and expertise required may also be scarce in smaller jurisdictions.
However, other reforms could also help to make the fare-setting process more strategic, systematic andtransparent.
While many current processes include stakeholder consultation, adopting formal process standards andsystematically ensuring public engagement can significantly increase the benefits they deliver. Publishingbackground data ahead of consultations increases transparency. The same benefit arises from publishing
the text of decisions (and the reasoning underpinning them) and modelling the expected impacts of farereforms, including distributional effects.
Furthermore, a regular adjustment process that increases fares annually or biennially, based on a relevant
price index, can help maintain their real value. This reduces the need for politically challenging major farechanges. Linking fare resets to changes in the cost of providing public transport services could be
preferable to using a broader consumer price index, as it ensures a stable revenue/cost ratio. It also createspressure to control the service provision costs, as frequent large fare rises are necessarily unpopular.
However, at a minimum, using a consumer price index ensures the real value of fare revenue is maintained.
In summary, fare-setting policies, implemented via formal processes, can make user funding from fares
less vulnerable to political pressure and more efficient over time. Incorporating extensive stakeholder
consultation in fare policy development, especially with users, will enhance acceptability. Governments
should also consider incorporating independent, expert advice into fare-setting processes.
Furthermore, governments should consider introducing structured fare policies for more equitable
accessibility. Unlike blanket low fares, well-targeted concessionary fares can improve accessibility withoutcompromising overall fare revenue. Eligibility for concession fares should be based primarily on need (i.e.
income levels) rather than membership of particular social groups.

42

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

ENSURING INDIRECT BENEFICIARIES CONTRIBUTE TO PUBLIC TRANSPORT FUNDING

4. Ensuring indirect beneficiaries contribute to
public transport funding
Public transport investments improve the accessibility of land, providing indirect benefits to landowners
and users. Housing demand increases because residents can reach a broader range of destinations in lesstime. Business benefits from access to larger pools of potential customers and workers. Most governments
have made limited efforts to tax these indirect benefits of their transport investments, which accrue aswindfall gains to landowners and users. More systematic action in this sphere is a potentially significant
additional public transport funding source.
This chapter considers land-value capture (LVC) as an indirect source of funding for public transport. It
includes sections outlining the factors influencing land-value uplift (LVU), a taxonomy of LVC instruments,
LVC practices worldwide and recommendations for using LVC effectively in the public transport context.

What is land-value capture?
The OECD defines land-value capture (LVC) as a set of policy instruments that allow governments tocapture the increase in land values – so-called land-value uplift (LVU) – generated by public interventions
such as infrastructure investments or administrative action (OECD, 2022). The OECD also describes therationale for LVC policies as follows: “Traditional fiscal policies largely ignore the fact that the cost ofproviding urban infrastructure is public, but some of the economic benefits, notably those that materialisein higher prices of land are private, meaning that landowners typically reap unearned wealth.”
The foundations of LVU lie in the “land rent” theory developed by Alonso (1964) and Muth (1969), whichanalyses the relationship between accessibility and land value. The theory outlines how land rents(annualised capital values) increase as accessibility improves. Accessibility in this context measures how
easily individuals reach activities or destinations.
Building new transport infrastructure increases the accessibility of neighbouring properties because
people can get to activities or destinations more quickly or cheaply. This increases rental and land values,
creating LVU. Land’s zoning status (a regulatory constraint on its theoretical “best-use” value) also
influences rental values. A change in zoning creates LVU and yields windfall gains to owners. LVC captures
some of these gains.
The OECD also argues for the efficiency benefits of LVC: “By tapping into the windfall profits public
investment and urban planning generates in land ownership, it may also avoid the distortions that taxation
imposes on economic incentives. In this way, it may help direct efforts away from rent-seeking behaviour,such as acquiring land simply to realise value gains, towards gainful economic activity” (OECD, 2022).
Figure 13 shows that LVU can commence when a project is announced, effectively capitalising on expected
future benefits in current land values. LVU will likely increase during construction and rise further after
new infrastructure becomes operational. However, the timing of LVU varies widely between projects,
complicating the implementation of LVC policies.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

43

ENSURING INDIRECT BENEFICIARIES CONTRIBUTE TO PUBLIC TRANSPORT FUNDING

Figure 13. Conceptualising land-value uplift and land-value capture

Source: Mulley (2023).

Multiple factors can influence land-value uplift
Assessing LVU is more complex than the theory suggests. Published evidence reports widely differingresults, calculated using various methods, each with its strengths and limitations. These include
comparative methods, which look at before and after prices using average changes in market prices;hedonic modelling, which values the components making up house prices individually; spatial modelling;
geographically weighted regression; and difference in difference methods. The relative merits of each ofthese methods are discussed more fully in Mulley (2023).
Despite the range of methods used, some general conclusions can be drawn regarding the nature andextent of LVU. First, the extent of LVU depends on context. Factors influencing the reported results include:•

whether the uplift accrues to existing residential or commercial properties or new developments•

the mode of the public transport investment•

the nature of the affected neighbourhoods (density, land use mix, socio-demographics)•

the quality of the investment (is there dedicated road space or mixed traffic?)•

whether LVU is due to the expansion of an existing network or the provision of a new link.

There are also wide differences in the geographical distribution of the uplift and its timing.
Notwithstanding these caveats, evidence from empirical studies in the United States suggests rail-based
investments, particularly heavy rail, yield the highest LVU (Figure 14). Light-rail LVU varies, being lower
where the systems operate in mixed traffic, likely because of lower travel-time benefits. Bus-based
interventions, such as bus rapid transit (BRT), yield lower, and sometimes negative, LVU – perhaps because
they are seen as less permanent, even when there is dedicated infrastructure. Figure 14 also shows how
uplift declines as the distance from a station to affected land increases.
44

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

ENSURING INDIRECT BENEFICIARIES CONTRIBUTE TO PUBLIC TRANSPORT FUNDING

Figure 14. Land-value uplift due to access to a rapid transit service in the United States

Notes: HRT: Heavy rail transit. LRT: Light rail transit. CRT: Commuter rail transit; BRT; Bus rapid transit.
Source: Higgins and Kanaroglou (2016).

Table 7 summarises the results of a range of empirical studies and shows that while LVU averages around
10% the range of reported values varies widely. In contrast to Figure 14, in this dataset heavy rail has thelowest mean uplift and the broadest range of observed uplift levels. This may suggest heavy rail has thegreatest uplift potential, but that it is often not realised in practice.
Moreover, heavy rail is the most capital-intensive mode. If uplift per unit of capital spent were assessed,
light rail and BRT would likely both yield superior results. The wide variations in uplift percentages for allmodes suggest policy makers would be unwise to plan for the average uplift without understanding the
key determinants of realised levels.
Table 7. Average value uplift by public transport mode
Mode

Average land-value
uplift (%)

Range (%)

Number of observations

Heavy rail

6.9

-42 to +40

18Light rail

9.5

-19 to +30

32

Bus rapid transit

9.7-5 to +32

14

Source: BITRE (2015), based on papers by Smith et al. (2015) and Ozdilek (2011) and metastudies by
Mohammad et al. (2014), McIntosh et al. (2014) and Stokenberga (2015).

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

45

ENSURING INDIRECT BENEFICIARIES CONTRIBUTE TO PUBLIC TRANSPORT FUNDING

Table 8. Summary of estimated value uplift for different property types
Property type

Range of property value (HIGH)

Range of property value (LOW)Single-family residential+32% within 40m of a station+ 2% within 70m

Apartment+45% within 410m

+4% within 810m

Office+120% within 410m

+9% within 1000m

Retail+167 within 70m+1% within 160m

Source: CTOD (2008), cited by SGS Economics and Planning (2015).

Interventions that provide multi-connected new links to the existing public transport network generate
greater LVU than new links in a suburban area with less obvious network accessibility gains. Context is
important: developing countries show higher LVU from bus-based infrastructure than developed
countries, possibly due to the limited availability of rail options. Cities in Australia and North America
typically have more prominent central activities districts than European cities. Improved links to theseareas tend to lead to more significant changes in accessibility gradients than in the mixed-usedenvironments more common in European cities. Commercial properties tend to have higher LVU thanresidential properties (see Table 8).
Spatially disaggregated models reveal significant spatial variation in LVU. While the results vary widely,common conclusions are that:•significant improvements in travel times are needed to achieve observable LVU – an unsurprising
result as travel time savings are the core accessibility metric•higher-quality investments, such as light rail in dedicated pathways, yield higher LVU•

LVU is greater where density is higher and where there are more amenities•

Development or improving a network provides higher LVU due to more widespread accessibility
gains

•

interventions in declining areas yield less LVU.

Longitudinal studies show wide variation in the timing of LVU. In some cases (e.g. the metros in Chicago
and Washington, DC), LVU was anticipated. It was observed at the project announcement or during thebuilding phase before accessibility increased. However, in these cases, additional gains accrued after
service commencement. In others, there was no observed LVU until after service commencement. In stillothers (e.g. Portland), LVU was anticipated before the project commenced but subsequently diminished.
There appears to be no consistency in the timing of LVU, but ignoring timing can bias the estimation of its
size.
Overall, ex-post measures of LVU do not provide a firm basis for linking LVU to LVC for existing properties.
This observation creates problems in developing an evidence-based policy. LVC opportunities seem highly
context-specific, but LVU is typically modest. Timing is variable, and potential LVU is greatest when theintervention links users to an extensive, efficient network. However, despite these implementation issues,
LVC has provided significant funding for public transport worldwide.

46

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

ENSURING INDIRECT BENEFICIARIES CONTRIBUTE TO PUBLIC TRANSPORT FUNDING

Land-value capture instruments
The OECD Compendium (2022) provides a taxonomy of LVC instruments, offering several definitions. It
addresses LVC use in various public infrastructure contexts but does not present evidence relating totransport separately. This section uses the Compendium definitions as a starting point for discussing LVC
and transport investments.
Infrastructure levies

Infrastructure levies are taxes or fees levied on landowners owning or using land where LVU has occurred
due to government-initiated infrastructure development (OECD, 2022). Transport LVC is well-suited toinfrastructure levies because defining the catchment area (and hence who should pay) is relatively easy.
However, over 50% of the infrastructure levies identified in the OECD Compendium were based on project
cost and only 23% on the size of the LVU.
This creates problems since LVU may not be proportional to project cost and, if there is wide spatial
variation in its extent, cost-based LVC implies inequity between taxpayers. Transport infrastructure levies
are sometimes called tax-increment financing (TIF). For example, the Randolph/Washington station
construction in Chicago benefited from USD 13.5 million in TIF from local LVU for existing properties andnew development (Iacono et al., 2009).
Special assessments

A special assessment is usually imposed as a one-off tax on affected properties and typically varies with
their distance from the new infrastructure. Authorities generally administer this tax through a “public
transport benefit district”. The rationale for creating these districts is that properties within it benefit
disproportionally from LVU due to the project, and owners should contribute to the investment cost thatcreated this uplift. A special assessment provides a one-off capital source rather than contributing tooperating costs.
Transport levies

A transport levy usually refers to an ongoing charge on property owners, collected with other land taxes,
such as property rates. These funds help accelerate improvements to public transport. Transport levies
are not related to specific LVU estimates for a given cohort of properties, as with a public transport benefit
district. Instead, they reflect the idea that LVU generally accrues when accessibility improves. A generaltransport levy can support multiple projects and provide ongoing revenue support.
Sometimes, all or part of the levy is linked to a specific project. There are several examples in Australia. For
instance, ratepayers in Gold Coast, Queensland, pay an annual transport levy, which was increased by
AUD 123 per year to help finance the new Gold Coast Light Rail project (Prosper Australia, 2013). A similar
levy was imposed on the Sunshine Coast, also in Queensland, to part-fund the Sunshine Coast Mass Transit
Project (SGS Economics and Planning, 2015).
Business rate supplements

A business rate supplement (BRS) is a more specific levy targeting larger non-domestic properties
benefiting from the transport investment. Its scope may be restricted in this way because LVU is typicallygreater for commercial and retail properties. A BRS funded 25-30% of the Crossrail project in London (SGS
Economics and Planning, 2015). The limiting factors for infrastructure levies are the size of the expected
THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

47

ENSURING INDIRECT BENEFICIARIES CONTRIBUTE TO PUBLIC TRANSPORT FUNDING

LVU and acceptance by potential taxpayers that the LVU exists and is of the size claimed. The governmentand businesses agreed to the BRS for Crossrail following lobbying by the London Chamber of Commerce
to relieve congestion for commuters on the London Underground or face businesses moving out of thecity.
Crossrail first appeared in strategic plans for developing London’s public transport system in 1943, but
successive governments could not finance it. This background illustrates the potential importance of a BRS
to a project’s fundability. Agreement on the BRS broke the logjam: 2009 legislation allowed local
government to levy taxes on non-domestic properties to fund infrastructure.
In agreement with the UK government and the Chamber of Commerce, the Mayor of London introduced
an annual BRS in April 2010. The intention was to finance GBP 4.1 billion of the Greater London Authority(GLA) contribution to Crossrail, which was estimated to cost GBP 15.9 billion. The BRS was implemented
as a 2% levy on the rateable value (i.e. estimated annual rental value) of non-domestic properties in
London with rateable values above a threshold level (currently GBP 70 000). The BRS provides an ongoing
contribution and will likely run for 24-30 years or until the GLA repays its borrowing.
In April 2012, the Mayor introduced an additional Community Infrastructure Levy (CIL) on new property
developments. This levy aimed to raise GBP 300 million for Crossrail; other developer obligations raised afurther GBP 300 million. The Mayoral CIL is calculated based on net additional floorspace. Rates vary byborough and distance from the city centre (GLA, 2016) and rose in 2019.
Developer obligations

Developer obligations are cash or in-kind contributions to the costs of additional infrastructure or services
required due to private development (OECD, 2022). They usually apply to land developments and are a
condition of gaining approval. They reflect the need to provide a range of infrastructure services to the
newly developed land rather than being tied explicitly to specific infrastructure requirements. However,
governments could plausibly earmark revenues to specific infrastructure providers. A rule-based approach
typically determines the amount of tax paid. Negotiated approaches are much less common.
Developer obligations are common in public transport infrastructure. Examples include London’s Crossrail
and the Grand Paris Express. They are not always used to finance new infrastructure. For example, they
can include negotiated in-kind contributions to other public infrastructure, such as new local roads orgreen spaces. London continues to add to its developer obligations, most recently introducing voluntary
contributions to fund enhancements to public transport.
TfL’s Public Transport Access Level (PTAL) indicator measures connectivity and forms a central part of theTransport Assessment for major developments. Separate models assess site accessibility by public andactive transport. PTALs can identify whether the connectivity of a proposed development is lower thandesirable for the planned density level (TfL, 2010). They can, therefore, help assess accessibility
improvements required and quantify the developer’s contribution towards those improvements.
The GLA now uses this method to enable developers to voluntarily propose contributions sufficient to raise
PTAL scores to levels that permit project authorisation. This was the case for the GBP 9 billion Nine Elms
redevelopment of the Battersea Power Station site. A loan from the UK government of GBP 998.9 million
was made available to the Greater London Council, to be repaid through incremental business rates leviedon the enterprise zone and developer contributions, to construct two metro stations and extend theUnderground’s Northern Line to serve the development.

48

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

ENSURING INDIRECT BENEFICIARIES CONTRIBUTE TO PUBLIC TRANSPORT FUNDING

Land-value capture in action
Experience with LVC varies widely between countries. The OECD Compendium found that all surveyedcountries, except Uganda, used LVC at least occasionally, although this use does not necessarily relate to
public transport. Low- and lower-middle-income countries typically use LVC less than developed countries.
This may partly reflect resource requirements: effectively implementing LVC requires significant
government capacities, including laws and supporting governance frameworks.
Governments and transport authorities can use LVC instruments in various ways. For example, the city of
Dublin has used developer contributions to help fund its light-rail network. Its plans to develop several
further expansions to the network pose new LVC implementation challenges. In other jurisdictions,
including Japan and Hong Kong, the transport entity becomes involved in property development, creating
demand for the new transport infrastructure and extracting LVU from the land development.
Developer contributions to Dublin’s Luas light-rail system

Dublin’s Luas light rail system (see Figure 14) began operation in 2004. On opening, it was impossible tointerchange directly between the two lines, which were 1.5km apart at their closest point (NTA, 2022). The
system has been expanded progressively, with several LVC mechanisms contributing funding.
Figure 14. Proposed light-rail network for Dublin, 2042

Source: National Transport Authority (2022).

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

49

ENSURING INDIRECT BENEFICIARIES CONTRIBUTE TO PUBLIC TRANSPORT FUNDING

A 2010 Green Line extension incorporated different LVC approaches for directly affected landholders andthose in a broader catchment area. Authorities concluded commercial agreements with adjacentlandowners, who provided land at reduced prices and capital contributions towards construction costs inrecognition that LVU would occur. Specific levies also apply across the catchment area: EUR 2 000 for new
residential units, EUR 38/m2 for commercial properties, and EUR 43/m2 for retail properties, paid over
30 years with biannual rate reviews.
A Red Line spur opened in 2011. A consortium of three private developers provided land for the line andconstructed the civil elements. The consortium recognised the LVU of the light rail (and the associatedland rezoning) for their holdings and the opportunity to expedite its delivery by contributing funding.
In 2013, authorities levied development contributions on a third extension (which had opened in 2009).
The levies also applied to land one kilometre on either side of the line and were set at the same rates as
for the Green Line extension, with a duration of 25 years. Authorities took a similar approach for the 2017
Cross City extension, which enabled passengers to transfer between services in the city centre. A related
levy should yield EUR 27 million (23% of the estimated LVU accruing to new developments in thecatchment area or 7% of the project’s capital cost).
The most recent extension takes a different approach. Developers make supplementary contributions of
EUR 250 000/hectare for residential developments and EUR 570 000/hectare for commercial
developments. This extension covers lands on the urban periphery, whereas previous extensions served
the city centre. In addition, a different municipal authority was responsible for setting the rates.
The Greater Dublin Area Transport Strategy 2022-2042 (NTA, 2022) proposes four additional Luas
extensions and a light-rail line. Authorities have not decided which form of LVC to use. Several plannedsustainable transport projects feature overlapping catchment areas, particularly near the city centre. In
this context, a project-by-project approach to LVC could create equity concerns and negatively affect theability to capture LVU on later projects. In sum, the principle of a development contribution is welldeveloped, but the detail of its future application is yet to be determined.
Integrated development in Japan: The KOBAYASHI-Ichizo Model

The KOBAYASHI-Ichizo Model followed by Japan’s private railways since the 1910s is perhaps the mostcomprehensive “integrated development” model of land-value capture. Under this model, private railway
companies purchased land on and around proposed government rail routes and built rail lines. They thendeveloped the adjacent land and a range of facilities and businesses within new suburbs. Figure 15 shows
how private rail investments have underpinned urban development in the hinterland of the main Japan
Rail lines.
The model provided initial funding for infrastructure and ongoing funds for revenue support. Kurosaki(2023) argues this model’s success relied on three operating environment features: rapid population
growth, rapid urbanisation, and poor road transport infrastructure. This combination led to rapidly risingland prices, particularly for land served by rail transport, and meant developing land and businesses toserve the new suburbs was highly profitable.
However, the changing environment, including slowing population growth in the 1970s and rapidly
increasing motorisation, meant the risks to private rail companies of continuing with the Kobayashi model
became prohibitive. In response, the Japanese government passed a law allowing regional governments
to lead the development of land and rail transport. The Integrated Development Law involves publicauthorities purchasing land parcels before rezoning, with a land readjustment plan subsequently adopted.
The resale of some land parcels helps fund the development of public facilities.
50

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

ENSURING INDIRECT BENEFICIARIES CONTRIBUTE TO PUBLIC TRANSPORT FUNDING

Figure 15. Private rail infrastructure development under Japan’s KOBAYASHI-Ichizo Model

Note: Blue lines in the figure indicate private rail investments, while black lines indicate Japan Rail lines.
Source: Cited in Kurosaki (2023).

This model has successfully underpinned the construction of the Tsukuba Line northeast of Tokyo. The
relevant municipal governments are shareholders in the rail entity and lead land development and rail
projects. They receive ongoing income from rail entity dividends and land-tax increases. The latter can be
regarded as a form of LVC (Kurosaki, 2023).
Figure 16 highlights Japan’s private rail companies’ reliance on non-rail investments. It shows that, despite
the Integrated Development Law superseding the KOBAYASHI-Ichizo Model, non-transport sources
continue to account for almost 70% of private rail sector revenues.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

51

ENSURING INDIRECT BENEFICIARIES CONTRIBUTE TO PUBLIC TRANSPORT FUNDING

Figure 16. Revenue sources for Japanese private rail operators, 2019-20

Note: Data are for the financial year ending 31 March 2020.
Source: Minami (2023), drawing on financial results and explanatory documents for each company.

Hong Kong’s “rail plus property development” modelHong Kong also takes an integrated development approach. Under its “rail plus property development”
model, the government and the metro authority (MTR Corporation, MTRC) jointly identify development
sites around future stations when developing master plans for new metro extensions. MTR obtains fromthe government a 50-year lease for the development rights for land adjacent to stations, plus air rights
over stations.
The lease value reflects the “pre-development” value of the land. MTRC then tenders these rights to
private developers using agreements containing profit-sharing formulae. The private developers pay all
development costs, including the land premium, and bear the construction and commercialisation risks
and costs. This model underpins several proposed new transport infrastructure projects.
In theory, the model allows the capture of all the LVU, although private developers share the LVU anddevelopment profits. It also provides funding for maintenance and infrastructure improvements, as
continuing revenue flows form part of the model. Some analysts view the model as a benchmark for LVC.
For example, Aveline-Dubach and Blandeau (2019) refer to the “outstanding efficiency of the R + P [Railplus Property] model”.
However, Aveline-Dubach and Blandeau attribute the model’s success to Hong Kong’s “unique conditions”.
The city has a significant public transport ridership due to its high population density and policies restricting
development to major railway transport corridors. A regime of public ownership allows MTRC to purchase52

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

ENSURING INDIRECT BENEFICIARIES CONTRIBUTE TO PUBLIC TRANSPORT FUNDING

large amounts of land at below-market prices. The model also benefits from rapid increases in real estatevalues. Finally, MTRC has considerable experience in urban planning and integrated railway-property
development.
The authors note several recent developments which have changed how Hong Kong’s model operates.
These include the conversion of MRTC to a listed company, with associated transparency andaccountability obligations, and political and economic changes following the reversion of Hong Kong toChinese control. Aveline-Dubach and Blandeau characterise the current model as “management-based”,
with MTRC focusing on managing existing property assets rather than new developments.
Moreover, while some cite Hong Kong and Japan as exemplars of successful LVC, the premia accrued underthese models do not solely represent conventional LVU. Rather, part of the value uplift comes from landdevelopment alone. The Hong Kong government monopolises land ownership and severely restricts
development. Selling land to MRTC below market price and then allowing it to develop that land effectively
creates a value increase. Removing a regulatory restriction on the land’s use enables the transport
authority to capture that increase.
The LVU comes from some combination of removing the regulatory restriction, developing the land, andthe accessibility increase due to the transport investment. This is apparent in the research of
Verougstraete and Zeng (2014) on the size of LVU in Hong Kong – measured traditionally as the “value
premium [that] result from public investments”. This work reports similar results to the international
average cited above, with housing price premiums of 5-17% reported for units near railways.
No research is available on the relative importance of the three factors cited above in explaining total LVU.
However, it is important to note that the “observed” LVU in these contexts is not entirely – or perhaps
even primarily – a product of accessibility improvements due to the transport investment. The multiple
sources of LVU involved in this context make it unsurprising that the reported levels of LVC are sometimes
high. However, maintaining tight monopoly control over land use is not an efficient means of generating
public revenue, given the opportunity costs involved.
Transit-oriented development

Transit-oriented development (TOD) integrates transport and land-use planning to develop major transit
infrastructure. However, it does not necessarily involve the transit authority undertaking the development.
The OECD (2022) argues flexible regulatory approaches near transit stations give developers greater
opportunity to adopt more complex and integrated approaches, highlighting the potential of mixed-use
developments. By contrast, TOD implies greater densification, with increased floor-area ratios encouraged
in station precincts. This, in turn, increases LVU.
Densification also contributes to more sustainable development patterns, as ensuring development isclustered around public transport hubs maximises modal shift potential. It can thus increase revenues fortransit authorities by attracting more users and increasing user fees. The OECD recommends governments
enable intensive TOD around stations (OECD, 2022; see also Box 5). However, a key factor is ensuring anadequate portion of the LVU created is directed to public use through effective LVC strategies.
Cervero and Murakami (2009) highlight the potential for a TOD approach to increase LVU. The authors’
study of standard “rail plus property” developments in Hong Kong found that LVU did not exceed 17%.
However, as they note: “If the R+P projects had a distinctively transit-oriented design, reflected by nearby
retail shops, high-quality pedestrian corridors and open space, the premiums exceeded 30 per cent.” Inother words, adopting TOD features could double LVU. The authors cite factors implying a moresophisticated integration of transport and land-use planning, focused on the liveability of urban spaces.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

53

ENSURING INDIRECT BENEFICIARIES CONTRIBUTE TO PUBLIC TRANSPORT FUNDING

Box 5. Transit-oriented development: Serving multiple policy ends
Public transport authorities may develop retail property as part of LVC strategies for new public
transport developments. A separate, although conceptually related, issue is the potential to increase
revenues by developing existing stations and surrounding land. Such initiatives can vary widely in scale,from renovating and making available space in existing station buildings for commercial purposes tomajor station redevelopments.
Several major redevelopments are underway in large US cities. The West Falls Church Station project inWashington, DC, involves redeveloping the current metro station, including surrounding car parking, as
a 100 000m2 mixed-use development. This would raise revenue for the metro operator through 99-year
ground leases and increased metro ridership. In Atlanta, Georgia, the Metropolitan Atlanta Rapid Transit
Authority (MARTA) has taken a systematic approach, establishing a dedicated transit-oriented
development (TOD) office in 2013. This has signed 17 ground leases to date, typically covering former
surface parking lots adjacent to rail stations. These yield USD 6 million in annual rent, while the officecosts USD 2 million annually (Bergal, 2021).
In addition to generating revenue, these initiatives serve other policy ends, including encouraging TOD
and providing affordable housing (e.g. the MARTA leases require 20% of housing units to be leased to
low-income workers). Conversely, some argue that TOD on brownfield sites may encourage
gentrification, with the resulting displacement effects potentially overwhelming the benefits ofaffordable housing initiatives. A recent systematic review finds some support for this hypothesis but
concludes the substantial variability in the results suggests other pre-existing local dynamics, built
environmental attributes, and accompanying policies are more important drivers of gentrification(Padeiro et al., 2019).

Implementing land-value capture poses equity challenges
LVC’s efficiency and sustainability are critical concerns but so is its fairness. Equity can be considered froma horizontal or vertical viewpoint. Horizontal equity occurs if each taxpayer pays an equal dollar amountof tax. However, in this case, the tax regime fails the vertical equity test (i.e. it is regressive) because thetax paid by lower-income groups represents a higher proportion of their income than that paid by higherincome groups. In contrast, a tax based on the ability to pay will be progressive, as higher-income taxpayers
contribute more than lower-income taxpayers.
In the LVC context, there is likely to be little or no correlation between the size of the capital gains accrued
and income levels. Taxing each landowner the same percentage of the capital gain, perhaps as a rates
surcharge, may best meet the equity criterion. While any levy can create problems for asset-rich but cashpoor landowners, staged or deferred payment arrangements can address this issue. Importantly, any levythat recovers less than 100% of the LVU still leaves the landowner with a windfall gain. Perhaps for thisreason, the New South Wales state government now refers to “value sharing” rather than LVC.
Infrastructure levies (including TIF, special assessments, and transport levies) tend to be applied uniformly
across taxpayers within a beneficiary group. They thus achieve horizontal equity but are arguably
regressive. Other LVC instruments (developer obligations, charges for development rights, land
readjustment, and strategic land management) are more likely to be progressive since the market
determines their incidence. Commercial entities tend to have higher incomes and higher ability to pay.
54

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

ENSURING INDIRECT BENEFICIARIES CONTRIBUTE TO PUBLIC TRANSPORT FUNDING

Other equity issues arise because LVU does not accrue uniformly across areas. Lower-income
neighbourhoods yield lower percentage gains than higher-income areas. Increasingly, social justice andfairness considerations influence decisions on the location and provision of transport infrastructure.
However, governments pursuing “levelling up” policies will likely face a trade-off between policy objectives
due to lower average LVU in low-income areas. That is, the equity gain comes with an efficiency cost.
Spatial equity is another consideration in implementing LVC. Most or all the instruments described above
require the identification of specific boundaries for applying LVC. Property owners outside theseboundaries will still benefit from the public transport improvement (albeit to a lesser extent) but pay nocost, unlike those inside the boundary. Conversely, where multiple LVC schemes are adopted, taxpayers
located in an area where LVC districts overlap may pay more than one tax.
Practical challenges involved in applying land-value capture

The OECD Compendium nominates limited government capacities as a critical barrier to the successful
implementation of LVC. Identifying taxpayers (e.g. landowners) is particularly challenging for middle- andlow-income countries. It requires good land registry information and quality cadastres that accurately (andwithout corruption) record quantity, value and ownership characteristics. The OECD identifies owners’
resistance as a major related challenge. A lack of political will can also be a significant constraint, even if
the idea that beneficiaries should pay is uncontroversial.
LVU levels vary by mode and across space, while ex ante prediction of LVU is problematic. These factors
may explain why LVC schemes in transport are more likely to be based on project cost rather than potential
LVU. The OECD suggests that, in high-income countries, imposing too high a tax can reduce LVC’s
acceptability and hence the ability to use it more widely.
While LVC is widely used to help finance infrastructure projects, its use to provide ongoing revenue forpublic transport operations is far less common. Of the instruments discussed here, a transport levy or a
dedicated rates surcharge (where rates are usually levied on the property’s value, constituting an advalorem tax) are likely to be the only mechanisms suitable for providing ongoing revenue support.

Lessons from land-value capture for public transport
Public transport is vital to cities’ sustainability, but providing new links is expensive, and governments
increasingly find funding investments and subsidising operating costs challenging. The OECD Compendium(2022) notes increased interest in how to capture LVU to help fund new infrastructure. LVC is a potentially
important funding source.
Despite the practical difficulties, LVC has contributed substantially to funding some major projects. For
example, LVC funded around 30% of the cost of Crossrail, while a prospective analysis suggests using
similar instruments could contribute 43% of Crossrail 2 funding (PwC, 2014). However, its potential
contribution varies widely between projects and is usually lower. Even where significant LVU exists there
may be limited potential to capture it.
Levying more than one type of LVC charge is likely to improve effectiveness. For example, Crossrail
received funding from five LVC-related sources, including a business rate supplement, a smaller
community tax, and the sale of surplus land (SGS Economics and Planning, 2015). Adopting multiple
charges can better match benefits received and contributions made across groups, facilitating the captureof more LVU. Nonetheless, significant challenges remain. Indeed, Buck (2017) concluded that the

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

55

ENSURING INDIRECT BENEFICIARIES CONTRIBUTE TO PUBLIC TRANSPORT FUNDING

government captured only around 10% of Crossrail’s estimated LVU, with 90% retained by landowners aswindfall gains.
Seeking LVC through business rate supplements is usually more politically acceptable than levying
residential rate surcharges. Where there is business resistance to business rate supplements or otherobligatory contributions, using voluntary developer contributions, mediated using accessibility measures
such as PTAL, can be another option.
Even if explicit LVC charges are not adopted, some LVU is inevitably captured over time if land-based taxes
reflect property prices. This “LVC by stealth” can be significant but may not help fund new infrastructure
projects, as the level of government receiving the land-based tax revenues may not be the one developing
the project. Japan’s KOBAYASHI-Ichizo Model model avoided this, since the development and the transport
project were integrated, with uplift necessarily flowing to the infrastructure developer.
The opportunities for implementing one or more forms of LVC are considerable, particularly where
government capacities are in place, along with supportive legislative frameworks. The most notable
examples of successful LVC are in countries with solid control over land-use planning. LVU – and hence
potential LVC – are particularly high where land supply is tightly constrained, as in the case of Hong Kong.
However, strong constraints on land supply imply high welfare costs to the broader society.
Thus, a modest contribution to project funding from LVC is not necessarily an indication of failure but avaluable addition to the funding envelope for major transport projects. Finally, as shown in the Dublin lightrail example, successfully using LVC to contribute to funding new infrastructure implies capturing LVU
accruing to existing properties and new developments within a project’s catchment.

56

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

IMPROVING THE GOVERNMENT FUNDING BASE: THE ROLE OF EARMARKED TAXES

5. Improving the government funding base:
The role of earmarked taxes
Government subsidies are a vital funding element for almost all public transport systems. However, thetype of subsidy provided affects the stability and predictability of operators’ revenues. This is a criticalissue where large, long-running capital projects are needed to provide new or substantially upgraded
services. Direct grants are a relatively unstable form of subsidy because their discretionary nature makes
them vulnerable to political and policy changes, and subject to competing claims from other policy areas.
Dedicated taxes and cross-subsidies, established legislatively, can provide greater funding stability. This
may increase efficiency by facilitating the optimal scheduling of capital expenditures and avoiding delays
in opening new services (Xuto et al. 2022).
There are two main rationales for earmarked taxes. The first, “beneficiary pays”, is based on the view thatsome of the benefits of high-quality public transport go to groups other than the direct users. Chapter 4
addressed the application of such a beneficiary-pays logic to landowners and users. LVC can thus be seen
as a specific form of earmarked tax. Payroll taxes, such as France’s versement mobilité, also adopt thislogic. Such taxes are based on the view that improving transport connections effectively increases the size,
and thus the efficiency, of the labour market, providing efficiency gains for affected businesses.
The second rationale for earmarked taxes is the need to move towards a sustainable transport system,
both as part of the response to the climate crisis and to achieve more equitable access to transport. Thisrationale implies increasing taxes on private vehicle use to levels that fully recover the external costs
imposed by their use, particularly in urban areas. It also implies diverting revenue from these taxes toimproving public transport to maintain accessibility levels for those priced out of private vehicle use. This
chapter outlines the various kinds of earmarked tax that apply to transport.

Congestion charges and urban tolls
Despite the clear economic rationale for congestion charges, relatively few cities apply them. This reflects
the political challenges of implementing them. However, there is continued interest in their potential
benefits, and New York City is likely to become the first US city to adopt a congestion charge during 2024
(ITF, 2023c).
Proost (2022) identifies eight cities in five countries with congestion charges or urban tolls (see Table 9).
An important distinction is between those that impose a high charge within a narrow perimeter (e.g.
London) and those that apply a low charge across a larger perimeter. The latter group is larger and includes
all Scandinavian cities applying congestion charges.
The revenue from almost all congestion charges is earmarked for transport-related uses. This could
possibly be a response to the political challenges in adopting them. Both roads and public transport are
generally eligible for funding, although the extent of the funding provided to these modes differs widely.
Cycling and walking projects are eligible for funding in at least three cases.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

57

IMPROVING THE GOVERNMENT FUNDING BASE: THE ROLE OF EARMARKED TAXES

Table 9. Congestion charges: Stated objectives and use of revenues
Urban area
(year of introduction)

Stated objective Use of revenues

Size of charge (2023)

Singapore (1975, 1998)

Congestion

Variable (target speed basis)Bergen (1986)

Financial,environmental

Initially only for financing road projects, NOK 6-64 (EUR 0.56-5.83)
then 45% for road construction and 55%
Varies with vehicle type, peakfor improving environmental quality andversus off-peakroad safety

Oslo (1990)

Financial

Investments in road capacity and public
transportation projects

NOK 5-24 (inner ring)

Financial andcongestion

Road infrastructure (road capacity, withsome earmarking to public
transportation and to cycling andwalking)

NOK 13-37 (EUR 1.18-3.37)

Congestion

Public transport (80%), road safety(11%), cycling and walking (9%)

GBP 15 (EUR 17)

Trondheim (1991)

London (2003)

NOK 6-31 (outer ring)

Monthly ceiling of NOK 110(EUR 10)

ULEZ charge for non-compliant
vehicles: GBP 12.5 (EUR 14.2)
EUR 4 for petrol cars and EUR 6
for diesel cars

Stockholm (2006, 2007)

Congestion

Road infrastructure and public transport

SEK 11-45 (EUR 1-4.1)
Daily maximum: SEK 135 (peak),SEK 105 (off-peak) (EUR 12.3/9.5)

Milan (2008, 2010)

Environmental,
then congestion

Public transport, cycling and walking

EUR 0-5

Gothenburg (2013)

Congestion,
environmental,
financial

Road infrastructure and public transport

SEK 9-22 (EUR 0.81-2)
Daily maximum: SEK 60 (EUR 5.43)

Source: Proost (2022), www.urbanaccessregulations.eu.

London earmarks the highest proportion of its road-user charging revenue to public transport, with 80%of the net revenue from its congestion charge and Low/Ultra-Low Emissions Zone charges used for thispurpose. A further 9% funds active transport initiatives. In 2021-22, road-user charging revenue totalled
GBP 423.3 million, or 9.8% of TfL’s gross income (TfL, 2022a). Milan is the only other city currently spending
most or all of its congestion charging revenue on public and active transport. The remaining cities spend
substantial amounts on road-based projects.
The revenue from New York City’s proposed congestion charge will also be earmarked for public transport.
The Metropolitan Transit Authority (MTA) would use the expected annual revenue of USD 1 billion to fundrepayments on a USD 15 billion loan, which would finance 30% of its multi-year capital works plan (Kaske,
58

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

IMPROVING THE GOVERNMENT FUNDING BASE: THE ROLE OF EARMARKED TAXES

2022). This is in addition to the toll revenue from the nine crossings into Manhattan operated by the MTA’s
Bridges and Tunnels Authority, which raised USD 2.2 billion, or 22% of the MTA’s total revenue in 2021.
The ITF has previously highlighted the benefits of earmarking congestion charging revenue to fund public
transport (ITF, 2021c). Support for congestion charging increases when affected road users have goodtransport options. Improving public transport makes it a feasible alternative to private car use for a larger
proportion of journeys to and within congestion charging areas. The report also recommended introducing
congestion charges as part of a broader SUMP (see Chapter 1). Because SUMPs aim to achieve a shift
towards public and active transport, congestion charging revenues should be used to improve access tothese target modes.
Urban tolls are a significant source of revenue for transport investment in Norway. They should contributearound 9% of the resources allocated under the 2022-32 National Transport Plan (Norwegian Ministry ofTransport, 2022). Since 2009, a small proportion of tolling revenue has helped fund public transport
operational costs. Norway’s use of urban tolling provides an example of its incorporation into a broader
policy context, explicitly linking tolls to achieving a long-term shift in urban mobility.
In Norway, the national government and regional and local authorities also adopt urban environment
agreements (UEAs). These provide transport funding additional to that allocated under the National
Transport Plan and via local authority budgets. UEAs were first used in the 2014 National Transport Plan.
Since 2016, they have incorporated a “zero-growth” objective for private car traffic. UEAs provide abenchmark of 50% national government financing for major infrastructure projects, with the remaining
funds derived mainly from urban tolling revenue, supplemented by some municipal funding. The national
contribution can be increased to 66% if specific public transport service provision benchmarks are met.
Figure 17 shows the funding breakdowns of UEAs in four Norwegian cities. Urban toll revenues accountfor 37-40% of capital financing for new infrastructure projects financed under the UEAs. UEAs are
therefore a significant source of project financing, with the total (national plus toll revenue) funding
provided under them estimated at between EUR 427 (Oslo) and EUR 1 089 (Stavanger) per person annually
between 2019 and 2029.
Figure 17. Total funding for transport growth agreements in Norway, 2019-29

Source: Norheim (2023).

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

59

IMPROVING THE GOVERNMENT FUNDING BASE: THE ROLE OF EARMARKED TAXES

Adopting the zero-car-growth objective followed modelling of the cost of meeting expected growth intransport demand. If current trends persisted, this cost would amount to almost EUR 30 billion over
20 years. An “environmental scenario” was estimated to halve the cost, saving EUR 15 billion.
Public acceptance of urban tolls has gradually increased over the past decade. Support in Oslo grew from
46% in 2013 to 55% in 2022, with 41% opposed. A similar percentage agree that the urban toll ring system
reduces the extent of their car use (Norheim, 2023). EVs were initially exempt from the tolling system but
now pay urban tolls with a minimum 50% discount. This policy has strong public support as part of abroader move to revise and reduce EV subsidies following their large-scale adoption in Norway.
Despite the successes of the UEA system, meeting the increased public transport funding needs arisingfrom the zero-car-growth objective remains challenging. While urban tolling provides considerable
revenue, it is significantly less than the additional public transport investments (and operating subsidies)needed. The government is taking various initiatives to address this challenge, including:•reforming fare structures, incorporating differentiated fares and peak/off-peak pricing•

implementing network efficiency measures, including establishing trunk lines and giving traffic
priority to public transport services•

adopting output-based public subsidies (i.e. a subsidy per passenger journey benchmark)•establishing an integrated policy framework for public transport use and the adoption of
restrictions on private car use•

including new mobility services in UEAs.

Iceland’s Reykjavik region is taking a broadly similar approach. The 2019 Capital Transport Pact responds
to urban sprawl, reduced population density and increased intensity of car use by establishing a new BRT
scheme. The BRT system will integrate with the existing bus network and form the backbone of anenhanced public transport system. As in Norway, the pact features new co-operation and co-ordination
arrangements between the national government and the six affected municipal governments. A newsustainable mobility charge (or urban toll) could provide up to 50% of the BRT system’s funding. The
remainder will be funded by the national (25%) and municipal governments (12.5%), supplemented by an
LVC element (12.5%) in the form of revenue from land sales (Hermannsson, 2023).

Other road-user charges
Efficient taxes to internalise the external costs of motor vehicle use as fully as possible can help shifttransport demand towards sustainable modes by increasing the relative price of private vehicle use. A
central element is ensuring ICE-vehicle users face an effective carbon price. Proost (2022) argues current
European fuel taxes imply an effective carbon price of around EUR 300 per tonne, while fuel taxes are alsoa potentially efficient means of internalising air and noise pollution costs.
A carbon tax of EUR 300 is broadly equal to the “target consistent” CO2 shadow price recently adopted by
the UK government for appraisal purposes. However, much lower fuel taxes apply in most non-European
countries, suggesting the need for significant increases to embed an efficient carbon price. Moreover, theexpected trajectory of shadow carbon prices in the years to 2050 is strongly positive, implying a need forfurther tax increases over time (ITF, 2022).
Using revenue from these road user taxes to improve public and active transport would reinforce theirimpact. Fuel tax accounted for 4.4% of all taxation revenue in Europe in 2020 (ITF, 2023c). Given the60

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

IMPROVING THE GOVERNMENT FUNDING BASE: THE ROLE OF EARMARKED TAXES

importance of this revenue source, there is a case for earmarking at least some of it for public transport.
Several countries have already taken this step. For example, the Île-de-France region uses a small
proportion of fuel-tax revenue to fund public transport. A current proposal would see it extended
throughout the country.
In the United States, the federal Highway Trust Fund has traditionally funded highway investments usingfederal taxes on road fuels and trucks. However, the 2008 Fixing America’s Surface Transportation Act
authorised spending part of the Highway Trust Fund on public transport. The fund now comprises a
Highway Account and a Mass Transit Account. In 2019, 12% of tax revenues accrued to the Mass Transit
Account and 19% (USD 10.5 billion) of outlays were attributable to transit (Kirk and Mallet, 2020).
Feigenbaum and Hillman (2020) find that 20 US states divert some fuel tax revenues to non-road related
uses, mainly funding public transport. Six states spend over 20% of fuel tax revenue on public transport.
In New Zealand, 20% of funding under the National Land Transport Programme 2021-24, funded by vehicle
and road user taxes, was spent on public transport (New Zealand Transport Agency, 2023). In Canada, thecity of Vancouver applies a fuel tax of CAD 0.18 per litre to fund its metro system (Canadian Taxpayers
Federation, 2022). The province of Ontario allocates CAD 0.02 per litre of its fuel tax to municipalities withpublic transport services (Ontario, 2023).
Urban parking taxes are also a potentially important source of tax revenue from road users. Because
excessive parking supply has many negative impacts, these taxes can encourage behavioural changes andoffer a fair way to finance local transport services. Litman (2013) identifies several parking tax and levy
options, some used in Australian and US cities since the late 1990s. In Australia, Melbourne expects togenerate AUD 108 million (EUR 70 million) from parking levies in 2022-23, having quadrupled the rateapplied in the central area since its adoption in 2006 (State of Victoria, 2022).
Urban parking taxes and levies usually apply to commercial parking. Where used, a complementarystrategy should ensure the efficient pricing of on-street parking so that pricing reflects the value of theroad space used for this purpose. This approach yields additional revenue and ensures a consistent
approach to parking pricing (ITF, 2021a). Dynamic on-street parking charges have been introduced in somecities, varying during the day in response to demand, as part of congestion management. Revenues fromthese systems tend to be earmarked for mobility improvements.
Franco (2020) summarises the potential impact of well-designed parking policy reforms based primarily
on an analysis of Los Angeles’ recent reform experience:
Policies determining parking supply and pricing influence developers’ decisions on how much land
to provide for parking, and individual choices of how many cars to own and which travel mode to
take to cover daily travel needs. Those choices have key implications for land use, urban form,
congestion and air pollution. Therefore, parking policies can be key to achieve moreenvironmentally sustainable urban mobility and development patterns.
Parking taxes can also help achieve planning objectives, encouraging more compact development andincreased use of alternative transport modes. Beuhler et al. (2016) conclude that parking management
and a metro expansion led to the modal share of private cars in Vienna falling from 40% to 27% in the two
decades to 2014.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

61

IMPROVING THE GOVERNMENT FUNDING BASE: THE ROLE OF EARMARKED TAXESThe versement mobilité in France
The French government adopted the versement transport [transport payment, VT] in 1971 as a payroll tax
to provide a reliable funding source for major expansions of the public transport network. The VT
underwent progressive expansion in terms of coverage until its replacement in 2019 by the versement
mobilité [mobility payment, VM].
The VT was initially restricted to the Paris region (Île de France) but now applies throughout France. The
size of the municipalities affected has also changed: the VT initially applied to those with populations over
300 000, but since 2020 the VM applies to municipalities with populations over 10 000. Private and public
sector organisations employing 11 or more people pay the VM.
The VM is easily the most significant tax earmarked for funding public transport in France. Revenue hasgrown strongly recently, from EUR 7.7 billion in 2013 to EUR 9.3 billion by 2019 (Desclos and Minster,2020). Local transport authorities set the tax rate, subject to legislated maxima. These vary according to
the size of the municipality, whether there is an inter-municipal transport co-operation agreement inplace, whether a transport mode with “right of way” (i.e. train, tram or BRT) exists, and whether themunicipality benefits from the “tourism bonus” rate.
The maximum rates applicable as of 2021 vary from 0.55% to 2.95%, with higher maxima applying to larger
municipalities. Around 90% of municipalities with populations over 400 000 charge the maximum rate, but
a lower proportion of smaller municipalities do so. The maximum rates have increased progressively: forexample, the top rate within Île de France before mid-1975 was 1.7% but since 2018 it has been 2.95%.
The VM has contributed substantially to the large-scale expansion of mass transit in France. Since 2019,
VM revenues can also fund other mobility services (e.g. active and shared mobility). The fact that local
authorities decide the tax rate, collect it, and use it locally makes its rationale and merits more transparent.
Conversely, the French employers’ association (MEDEF), argues that the high VM rate, which accounts foras much as 7% of gross earnings in Paris and Lyon, harms competitiveness (Coldefy, 2023a). An additional
requirement for employers to pay half the cost of employees’ public transport travel passes underlines
this issue. Moreover, the tax is paid for all employees, regardless of whether they commute by public
transport or the workplace is accessible by public transport. This is a particular issue outside metropolitan
areas. While 43% of workers commute by public transport in the Paris region, only 8% do so in the rest ofFrance (Desclos and Minster, 2020). It is also possible that increased teleworking may reduce the VM’s
acceptability.
A more fundamental concern is that the VM has effectively become a substitute for fare revenues. While
initially intended to fund major infrastructure, it has increasingly funded operational costs. In 2018, it
funded 43% of public transport operating costs in Île-de-France and 48.2% elsewhere (Duron et al., 2021).
Meanwhile, the contribution of fare revenue has declined particularly sharply in France, from 70% of
operating costs when the VT was introduced to only 28% by 2015.
The French National Audit Office argued in 2015 that transport authorities’ ability to rely on revenue fromthe VM had led to a failure to maintain the real value of fares, raising questions regarding fair cost sharing
between users and taxpayers. It also argued the VM is at its maximum feasible level and that addressing
future public transport needs will require alternative revenue sources (Desclos and Minster, 2020).
Enabling VM revenues to fund other mobility services sharpens this imperative.
The political difficulty of increasing fares suggests that a reliable alternative revenue source such as theVM will increasingly risk diversion towards funding operational expenses. The absence of clear rules
requiring it to be used to fund infrastructure expansion, as initially intended, has enabled this shift.
62

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

IMPROVING THE GOVERNMENT FUNDING BASE: THE ROLE OF EARMARKED TAXES

However, this risks undermining support for the VM and compromises its ability to contribute to network
development. The need to invest heavily in sustainable transport underlines this point.
Establishing formal fare-setting policies and processes could help address this problem. Notably, Duron(2021) recommended prohibiting local transport authorities that benefit from VM revenue from offering
fare-free travel. A more direct approach could be legislating restrictions on VM revenue use, requiring aminimum percentage to fund capital works.
Despite the VM’s long history and important benefits, no other country has adopted a similar model(Desclos and Minster, 2020). New York City’s Payroll Mobility Tax, which applies at rates ranging from
0.11% to 0.34%, represents a modest exception to this conclusion. Desclos and Minster note that effective
implementation of the model requires an efficient administration to levy and collect the tax and an
effective legal system to settle disputes. This suggests it is a tax best suited to relatively developed
countries. Conversely, its ability to provide a stable revenue source for public transport will be particularly
attractive in developing countries facing challenges in subsidising public transport due to budget
constraints.

Other earmarked tax revenues
New York City’s MTA takes a highly diversified approach to using earmarked taxes. It receives funding fromseveral taxes, including a local payroll tax, similar to France’s VM, two property taxes (targeting propertytransfers and mortgage registrations), a local sales tax of 0.375%, a USD 2.75/trip surcharge on taxis andridesourcing vehicles, and vehicle-related taxes (a fuel excise plus registration and driver licence fees).
The MTA justifies the tax on ridesourcing and taxis as a congestion surcharge based on evidence that thesevehicles contribute disproportionately to congestion in areas with high traffic densities (MTA, 2023).
Earmarked property taxes are usually justified based on the increased land value from accessibility gains
due to improved public transport. However, the mortgage-based charge used in New York City is lessequitable and efficient than a rate surcharge. Similarly, a tax on property transfers is less efficient than anannual tax on property owners based on a percentage of the underlying property value.

Criticisms of earmarking
A major risk of earmarking taxes to fund public transport is that these funds become substitutes for action
to maintain adequate user contributions (i.e. fare revenue). Similarly, when earmarked taxes generate
substantial revenue, the risk is that reduced allocations from general government revenue will offset it.
More significantly, substantial earmarked revenue may reduce spending discipline because there is lesscompetition for available funds.
Certainty in funding allocations enhances transport authorities’ ability to commit to and schedule major
investments. However, there can be offsetting costs if less rigour applies to spending choices. The issue
arises because the pool of competing projects is much smaller. Whereas the Treasury oversees the
allocation of general tax revenue between all current and proposed government programmes, funds raisedby an earmarked tax are only usable for a much narrower range of purposes.
The existence of a dedicated funding source can reduce the rigour of project appraisal and the review andchallenge functions of the appraisal process, compromising value for money disciplines. Hence, many

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

63

IMPROVING THE GOVERNMENT FUNDING BASE: THE ROLE OF EARMARKED TAXES

Finance ministries, including the UK Treasury, argue for maintaining competition for budget funding on
efficiency grounds.
Mitha (2018) argues that earmarking can constrain funding for essential but less prominent government
programmes, especially if adopted widely. Similarly, Sweden’s Ministry of Finance argues that earmarking
disadvantages “worthy but unpopular” expenditures by reducing the pool of uncommitted funds available
to be allocated in the budget context. Moreover:[Earmarking] can lead to substantial revenues being directed to specific uses that, over the longer
term, prove to be inefficient or ill-adapted to emerging priorities. In such cases, the ability toredirect revenues to better uses can be constrained, even in the medium term, by the public
commitments that have been made to use revenue for particular purposes (ITF, 2021c).
The tax revenue raised by an earmarked tax will also likely become less predictable over time. The revenue
raised by most taxes varies with economic circumstances (pro- or counter-cyclically) and is vulnerable tolong-term shifts in demand. For example, were a significant proportion of fuel-tax revenue earmarked for
public transport investment, the revenue raised would fall rapidly as the take-up of EVs increased.
Addressing the criticisms

Governments wishing to earmark tax revenues to fund public transport should ensure that the systemdesign addresses these concerns as far as possible. In some cases, rules addressing the spending of therevenue raised may be appropriate. The example of the VM shows how incentives to spend the revenues
on operational costs undermined the original objective of mobilising funds to finance major system
expansions. Rules requiring authorities to spend all, or some minimum proportion, of revenues on capitalprojects could address this issue.
However, unduly restrictive rules have longer-term efficiency costs. Governments and transport operators
may need to be able to shift funds from less successful initiatives to new priorities. Such flexibility suggests
a flexible approach to earmarking that allows modifications as priorities evolve (ITF, 2021c). While a fixedproportion of tax revenues could be reserved for infrastructure spending, they should not necessarily bepermanently allocated to specific projects.
Another approach could be to fund specific functions through general government revenue and others
through earmarked taxes. This may be more readily accepted if earmarking is seen as a medium-term tool,
explicitly linked to the large investment demands created by the need for a timely move to a sustainabletransport system.

64

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

COMBINING FUNDING SOURCES

6. Combining funding sources
This report discusses the merits and potential contributions of a range of individual funding sources.
However, a key characteristic of the funding of many recent major public transport projects is a strategy
of drawing on a wide range of funding sources. For example, Crossrail drew on 17 different funding
sources, including five separate LVC-related charges, as shown in Figure 18. Similarly, Litman (2022) argues
for using a variety of funding options, to ensure funding stability and distribute costs broadly.

Figure 18. Crossrail funding and financing sources, 2021

Notes: GLA: Greater London Authority. DfT: Department for Transport. TfL: Transport for London. NR: Network
Rail. HAL: Heathrow Airport Ltd. Precise levels of funding from some sources, such as sale of surplus land andproperty, may be subject to change.
Source: Crossrail (2021).

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

65

COMBINING FUNDING SOURCESFor Crossrail, the largest LVC-related source was a generally applied business rates supplement, expected
to support borrowing of GBP 4.1 billion via annual revenues of GBP 225 million. Two major developers
were key project beneficiaries and made significant contributions. One, Canary Wharf Group, was an early
project proponent and agreed to build a station and contribute GBP 150 million to project funding. A
second, Berkeley Group, also contributed to the collaborative development of a station on its land.
Two regulated entities made contributions which their users would ultimately fund, after the inclusion ofthese amounts in their regulatory asset bases. Network Rail financed GBP 2.3 billion of track works.
Including this amount in its asset base meant the contribution would ultimately be funded by rail
operators, who would pay track access charges to Network Rail. Heathrow Airport Holdings contributed
GBP 70 million after securing agreement from its regulator to include this amount in its regulatory asset
base, enabling its recovery from airport users benefiting from the accessibility improvement provided by
the project.
The Corporation of London contributed GBP 250 million in recognition of the importance of the line forthose who live, work in and visit the City and the wider capital. The Mayor’s Community Infrastructure
Levy applied a per-square-metre charge to newly constructed floor space, administered through theplanning process. This contributed GBP 300 million, while obligatory development contributions provided
a further GBP 300 million (Buck, 2017).
Another example of a major project marshalling a wide range of funding sources is the recently completed
Transbay Transit Center (TTC) project in San Francisco. The USD 2.2 billion cost of this multimodal transit
interchange is funded through a combination of LVC, local, regional, state and federal funding sources,and naming rights sponsorship (Hafen, 2020).
A key rationale for multiple-source funding models appears to be to limit funding risks for central
government budgets. The approaches taken also suggest a focus on reducing risks and delivering certainty
to relevant parties to underpin their participation. For example, Buck (2017) notes the UK government
initially favoured a private concession model to fund Crossrail. When this proved unachievable, it set an
initial “cap” on the contribution from the national budget of around one-third of the funding requirement.
The project sponsors (the UK Department for Transport and Transport for London) then worked with thebusiness and development sectors to develop a funding package. This approach, notably the explicit limiton the role of general budget funding, is consistent with the observations of Xuto et al. (2022) regarding
the vulnerability of public transport systems and projects that are primarily budget-funded to instability infunding flows.
The fact that both Crossrail and the TTC employed several LVC-related funding mechanisms also reflects
the observations made in Chapter 4 regarding the practical difficulties of capturing LVU. A differentiatedapproach allows better targeting of different beneficiary groups, improving LVC’s efficiency and equity
while avoiding imposing large, individual charges that will more likely prove politically contentious.
The OECD has also argued that diversifying revenue streams by using a range of LVC mechanisms reduces
funding risk exposure for public authorities. However, it cautions that adopting this approach increases
the risks of double taxation. To minimise this risk, legal frameworks governing LVC should include
exemptions and offsets against other contributions (OECD, 2022).

66

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

OTHER REVENUE SOURCES

7. Other revenue sources
In addition to specifically addressing fare revenue, LVC, and earmarked taxes, the Working Groupquestionnaire sought information on other public transport funding sources. Many responses identified
advertising and sponsorship as revenue sources. Most identified advertising as the largest single revenue
source among this group.

Advertising is a small but growing revenue source
Some questionnaire responses described advertising as a small but important revenue source, while others
stated it played a minimal role. Quantitative estimates ranged from 0.3% of revenue in Madrid to 3.4% in
London. The potential of this revenue source is indicated by TfL’s estimate that it hosts 20% of all outdoor
advertising space in the United Kingdom and 40% within the London area (TfL, 2019). Litman (2022) notes:“Most transit agencies collect revenues from transit vehicle, stop and station advertising”.
Published data suggests many transport authorities have substantially increased advertising revenues overthe past two decades. For example:•

Transport for London (TfL) advertising revenues grew almost tenfold in six years, from
GBP 8.5 million in 2002-03 to GBP 82.7 million in 2008-09. The next six years saw a further
doubling, revenues reaching GBP 169.5 million by 2014-15, or 3.4% of revenue (TfL, n.d.).

•Toronto reported CAD 28.4 million in advertising revenue in 2019, or 2.25% of operating revenue,compared with 1.5% in 2011 (Toronto Transit Commission, n.d.).

•Sydney signed a new 10-year advertising contract for its metropolitan railway stations in 2021 for
AUD 500 million, more than triple the revenue earned under the previous contract (Ward, 2021).

Increases of this size seem to result from transport authorities adopting more strategic approaches to
exploiting revenue potential. Recent increases in patronage in many large cities may also contribute.
Advertising has virtually always been a feature of public transport systems, with the first concession let on
the London Underground in 1863. However, the extent to which this revenue source has been exploitedhas varied widely – perhaps reflecting the fortunes of public transport itself. For example, in 1948 the net
advertising revenue from London Transport was GBP 1.3 million, equivalent to around GBP 29.9 million in2003 values. More than half a century later, in 2002-03, actual TfL advertising revenues were less than
one-third of this, at GBP 8.5 million (Horne, 2003). Thus, the solid recent revenue growth followed a long
period of decline.
Cities with substantially increased advertising revenue generally engage commercial advertising
companies to manage and develop this function. This presumably reflects recognition of the need to draw
on specialist expertise to maximise revenue. Even TfL has adopted this approach since 1994, despitepreviously having a large specialist advertising division (Horne, 2003). It currently grants concessions tocommercial partners, leasing certain advertising assets to them (TfL, 2021a). In New York City, Outfront
Media has exclusive responsibility for managing MTA advertising.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

67

OTHER REVENUE SOURCES

Transit authorities also undertake facilitative roles for advertising clients. TfL analyses and provides deidentified Wi-Fi data to advertisers (TfL, 2021b). Several authorities, including the MTA, enable audio
advertising on vehicles and in stations. Another common approach to transit advertising has historically
been industry-led. Advertising agency JC Decaux pioneered the free provision and maintenance of bus
shelters in Lyon in 1964, in exchange for the right to sell advertising on them.
TfL also identifies corporate “partnerships” as a distinct activity. These accounted for 10% of total
advertising income in 2021/22 (TfL, 2022b) and typically involve an element of co-branding. For example,
recent campaigns included use of TfL’s roundel to promote the sponsor’s products.
Despite significant recent increases in advertising revenue, some evidence suggests that it has reached its
upper limit. For example, after a nearly 20-fold increase in little more than a decade, TfL advertising
revenues plateaued and then declined in proportionate terms in the next several years, from 3.4% of total
income in 2014-15 to 2.8% in the last pre-pandemic year, 2018-19 (TfL, n.d.). Data for New York City’s MTA
also suggest broadly static revenues in recent years.
Policy challenges

Cities that have sought to maximise advertising revenues often encounter policy challenges. One is thatadvertising can be visually intrusive and detract from customer experience, for example where vehicles(usually buses or trams) are “wrapped” in advertising or audio advertising is adopted.
TfL’s experience also suggests that, as advertising becomes more widespread, pressure grows to ensure
its alignment with other policy goals or to use it to promote them. This may impose constraints on theability to maximise advertising revenues. For example, TfL’s Annual Advertising Report for 2020-21 (TfL,
2021b) states that it declined 38 campaigns due to a recently adopted policy restricting advertising offoods with high fat, sugar or salt content. A “Diversity in Advertising” competition also provides substantial
free advertising space to prize-winners. A Mayor’s Advertising Steering Group was established in 2016 to“guide and inform the development of the TfL Advertising Policy” (Macleod, 2020).

Sponsorship models vary in terms of risk and success
Sponsorship differs from advertising because payments are linked to a particular transit authority asset. A
common form involves selling naming rights to transit stations. The Chicago Transit Authority offers
naming rights sponsorship (CTA, 2021), as does the Greater Toronto Area’s Metrolinx (2022) and Kuala
Lumpur’s MTR (n.d.). However, research suggests this practice remains little-used overall: Fraszczyk et al.
(2020) reviewed 31 mega-cities and identified only three selling station naming rights: Cairo, Delhi and
New York City.
Reported sponsorship revenue varies widely. For example, in 2009, Barclay’s Bank purchased namingrights sponsorship of the Atlantic Street Station in Brooklyn. The bank agreed to pay the NYC MTA
USD 200 000 annually over 20 years (Grynbaum, 2009). The following year, the Southeastern Pennsylvania
Transportation Authority (SEPTA) leased naming rights for the Pattison Station to AT&T for five years at anannual price of USD 1 million (US FHWA, 2023). San Francisco’s Transbay Transit Center was named theSalesforce Transit Center in 2018 via a USD 110 million, 25-year contract – equivalent to 5% of the
USD 2.2 billion project cost (Grabar, 2018).
The relatively small revenue achieved by NYC’s MTA is perhaps surprising given its systematic approach to
managing sponsorship arrangements via a published policy used in assessing requests for naming right68

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

OTHER REVENUE SOURCES

sponsorship (MTA, 2013). However, the above examples suggest the commercial value of naming rights
sponsorship is increasing as it becomes more widely used.
Another type of sponsorship involves the sponsor taking primary funding responsibility for a new service
integrated into the existing network. A recent example is the former Emirates Air Line, a cable-car service
that commenced operation in London’s inner-east in 2012. The naming rights sponsorship provided
GBP 36 million of the estimated GBP 65 million total service cost over 10 years. The service was cobranded with TfL and Emirates logos and included on London network maps.
A critical risk with this model is its dependence on the success of the sponsored service. The London cablecar service had limited success, with passenger numbers well below expected levels. Presumably reflecting
this, Emirates did not renew its sponsorship, and TfL found a replacement sponsor on far less favourable
terms (BBC News, 2022; Mellor, 2022).
SEPTA’s agreement with a local utility company to sponsor its electric bus fleet provides another exampleof this risk. While the deal was intended to be a multi-year arrangement, initially valued at USD 650 000
over two years, SEPTA had to withdraw the entire fleet from service after less than six months due tomechanical problems. It remained out of service for over 18 months, leading to the termination of thesponsorship (WHYY, 2021).

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

69

TRANSPORT INFRASTRUCTURE FINANCING

8. Transport infrastructure financing
This report focuses primarily on funding public transport. However, because most major public transport
investments require substantial capital spending to develop essential infrastructure, this chapter discusses
issues specifically related to transport infrastructure financing.
Financing is the ability to raise resources to meet the project’s initial capital cost. The time difference
between the large initial expenditure and the flow of benefits creates the distinction between funding andfinancing. A project may produce enough funding (revenue allocated to cover its costs) over its lifespanbut may have problems obtaining finance at the outset when the capital investment is needed.
If project proponents cannot mobilise adequate resources, there is no way to develop the project andenjoy its benefits. In developed countries with efficient capital markets, problems when financing
potentially fundable projects usually result from difficulties in capturing the project benefits. These may
be political or technological, or some combination of the two. Table 10 identifies benefits associated withmajor public transport investments and the problems that can arise in capturing them to fund the project.

Table 10. Project benefits and challenges in capturing them
Direct benefits
ExamplesTravel-time savings
Improved trip comfort
Travel-time reliability

Potential value
capturemechanisms

Fare revenues

Indirect benefits
Accessibility gains, giving riseto:Societal benefits
Reduced climate costs•

land-value uplift (LVU)

Reduced urban pollution(e.g. air, noise)•increased business
value

Reduced congestion andaccident costs•

more efficient labour
markets

Land-value capture (LVC)
through various taxes/charges
Business rate surcharges

Budget funding
Increased road-user taxes(potentially earmarked)“Rail plus property” fees
Transit-oriented development(TOD)
Impediments tovalue capture

Political difficulty of increasing fares
Incentive effects on ridership

Uncertainty abouttiming/extent of LVU

Difficulty capturing value of
network benefits (e.g. reduced
overcrowding) from users

Legitimacy concerns about
LVC mechanisms

Political difficulty ofincreasing road user taxes,
equity concerns
Competing budget priorities

Development risks associatedwith TOD

Sources: Vassallo and Garrido (2023).

70

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

TRANSPORT INFRASTRUCTURE FINANCING

The opposite problem can also arise. That is, financing can be made available to enable the constructionof the project infrastructure, but service levels may subsequently be constrained due to limited ability tofinance ongoing operating costs. For example, while construction of the Grand Paris Express project is welladvanced, finance sources for the estimated EUR 700 million annual operating deficit have yet to be fully
identified (Coldefy, 2023a).
Table 11 shows the range of financing options typically adopted by governments, and the links between
financing options and the funding sources typically used for different project types. Government financing
may come from the public budget, or via state-owned enterprises (SOEs) with responsibility for the sector(or for specific projects). Governments may also seek private finance. Both private finance and thatprovided via SOEs usually comprise a mix of equity and debt. SOE contributions may also include direct
subsidies from the public budget.
The distribution of costs between the different funding sources varies widely within and between
infrastructure types. Most roads are entirely funded from general taxation, but major urban and rural
highways may be user-funded via a concession model or tax-funded through shadow tolls or availability
payments. Infrastructure such as bridges and tunnels may be funded via a mix of these sources. Most
public transport services are funded by a combination of user and general tax funding.
An urban rail or light rail project is most likely to be financed via the budget of a state-owned public
transport authority, also using some combination of debt and equity, and to be funded via a combinationof user and taxpayer contributions. Where these are major expansions to existing networks, the user
contribution is increasingly likely to include sums mobilized from indirect beneficiaries via LVC.
Importantly, maximising efficiency in project financing will minimise funding requirements. Efficiency infinancing has two elements. First, the cost-efficiency of the construction process (i.e. how wellconstruction costs are managed) and second, the efficiency of the financing per se, involving the cost ofcapital and the amortisation rate. Desire to reduce initial capital costs is often given as a reason to use
private organisations to design, build, finance (and sometimes operate) infrastructure. Conversely, private
financing is criticised as entailing a higher cost of capital than traditional government financing.

Table 11. Initial financing and ultimate funding sources
Initial financing

Ultimate funding source
Taxpayers

Public budget

Users and taxpayers

Users

Urban and rural roads

State-owned enterprises(Equity, debt, subsidies)

Urban toll bridges/tunnels

Ports, airports

Urban rail and light rail
High-speed rail

Private corporation (equity,
debt)

Shadow toll, availability
payment

Urban route buses

Toll concessions(highways)
Ports, airports

Source: Adapted from Vassallo and Garrido (2023).

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

71

TRANSPORT INFRASTRUCTURE FINANCING

Addressing financing issues
The major reorientation of transport investment needed to achieve a timely move to a sustainabletransport system will be a substantial, medium-term task. It is likely to create frictions and delays thatstress governments’ ability to finance the required spending. This may create pressure to increase thescope and scale of private financing, particularly to enable timely delivery.
The extent and scope of private involvement in infrastructure investment and associated service provision
has varied widely, over time and between countries. However, the period from the 1980s to the 2000s
saw a major expansion in its use, from which lessons can be drawn.
Governments seeking to expand private-sector involvement in infrastructure provision generally advance
two rationales. One is that drawing on private capital can expedite investment plans, allowing new services
to be delivered sooner. This rationale is based on an argument that public debt/GDP ratios must be kept
below certain levels to avoid economic stability risks, due to perceived impacts on governments’creditworthiness. This may be accompanied by the adoption of self-imposed debt “ceilings”, sometimes
at very conservative levels. For example, the UK government adopted a public debt/GDP ceiling of 40% in
the late 1990s and subsequently pursued an extensive private financing programme.
According to this rationale, private-sector financing, provided in return for user charges or “availability
payments” made by government, can be used without adding to public debt, because the debt acquiredby the private entity to finance the project is not generally accounted for as public debt. However, there
are clear arguments that contractual obligations to make “availability payments” throughout the life of the
project are equivalent to loan repayment obligations and should therefore be recognised as public debt.
The fact that liability for refinancing failing projects typically falls to the public sector underlines this point.
Furthermore, non-recognition of such obligations as part of public debt represents a failure of public
accounting standards. Past, unsuccessful proposals to reform international accounting standards in thisregard can be seen as evidence for this view (ITF, 2021b). Reforms in some countries have addressed thisissue in recent years. For example, current EU accounting rules require public-private partnership (PPP)
liabilities to be listed on balance sheet unless the private partner is primarily responsible for construction,
demand and availability risks (EC, EIB and Eurostat, 2016).
The second rationale for private involvement in infrastructure or service provision is that it can yieldefficiency gains not readily achievable via public provision, lowering overall funding requirements.
Potential sources of such efficiencies include:•

identification of more efficient or less costly design solutions•

better on-time and on-budget project delivery due to greater expertise and sharper performance
incentives•

more efficient labour practices, due to less restrictive union or workplace agreements•

improved incentives to minimise lifecycle asset costs by optimising maintenance schedules•

A more proactive approach to risk management.

The incentive for lifecycle optimisation generally results in infrastructure being maintained consistently toa higher standard. Evidence suggests that efficiencies due to the other factors have been realised inpractice in some cases, but often fail to materialise. This may be because designed standards are specified
in contracts, preventing innovation, although where innovation is actively sought savings can be large. It

72

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

TRANSPORT INFRASTRUCTURE FINANCING

can also result from failures in the performance of private companies, including in areas such as
coordination of contractors (ITF, 2018b).
Evidence also highlights several limits, problems, and risks that must be addressed if private involvementin public infrastructure and services is to yield net public benefits.
Regulatory issues

Private infrastructure managers are generally subjected to price regulation, as their operations havesubstantial natural monopoly characteristics. Regulatory regimes should incentivise managers to seek
efficiency gains, thus providing similar disciplines to a competitive environment. Price-cap regulation was
widely adopted in the 1980s and 1990s: The regulator set a maximum rate of price increase (RPI) for theprivately provided infrastructure services.
This “RPI – X” formula allows prices to rise by a rate equal to a general price index, less an expected annual
productivity improvement. The latter was often set at 1%, but theoretically should equal average
productivity growth in either the sector or the broader economy. These “efficiency targets” were typically
reset at five-year intervals (“the price control period”). During this time, the asset manager retained theproceeds from above-target efficiency gains as excess profits. Failing to achieve the efficiency target led
to lower-than-expected profits.
Experience quickly showed this mechanism could discourage investment: Infrastructure upgrades create
fixed costs, given the need to earn a rate of return on the capital invested. However, as creating new or
upgraded infrastructure is a one-off event, not an ongoing activity, achieving subsequent efficiencies is
impossible – that is, the investment is sunk. Therefore, applying a price cap based on expected future
productivity gains arbitrarily reduces the value of past investment.
This issue was addressed by “ring-fencing” such investments via a regulated asset base (RAB). This involves
infrastructure managers and regulators agreeing, at the beginning of each regulatory period, on theefficient level of investment for the forthcoming period and guarantees a rate of return on that level ofinvestment. In the United Kingdom, this model of price-cap regulation and RAB has been adopted in
sectors including water, electricity, gas, railway and fixed telecommunication lines, as well as Heathrow
Airport, and has mobilised large quantities of private capital.
However, this mechanism can create its own difficulties. If investments included in the RAB are large
enough, applying the agreed rate of return may increase user prices, offsetting the effect of the efficiency
target applied to ongoing operations. Creating a guaranteed rate of return on investment may also bias
infrastructure managers toward capital investment, rather than operational solutions. Regulators’
approach to the weighted average cost of capital (WACC) arguably also favours replacing equity with debt.
That is, if the cost of debt is lower than the WACC, the regulated entity can increase their return on equity
by increasing the proportion of debt funding. This can risk compromising the financial stability of theinfrastructure entity. This regulatory approach also incentivises risk aversion, as losses cannot berecovered through the regulatory structure. It may thereby discourage innovation (Campbell, 2023).
Comparative cost of capital

PPPs are often criticised because the WACC approved under contracts or regulatory arrangements haveconsistently and often substantially exceeded the government’s cost of capital (i.e. the bond rate). Thissuggests additional financing costs could fully offset efficiency gains achieved in other areas. However, the
WACC for a specific project is not directly comparable to the bond rate: The WACC includes project risks,
where the government bond rate does not, effectively reflecting only sovereign risk. Thus, actual

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

73

TRANSPORT INFRASTRUCTURE FINANCING

differences in financing cost between the two mechanisms are significantly lower than is often presented(Campbell, 2023).
Nonetheless, private infrastructure managers often refinance projects after successfully completing theasset construction phase, when the risk profile effectively moves from reflecting construction risks tooperational risks. This was observed in many of the first PPPs awarded In the United Kingdom, withrefinancing generally occurring at significantly lower rates. It led to government incorporating amechanism for sharing these additional profits in future PPP contracts (Hare, 2013).
Contractual difficulties

A basic problem with private provision of long-term infrastructure is the need to develop highly complex
contracts to cover all relevant service and pricing issues, and other foreseeable sources of dispute, overperiods of 25 years or longer. Specifying service requirements over such long periods introduces much
uncertainty, as the procuring authority must anticipate relevant economic, social, and technologicalchanges, as well as usage levels. Delays in project inception, while contractual issues are addressed,
frequently result. For example, in the United Kingdom, housing private finance initiatives (PFI) negotiatedbefore the 2008 global financial crisis took an average of 77 months from inception to final contract award(Hodgkinson, 2010).
Despite the uncertainties involved, most PFI contracts demonstrate minimal flexibility. While this is
typically due to concerns about protecting governments from foreseeable risks, it also reduces the publicauthority’s ability to respond to unanticipated changes.
Risk transfer

The ability to transfer project risks to the private sector is often promoted as a critical benefit of PFIs.
However, numerous insolvencies among major providers – including Metronet (2007) and Carillion (2018)
in the United Kingdom – suggest this risk transfer can prove illusory. If governments are not prepared tosee the closure of public services, they have little choice but to take over the insolvent entity, at least
initially. This potentially yields greater risk exposure than would have been involved in initially taking
responsibility for the project. Moreover, private investors price risk into contracts, at high premiums.
Issues with the use of private financing

The potential risks associated with using PPPs should be addressed systematically to ensure value formoney is achieved for the public sector. Campbell (2023) proposes the following:
1. Approaches to drawing in private finance should be tailored to industry characteristics. For
example, the UK government has used various approaches for different parts of the national railsystem, such as RAB for the infrastructure manager, PFI for rolling stock procurement, and funding
support for innovations with unproven current commercial performance (e.g., battery poweredtrains).
2. Government should clearly specify their policy objectives in each sector (or each project) andassess the case for PPP use in light of these. Where government is simply seeking cost efficiencies,
alternatives such as different procurement strategies may entail lower risks and uncertainties.
3. Governments should carefully assess proposed risk allocations and incentive structures.
Complexity and uncertainty imply some investments are best left to Government. Attempts totransfer these to the private sector can yield very high costs (i.e., risk premia) and significant risksof a government bailout. Moreover, the long-lived nature of infrastructure assets implies
objectives, or at least relative priorities, may change during their lifespan. Governments can often
74

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

TRANSPORT INFRASTRUCTURE FINANCING

respond more nimbly and at lower cost where they own and operate the assets, while PPPs require
lengthy, complex contract renegotiations.
4. Successfully using PPPs requires government to maintain significant commercial and legal
expertise within the public sector, to undertake project specification and contract negotiation,
execution, and management. Failure to do so risks poor value for money outcomes.
The UK government concluded in 2008 that PPPs should only be used for infrastructure investment wherea clear advantage over public funding is identified. Few cases have since been identified in the transport
sector. Such advantages are most likely to arise where governments have a poor asset maintenance recordand PPP contract ties asset maintenance to the right to levy charges, and in sectors with strong potential
revenue streams (e.g. toll roads in congested areas) in countries where governments face severe fiscal
constraints (e.g. rapidly developing middle-income countries).
Intergovernmental financing issues

A key trend identified in previous ITF research (see e.g. ITF 2020a) is devolution of planning and delivery
responsibility for public transport from national to regional and local levels. This seeks to create services
that respond to local demands and preferences, yielding quality and efficiency benefits. However, regional
and local governments generally lack the ability to fund major public transport services, making them
dependent on co-funding from national governments. In this context, stable and predictable funding
formulae are essential, with appropriate performance incentives for all parties.
Some countries have relatively standardised, formal co-funding agreements to address these issues. For
example, the Norwegian government’s UEAs set out the relative roles of national government, urban
tolling and local government in financing public transport upgrades and expansions. Formalised
agreements can help ensure the necessary funding to support the rapid development of sustainabletransport systems is mobilised. Framework agreements can avoid or minimise project-by-project disputes
regarding funding and help ensure efficient delivery through better funding co-ordination.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

75

CONCLUSIONS AND RECOMMENDATIONS

Conclusions and recommendations
A timely move to sustainable transport systems is an essential element in responding to the climate crisis.
Public transport will play a major role but it will differ from its current role by being integrated into a larger,
multi-modal transport ecosystem. While research indicates total investment requirements in a sustainabletransport system could ultimately be smaller than at present, a major reorientation of investments isneeded. Meeting the sustainable transport challenge requires a highly strategic, whole of government
response. The task of funding public transport must be seen within this context.
A major shift from private road transport to rail, tram and bus is essential. However, critical road-based
investments are also needed to enhance bus system capacities and upgrade facilities for active transportand micromobility, mainly by reallocating roadspace.
The size of the future funding requirement for public transport means the contributions of all revenue
sources must be optimised. A focus on ensuring the efficient provision of public transport services, thus
minimising the costs to be funded, is also essential.
Several factors should enable a reversal of the long-term decline in the funding contribution of passenger
fares. Increased urbanisation and densification will enable significantly higher load factors, and policies torationalise private vehicle use will also support this change. Maximising modal-shift opportunities also
requires governments to integrate transport and land use policies, ensuring development is concentrated
near public transport and urban sprawl is avoided.
Better fare-setting policies and processes can contribute substantially to higher user contributions. Fares
must be set at efficient levels and maintained at those levels over time. Fare levels often fall below efficientlevels because of the political sensitivity of fare-setting. To address this, governments should develop andcommunicate detailed fare policies, based on clearly stated principles. These should be implemented
through formal fare-setting processes, using relevant economic and other policy expertise. Fare reforms
must also include generous, but sophisticated and well-targeted, concessionary fares policies. Achieving
high levels of sustainable accessibility for all must be a core objective.
Many ITF countries are increasingly using LVC or actively considering this option. LVC can contributesignificantly to funding major transport projects, particularly those connected to major, pre-existing
networks and those undertaken in large, densely populated cities. Transit oriented development, which
integrates transport and land-use planning, will likely provide the greatest opportunities for LVC tocontribute to funding public transport. Wide variations in the timing, size, and distribution of gains fromtransit investments in different circumstances mean the best approaches to LVC will vary. Combining
multiple LVC tools will often yield better outcomes. Equity objectives will also affect choices, while public
acceptability is always a key consideration. Clear LVC policies and processes are needed to address theseissues and meet efficiency and equity objectives.
The heavy reliance on public transport subsidies funded from general budget allocations in most countries
gives rise to funding uncertainty and variability and can significantly compromise project planning anddelivery. Using earmarked taxes and charges can help address this issue by providing a predictable andstable funding source. However, the choice of revenue sources to be earmarked is critical. Given the needto move to a sustainable transport system, there is a clear logic in earmarking revenues from vehicle androad-user taxes to aid the development of public and active transport. Earmarking revenue from76

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

CONCLUSIONS AND RECOMMENDATIONS

congestion charges or urban tolls to fund local public transport improvements can also increase support
for such charges. This can facilitate their adoption, allowing the efficiency benefits they bring to be
captured. Conversely, earmarking taxes to fund public transport may be a “zero-sum” game if this revenue
effectively substitutes for user contributions. Clear rules on the use of these revenues are needed, within
a broader revenue strategy for public transport. Where new taxes are under consideration, they must be
assessed according to standard taxation criteria, notwithstanding the expected benefits of earmarked
funding. This implies avoiding taxes that raise significant efficiency or equity concerns.
Many public transport authorities have also sought to exploit the revenue potential of advertising,sponsorship, and other related activities more systematically. However, while some have achieved
relatively large increases in revenue from these sources, the evidence suggests that they are unlikely to beable to contribute more than a small percentage of public transport revenues.
In sum, governments must adopt an integrated revenue strategy based on clearly stated principles,policies, and processes to ensure an adequate, stable funding base for public transport in the context ofthe move to sustainable transport. The objective should be to achieve and maintain an appropriate balance
between the funding sources identified in this report, including user contributions, earmarked taxes, land
value capture, general budget allocations and ancillary sources such as advertising and sponsorship.

Recommendations
Fund public transport as a crucial part of a sustainable, decarbonised and accessible transport system
The core policy priorities of decarbonisation, sustainability and equitable accessibility require a significant
reorientation of transport policy. This reorientation implies a more prominent role for public transport.
Policy makers should consider this broader policy perspective when planning and allocating funding for
public transport.
Redirect road infrastructure investment to meet decarbonisation and sustainability commitments
Governments must identify the extent and nature of the shifts in investment priorities needed to meettheir commitments. They should recalculate road investment expenditures based on realistic, targetconsistent traffic forecasts. This task should go hand-in-hand with identifying investment and service
provision needs to support the necessary shifts towards public, shared and active transport.
Formulate integrated funding strategies for future public transport services
Governments should develop explicit funding strategies for public transport consistent with its role in asustainable transport system. Such strategies should set out the roles and contributions of each significant
funding source based on stated principles and policies. Government strategies should also use demand
forecasting to inform future funding needs.
Ensure transport infrastructure appraisals and investment decisions account for operational costs andinitial capital expenditures
Most public transport services incur large and sustained operating deficits. Governments’ ability tomaintain new services depends on their capacity to meet initial financing needs and fund long-term
operational costs. When initial project appraisals include assessments of ongoing funding needs,
governments can give these needs sufficient weight in their decision-making processes. More realistic
appraisals can help ensure the long-term fundability of public transport projects.
THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

77

CONCLUSIONS AND RECOMMENDATIONS

Plan for effective co-ordination between levels of government when funding public transport investments
With the trend towards decentralised public transport planning powers and the limited tax-raising
capacities of state and local governments, funding co-ordination is increasingly essential. Planning
processes for significant transport infrastructure projects should include allocating funding responsibilities.
Governments should consider using explicit framework agreements to ensure effective co-ordination offunding flows and maintain accountability for their use.
Improve the efficiency of public transport infrastructure investments and service provision
Efficient infrastructure and services reduce demand for public subsidies. Efficiency is even more crucial
given the more prominent role of public transport in a decarbonised and sustainable transport future. Procompetitive reforms of infrastructure development and service provision are essential to improving
efficiency. Systematic approaches to measuring efficiency performance, considering the potential impacts
on other objectives, using structured benchmarking tools, can provide the insights needed to best direct
efforts to make further gains.
Adopt explicit fare policies and implement them via formal processes
Explicit fare-setting policies and formal processes can make user funding from fares less vulnerable topolitical pressure and more efficient over time. Incorporating extensive stakeholder consultation in farepolicy development, especially with users, will enhance acceptability. Governments should also consider
incorporating independent, expert advice into fare-setting processes.
Use structured fare policies for more equitable accessibility
Unlike blanket low fares, well-targeted concessionary fares can improve accessibility withoutcompromising overall fare revenue. Eligibility for concession fares should be based primarily on need (i.e.
income levels) rather than membership of particular social groups. This applies to middle-income countries
as much as high-income countries, as the example of Bogotá demonstrates.
Encourage Mobility as a Service (MaaS) to help create transport systems centred on public transport
Well-integrated, multimodal services incorporating shared and active transport also improve efficiency.
MaaS systems can make multi-modal journeys more attractive by minimising the time and cost associatedwith modal shifts. However, the long- term sustainability of MaaS business models remains unproven.
Governments could provide initial funding and strategic direction for MaaS applications to encourage theirfurther development.
Complement public transport fare reforms with reforms to vehicle and road-user taxation
New and increased taxes (including distance-based charges, congestion charges and fuel taxes) can help
ensure the efficient pricing of road transport. . Such tax changes will increase the relative price of privatetransportation. They can also enable higher public transport user contributions without reducing theattractiveness of public transport compared to personal car use.
Earmark vehicle and road-user taxes to enable a timely move to sustainable transport systems
Earmarked vehicle and road-user taxes can provide a significant additional funding source for public
transport, at least during the transition to more sustainable transport systems. However, governments
should avoid the risk of substituting earmarked taxes for adequate fare revenues. Reforming fare policies
and using a proportion of earmarked tax revenues for capital expenditure can reduce this risk.
78

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

CONCLUSIONS AND RECOMMENDATIONS

Increase contributions from indirect beneficiaries of public transport through land-value capture
The use of land-value capture mechanisms to fund public transport is currently limited. But, given thesignificant increase in land value created by transport infrastructure projects, land-value capture could
provide an efficient and equitable funding source. When indirect beneficiaries of public transport
infrastructure projects contribute to investment costs, this can also make such projects more fundable.
However, wide variations in the timing, size and distribution of land-value increases from transit
investments mean that approaches to land capture will necessarily vary.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

79

REFERENCES

References
Alonso, W. (1964), Location and Land Use: Toward a General Theory of Land Rent, Harward University
Press, Cambridge, http://dx.doi.org/10.4159/harvard.9780674730854.
APUR (2021), “Évolution des mobilités dans le Grand Paris : Tendances historiques, évolutions en courset émergentes” [Evolution of mobility in Greater Paris : Historical trends, ongoing and emerging
developments], Atelier Parisien d’Urbanism, www.apur.org/fr/nos-travaux/evolution-mobilites-grandparis-tendances-historiques-evolutions-cours-emergentes (accessed 1 September 2023).
Aveline-Dubach, N. and G. Blandeau (2019), “The political economy of transit value capture: thechanging business model of the MTRC in Hong Kong”, Urban Studies, Vol. 56/16, pp. 3415-3431,
https://doi.org/10.1177/0042098018821519.
BBC News (2022), “London cable car to be sponsored by technology firm IFS”, 1 September 2022,
www.bbc.com/news/uk-england-london-62672319 (accessed 20 February 2023).
Bergal, J. (30 September 2021), “Transit agencies lease real estate to generate much-needed cash”,
Stateline Blog, https://stateline.org/2021/09/30/transit-agencies-lease-real-estate-to-generate-muchneeded-cash (accessed 21 February 2023).
BITRE (2015), “Transport and Infrastructure and land value uplift”, Information Sheet No. 69, Bureau ofInfrastructure, Transport and Regional Economics, Canberra,www.bitre.gov.au/sites/default/files/is_069.pdf (accessed 16 February 2023).
Börjesson, M., C.M. Fung and S. Proost (2017), “Optimal prices and frequencies for buses in Stockholm”.
Economics of Transportation, Vol. 9, pp. 20-36, https://doi.org/10.1016/j.ecotra.2016.12.001.
Briggs, R. (15 July 2021), “SEPTA’s cracking battery buses raise questions about the future of electrictransit”, WHYY, https://whyy.org/articles/septas-cracking-battery-buses-raise-questions-about-thefuture-of-electric-transit/ (accessed 20 February 2023).
Buck, M. (2017), “Crossrail project: Finance, funding and value capture for London’s Elizabeth line”,
Proceedings of the Institution of Civil Engineers, Vol. 170/6, pp. 15-22,
http://dx.doi.org/10.1680/jcien.17.00005.
Buehler, R., J. Purcher and A. Altschuler (2016), “Vienna’s path to sustainable transport”. International
Journal of Sustainable Transportation, 2017, Vol. 11, NO. 4, 257–271.
https://doi.org/10.1080/15568318.2016.1251997.
Campbell, C. (2023), “Privately financing infrastructure investment: The experience of the United
Kingdom”, Background paper, ITF Working Group “Funding Public Transport”, www.itfoecd.org/repository/future-public-transport-funding.
Canadian Taxpayers Federation (2022), 24th Annual Tax Honesty Report, www.taxpayer.com/media/GasTax-Honesty-Report-2022.pdf.

80

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

REFERENCES

Cervero, R. and J. Murakami (2009), “Rail and property development in Hong Kong: Experiences andextensions”, Urban Studies, Vol. 46/10, pp. 2019-43, https://doi.org/10.1177/0042098009339431.
City of Brampton (2023), “Brampton Transit: Ridership”, www.brampton.ca/EN/residents/transit/AboutUs/Pages/Ridership.aspx.
City of Brampton (2021), “City Dashboard: Transit ridership per capita”,
https://geohub.brampton.ca/pages/livability-ridership.
City of Brampton (2019), “Population and dwelling”, https://geohub.brampton.ca/pages/profile-popdwelling.
Clinnick, R. (2021), “New German government to prioritise rail investment over road”, International
Railway Journal, 25 November 2021, www.railjournal.com/policy/new-german-government-to-prioritiserail-investment-over-road.
Coldefy, J. (2023a), « Mobilité du quotidien : la redoutable équation du carbone, de l’équité et del’efficience » [Everyday mobility: The daunting equation of carbon, equity and efficiency], Transports,
Infrastructures et Mobilités, No. 537 (January-February), pp. 53-61.
Coldefy, J. (2023b), « Mobilités : pour des solutions justes et décarbonées (et non juste décarbonées) »[Mobility: For just and decarbonised solutions, not just decarbonised solutions], La Grande Conversation,
16 February 2023, www.lagrandeconversation.com/ecologie/mobilites-pour-des-solutions-justes-etdecarbonees-et-non-juste-decarbonees.
Coldefy, J. (2023c), “Governance of public transport and its impact in France”. Presentation to the ITF
Working Group, “Funding Public Transport”, Reykjavik, Iceland, 14 April 2023 [available on request].
Coldefy, J. (2022), Mobilités : changer de modèle. Solutions pour des déplacements bas carbone etéquitables [Mobility: Change the model. Solutions for low-carbon and equitable travel], Publishroom
Factory, Orthez.
Coldefy, J. and P. Gendre (2020), « Retours d’expériences Cars Express » [Feedback on Express Coaches],
Government of France, Ministere de la Transition Écologique, Paris,
https://www.francemobilites.fr/sites/frenchmobility/files/inline-files/France%20Mobilit%C3%A9s%20%20Evaluation%20cars%20express%20-%20Version%20finale_4.pdf.
Condry, B. (2023), “Rail benchmarking”, Presentation to the ITF Working Group, “Funding Public
Transport”, Reykjavik, Iceland, 14 April 2023 [available on request].
Crossrail (2021), “About us: Funding”,
https://web.archive.org/web/20221228235630/https://www.crossrail.co.uk/about-us/funding (accessed
7 December 2023).
CTA (2021), “Station Naming Rights”, Chicago Transit Authority,
https://www.transitchicago.com/assets/1/6/CTA_Station_Naming_Rights.pdf.
CTA (n.d.), “Financial statements and supplementary information”, Chicago Transit Authority,
https://www.transitchicago.com/finance/.
CTOD (2008), Capturing the Value of Transit, Center for Transit-Oriented Development, Oakland, CA,
https://ctod.org/pdfs/2008ValueCapture.pdf (accessed 16 February 2023).
Department of Infrastructure and Regional Development (2016), “Using value capture to help deliver
major land transport infrastructure: Roles for the Australian Government”, Discussion Paper,
Government of Australia, Canberra, https://apo.org.au/node/70469.
THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

81

REFERENCES

Desclos, T. and C. Minster (2020), “Alternative revenue sources for urban transport: Presentation anddiscussion of the French mobility tax”, Coopération pour l’Amélioration et le Développement desTransports Urbains, 14 December 2020, www.codatu.org/actualites/alternative-revenue-sources-forurban-transport-presentation-and-discussion-on-the-french-mobility-tax-by-thierry-desclos-clotildeminster-world-bank/ (accessed 22 February 2022).
Deutsche Welle (4 April 2023), “Germany launches EUR 49 monthly public transport ticket”,
www.dw.com/en/germany-launches-49-monthly-public-transport-ticket/a-65225055 (accessed 2 June2023).
Duron, P., et al. (2021), « Rapport sur le modele economique des transports collectifs » [Report on theeconomic model of public transport], Government of France, Ministere de la Transition Ecologique, Paris,
www.ecologie.gouv.fr/sites/default/files/RAPPORT%20DURON.pdf.
EC (2020), “Sustainable and Smart Mobility Strategy: Putting European transport on track for the future”,
European Commission, Brussels, https://eur-lex.europa.eu/legalcontent/EN/TXT/?uri=CELEX%3A52020DC0789.
EC, EIB and Eurostat (2016), “A guide to the statistical treatment of PPPs”, European Investment Bank,
https://data.europa.eu/doi/10.2867/64196.
Eltis (2021), “The SUMP Concept”, Urban Mobility Observatory, https://www.eltis.org/mobilityplans/sump-concept.
Federal Transit Administration (2022), “Annual National Transit Summaries and Trends”,
www.transit.dot.gov/ntd/annual-national-transit-summaries-and-trends (accessed 8 December 2023).
Feigenbaum, B. and J. Hillman (30 June 2020), “How much gas tax money states divert away from roads”,
Reason Foundation, https://reason.org/policy-brief/how-much-gas-tax-money-states-divert-away-fromroads/ (accessed 23 February 2023).
Fisch-Romito, V. and C. Guivarch (2020), “Transportation infrastructures in a low-carbon world: An
evaluation of investment needs and their determinants”, HAL Open Science Archive, https://hal.archivesouvertes.fr/hal-02131954/document.
Franco, S. (2020), “Parking Prices and Availability, Mode Choice and Urban Form”, International
Transport Forum Discussion Papers, No. 2020/03, OECD Publishing, Paris,
https://doi.org/10.1787/04ae37c3-en.
Fraszczyk, A., W. Weerawat and P. Kirawanich (2020), “Metro station naming strategies in selected
mega-cities and lessons for new metro systems”, Transport Research Procedia, Vol. 48, pp. 2608-20,
https://doi.org/10.1016/j.trpro.2020.08.250.
Global Infrastructure Hub (2017), Global Infrastructure Outlook, Oxford Economics/Global Infastructure
Hub, Sydney and Toronto, https://outlook.gihub.org/.
Government of France (2023), « Quotient familial et impôt sur le revenu : comment ça marche ? »[Family quotient and income tax: how does it work?], www.economie.gouv.fr/particuliers/quotientfamilial.
Grabar, H. (15 August 2018), “If you build it, will they sponsor? How Salesforce wound up naming a San
Francisco landmark”, Slate, https://slate.com/business/2018/08/salesforce-pays-to-name-san-franciscostransbay-transit-center-is-this-the-new-normal.html.

82

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

REFERENCES

Greater London Authority (2016), “Crossrail funding: Use of planning obligations and the Community
Infrastructure Levy”, Supplementary planning guidance, updated March 2016,www.london.gov.uk/sites/default/files/crossrail_funding_spg_updated_march_2016v2.pdf.
Grynbaum, M. (2009), “M.T.A. sells naming rights to subway station”, New York Times, 23 June 2009,www.nytimes.com/2009/06/24/nyregion/24naming.html.
Gupta, D. (26 May 2023), “Brampton is the most expensive city for car insurance in Ontario. Here’s why”,
Toronto Star, www.thestar.com/business/2023/05/26/brampton-is-the-most-expensive-city-for-carinsurance-in-ontario-heres-why.html.
Hafen, M.R. (2020), “Value Capture Strategies for Funding Public Mobility Improvements: Case Studies
and Knowledge Share Results”, Prepared for the Hillsborough County City-County Planning Commission
and the Hillsborough Metropolitan Planning Organization,
https://web.archive.org/web/20210923065141/https://planhillsborough.org/wpcontent/uploads/2021/02/Value-Capture-Strategies-for-Funding-Public-MobilityImprovements_2020_Final.pdf.
Hare, P. (2013), “PPP and PFI: The political economy of building public infrastructure and delivering
services”, Oxford Review of Economic Policy, Vol. 29/1, pp. 95-112,
https://doi.org/10.1093/oxrep/grt007.
Hebel, K., M. Wolek and A. Jagiello (2019), “Trends in free fare transport on the urban transport service
market in Poland. Integration as solution for advanced smart urban transport systems” in Sierpiński, G.
(ed.), “Integration as Solution for Advanced Smart Urban Transport Systems: TSTP 2018”, Advances inIntelligent Systems and Computing, Vol 844, pp. 208-17, https://doi.org/10.1007/978-3-319-99477-2_19.
Hermannsson, T. (2023), “Reykjavik area sustainable mobility charges”, Presentation to the ITF Working
Group, “Funding Public Transport”, Reykjavik, Iceland, 13 April 2023 [available on request].
Higgins, C.D. and P.S. Kanaroglou (2016), “Forty years of modelling rapid transit’s land value uplift inNorth America: Moving beyond the tip of the iceberg”, Transport Reviews, Vol. 36/5, pp. 610-634,
https://doi.org/10.1080/01441647.2016.1174748.
Horne, M.A.C. (2003), “A brief history of advertising on London public transport”,
www.metadyne.co.uk/pdf_files/ADVTHIS.pdf.
Hultén, J. (2023), “The future role of public transport”, Presentation to the ITF Working Group, “Funding
Public Transport”, Reykjavik, Iceland, 13 April 2023 [available on request].
Hultén, J. (2022), “Future public mobility”, Presentation to the Ninth Concept Symposium on Project
Governance, Asker, Norway, 23 September 2022,
www.ntnu.no/documents/1261860271/1320384168/FuturePublic+Mobility.pdf/da9a0252-631c-333abc5e-2d93059e9214?t=1664519993780.
Hurtubia, R. and J. Leonhardt (2021), “The experience of reforming bus concessions in Santiago deChile”, International Transport Forum Discussion Papers, No. 2021-09, OECD Publishing, Paris, www.itfoecd.org/experience-reforming-bus-concessions-santiago-de-chile.
Ibold, S. and Bongardt, D. (2021), “How will the New German Government Approach Transport?”,Changing Transport Blog, 20 December 2021, https://changing-transport.org/blog-how-will-the-newgerman-government-approach-transport.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

83

REFERENCES

Infrastructure Victoria (2020), “Fair Move: Better public transport fares for Melbourne”,
www.infrastructurevictoria.com.au/project/fair-move-better-public-transport-fares-for-melbourne.
ITF (2024), Improving the Quality of Walking and Cycling in Cities: Summary and Conclusions, ITF
Roundtable Reports, No. 193, OECD Publishing, Paris, https://doi.org/10.1787/cdeb3fe8-en.
ITF (2023a), Shaping Post-Covid Mobility in Cities: Summary and Conclusions, ITF Roundtable Reports,
No. 190, OECD Publishing, Paris, https://doi.org/10.1787/a8bf0bdb-en.
ITF (2023b), ITF Transport Outlook 2023, OECD Publishing, Paris, https://doi.org/10.1787/25202367.
ITF (2023c), Decarbonisation and the Pricing of Road Transport: Summary and Conclusions, ITF
Roundtable Reports, No. 191, OECD Publishing, Paris, https://doi.org/10.1787/54809337-en.
ITF (2022), Broadening Transport Appraisal: Summary and Conclusions, ITF Roundtable Reports, No. 188,
OECD Publishing, Paris, https://doi.org/10.1787/25198785.
ITF (2021a), ITF Transport Outlook 2021, OECD Publishing, Paris, https://doi.org/10.1787/16826a30-en.
ITF (2021b), Developing Strategic Approaches to Infrastructure Planning, ITF Research Report, OECD
Publishing, Paris, https://doi.org/10.1787/d8d6651c-en.
ITF (2021c), Decongesting our Cities: Summary and Conclusions, ITF Roundtable Reports, No. 183, OECD
Publishing, Paris, https://doi.org/10.1787/930c8f58-en.
ITF (2021d), “Developing Innovative Mobility Solutions in the Brussels-Capital Region”, International
Transport Forum Policy Papers, No. 97, OECD Publishing, Paris, https://doi.org/10.1787/37cc3a85-en.
ITF (2021e), “The Innovative Mobility Landscape: The Case of Mobility as a Service”, International
Transport Forum Policy Papers, No. 92, OECD Publishing, Paris, https://doi.org/10.1787/46903a00-en.
ITF (2020a), Reforming Public Transport Planning and Delivery, ITF Research Reports, OECD Publishing,Paris, https://doi.org/10.1787/6c2f1869-en.
ITF (2020b), Accessibility and Transport Appraisal: Summary and Conclusions, ITF Roundtable Reports,
No. 182, OECD Publishing, Paris, https://doi.org/10.1787/61af7bd8-en.
ITF (2020c), “The Future of Passenger Mobility and Goods Transport in Estonia: Input Study for the
Estonian Transport and Mobility Master Plan”, International Transport Forum Policy Papers, No. 78,
OECD Publishing, Paris, https://doi.org/10.1787/9db7333e-en.
ITF (2018a), “Policy Directions for Establishing a Metropolitan Transport Authority for Korea’s Capital
Region”, OECD Publishing, Paris, https://doi.org/10.1787/8b87cefc-en.
ITF (2018b), “The role of private investment in transport infrastructure”, ITF Working Group Paper,
International Transport Forum, Paris, www.itf-oecd.org/role-private-investment-transport-infrastructure.
ITF (2017), Income Inequality, Social Inclusion and Mobility, ITF Roundtable Reports, No. 164, OECD
Publishing, Paris, https://doi.org/10.1787/g2g7ae77-en.
Jones, P., and Blackadder, S. (2022), “The role of cross-sector collaboration in reducing the need totravel”. SUMP-Plus Policy Briefs, No. 2, https://sumpplus.eu/resource?t=Policy%20brief%202:%20The%20role%20of%20crosssector%20collaboration%20in%20reducing%20the%20need%20to%20travel.
JR East (2022), “FY2023.3 Second quarter financial results”, East Japan Railway Company,
www.jreast.co.jp/e/investor/pdf/2023_02q_presentation.pdf (accessed 15 June 2023).

84

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

REFERENCES

K2 (2022), Future Public Mobility: The next step for sustainable travel, Swedish Knowledge Centre for
Public Transport, Lund, https://www.k2centrum.se/future-public-mobility-next-step-sustainable-travel.
Kaske, M. (17 August 2022), “New York City’s congestion pricing plan is politically ‘explosive’”,Bloomberg, www.bloomberg.com/news/articles/2022-08-17/new-york-s-congestion-pricing-plan-ispolitically-explosive.
Kirk, R.S and W.J. Mallet (2020), “Funding and Financing Highways and Public Transportation”,
Congressional Research Service Report No. R45350, updated May 2020,
https://crsreports.congress.gov/product/pdf/R/R45350.
Kurosaki, F. (2023), “The use of land-value capture in Japan”, Presentation to the ITF Working Group,“Funding Public Transport”, Reykjavik, Iceland, 13 April 2023 [available on request].
Loader, C. (2017), "Trends in journey to work mode shares in Australian cities to 2016 (second edition)",chartingtransport.com, 24 October 2017, https://chartingtransport.com/2017/10/24/trends-in-journeyto-work-mode-shares-in-australian-cities-to-2016/.
Litman, T. (2022), “Local funding options for public transportation”, Victoria Transport Policy Institute,www.vtpi.org/tranfund.pdf.
Litman, T. (2013), “Parking taxes: evaluating options and impacts”, Victorian Transport Policy Institute,www.vtpi.org/parking_tax.pdf.
M TAG (n.d.), « Tarification solidaire » [Solidarity pricing], www.tag.fr/68-tarification-solidaire.htm.
Macleod, C. (2020), “Written evidence submitted by Transport for London [GRA MISS0068]”, UK
Parliament, Women and Equalities Committee, Changing the perfect picture: An inquiry into body image,https://committees.parliament.uk/writtenevidence/19510/pdf/.
McIntosh, J., R. Trubka and P. Newman (2014), “Can value capture work in a car dependent city?
Willingness to pay for transit access in Perth, Western Australia”, Transportation Research Part A, Vol. 67,
pp. 320-39, http://doi.org/10.1016/j.tra.2014.07.008.
Mellor, J. (1 September 2022), “Another Johnson failure? New sponsor for London’s cable car to pay TfL
a fraction of previous deal”, TheLondonEconomic.com, www.thelondoneconomic.com/news/anotherjohnson-failure-new-sponsor-for-londons-cable-car-to-pay-tfl-a-fraction-of-previous-deal-333964/(accessed 20 February 2023).
Metrolinx (2022), “Station naming rights opportunity: Partner benefits and overview”,
https://assets.metrolinx.com/image/upload/v1663240007/Documents/Metrolinx/20210629-SNROPartner-Benefits-and-Overview.pdf.
Metro Madrid (29 January 2023), “The Community of Madrid increases the sale of public transport
tickets by more than 20% due to price cuts”, www.metromadrid.es/en/press-release/2023-01-29/thecommunity-of-madrid-increases-the-sale-of-public-transport-tickets-by-more-than-20-due-to-price-cuts.
Minami, S. (2023), « L’influence des grandes compagnies ferroviaires privées japonaises sur ledéveloppement des métropoles » [The influence of large private Japanese rail companies on
metropolitan development], Revue Marketing Territorial, Vol. 10, http://publis-shs.univrouen.fr/rmt/index.php?id=908.
Mitha, S. (2018), “Hypothecation, health taxation and hysteresis”, Tax Journal, 25 April 2018.
www.taxjournal.com/articles/hypothecation-health-taxation-and-hysterisis-25042018 (accessed 1 June2023).

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

85

REFERENCES

Mohammad, S. et al. (2013)., “A meta-analysis of the impact of rail projects on land and property
values”, Transportation Research Part A, Vol. 50, pp. 158-70, https://doi.org/10.1016/j.tra.2013.01.013.
MTA (2023), “Congestion Pricing in New York: A toll structure recommendation from the Traffic Mobility
Review Board”, Metropolitan Transit Authority, New York, https://new.mta.info/document/127761.
November 2023 MTA (2013), “Renaming of MTA facilities at the request of third-party sponsors”,
Metropolitan Transit Authority, https://new.mta.info/document/20726 (accessed 21 February 2023).
MTA (n.d.), “MTA Adopted budget – February financial plan”, Metropolitan Transit Authority,
https://new.mta.info/transparency/financial-information/financial-and-budget-statements.
MTR Corp (n.d.), “Station naming rights”, https://www.mymrt.com.my/business/station-naming-rights/.
Mulley, C. (2023), “Land-value capture and public transport funding”, Background paper, ITF Working
Group, “Funding Public Transport”, www.itf-oecd.org/repository/future-public-transport-funding.
Muth, R.F. (1969), Cities and Housing: The spatial pattern of urban residential land use, University of
Chicago Press, Chicago.
NTA (2022), “Greater Dublin Area Transport Strategy”, National Transport Authority, Dublin,https://www.nationaltransport.ie/planning-and-investment/strategic-planning/greater-dublin-areatransport-strategy/.
New Zealand Transport Agency (2023), “Allocation of funds to activity classes”,
www.nzta.govt.nz/planning-and-investment/national-land-transport-programme/2021-24-nltp/nltpfunding/allocation-of-funds-to-activity-classes/?state=published (accessed 23 February 2023).
Norheim, B. (2023), “Urban toll ring schemes in Norway”, Presentation to the ITF Working Group,“Funding Public Transport”, Reykjavik, Iceland, 13 April 2023 [available on request].
Norwegian Ministry of Transport (2022), “National Transport Plan 2022-2032 [English Summary]”, White
Paper, Government of Norway, Oslo, www.regjeringen.no/en/dokumenter/national-transport-plan2022-2033/id2863430/?ch=5 (accessed 31 May 2023).
OECD (2022), “Financing transportation infrastructure through land value capture: Concepts, tools andcase studies”, OECD Regional Development Papers, No. 27, OECD Publishing, Paris,
https://doi.org/10.1787/8015065d-en.
OECD/Lincoln Institute of Land Policy, PKU-Lincoln Institute Center (2022), Global Compendium of Land
Value Capture Policies, OECD Regional Development Studies, OECD Publishing, Paris,
https://doi.org/10.1787/4f9559ee-en.
Ozdilek, U. (2011), “Land value: Seven major questions in the analysis of urban values”, American Journalof Economics and Sociology, Vol. 70/1, pp. 30-34, http://dx.doi.org/10.1111/j.1536-7150.2010.00762.x.
Padeiro, M., A. Louro and N. Marques da Costa (2019), “Transit-oriented development and gentrification:
A systematic review”, Transport Reviews, Vol. 39/6, pp. 733-54,
http://doi.org/10.1080/01441647.2019.1649316.
Parlamento Italiano (1997), “Decreto Legislativo 19 novembre 1997, n. 422”, Gazzetta Ufficiale, No. 287,
10 Dcember 1997, www.parlamento.it/parlam/leggi/deleghe/97422dl.htm.
Peralta-Quiros, T. and C.R. Hernandez (2016), “Balancing financial sustainability and affordability in public
transport: The case of Bogotá, Colombia”. ITF Discussion Papers, No. 2016/16, www.itfoecd.org/balancing-financial-sustainability-and-affordability-public-transport-case-bogota-colombia.

86

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

REFERENCES

Productivity Commission (2021), “Public Transport Pricing”, Research paper, Commonwealth of Australia,
Canberra, www.pc.gov.au/research/completed/public-transport/public-transport.pdf.
Province of British Columbia (29 March 2023), South Coast British Columbia Transportation Authority Act,King’s Printer, Victoria, www.bclaws.gov.bc.ca/civix/document/id/complete/statreg/98030_01.
Province of Ontario (2023), “Ontario provides more money for municipal public transit”, Press release,https://news.ontario.ca/en/release/1002747/ontario-provides-more-money-for-municipal-public-transit.
Province of Ontario (2022), “Cross-boundary service integration: Amendments to the City of Toronto Act,2006”, Ontario Regulatory Registry,
www.ontariocanada.com/registry/view.do?postingId=42267&language=en (accessed 23 June 2023).
Proost, S. (2023), “Linkages between road transport pricing and public transport fare-setting”,
Presentation to the ITF Working Group, “Funding Public Transport”, Reykjavik, Iceland, 14 April 2023
[available on request].
Proost, S. (2018), “Reforming private and public urban transport pricing”, ITF Discussion Papers, No.
2018/15, OECD Publishing, Paris, https://doi.org/10.1787/3567dda4-en.
Prosper Australia (2013), “Value Capture: A historical perspective”, www.prosper.org.au/land-valuecapture/value-capture-a-historical-perspective (accessed 16 February 2023).
Public Transport Victoria (2019), “Annual Report 2018-19”, Victorian Government, Melbourne,
https://www.ptv.vic.gov.au/footer/data-and-reporting/annual-report/.
Pucher, J. and J.L. Renne (2003), “Socioeconomics of urban travel: Evidence from the 2001 NHTS”,
Transportation Quarterly, Vol. 57/3, pp. 49-77,
https://babel.hathitrust.org/cgi/pt?id=mdp.39015058773691&seq=399.
PWC (2014), “Crossrail 2: Funding and financing study”, PricewaterhouseCoopers, London,
www.pwc.co.uk/capital-projects-infrastructure/assets/crossrail-2-funding-and-financing-study.pdf.
Republic of France (2019), LOI n° 2019-1428 du 24 décembre 2019 d'orientation des mobilités (1)[Mobility Orientation Law], https://www.legifrance.gouv.fr/loda/id/JORFTEXT000039666574.
SGS Economics and Planning (2015), “Innovative models for funding public transport in Australia: Final
Report”, www.rtbu.org.au/innovative_funding_models.
SLOCAT (2021), Tracking Trends in a Time of Change: The Need for Radical Action Towards Sustainable
Transport Decarbonisation, Transport and Climate Change Global Status Report, 2nd edition, Partnershipon Sustainable, Low-carbon Transport, https://tcc-gsr.com/wp-content/uploads/2021/06/Slocat-GlobalStatus-Report-2nd-edition_high-res.pdf.
Smith, J., T. Gihring and T. Litman (2015), “Financing transit systems through value capture: An
annotated bibliography”, Victoria Policy Institute, www.vtpi.org/smith.pdf (accessed 16 February 2023).
State of New South Wales (2014), Passenger Transport Act 2014,
https://legislation.nsw.gov.au/view/html/inforce/current/act-2014-046.
State of Victoria (2022), “Victorian Budget 2022-23: Statement of Finances”, www.dtf.vic.gov.au/202223-state-budget/2022-23-statement-finances.
Stokenberga, A. (2014), “Does Bus Rapid Transit influence urban land development and property values:
A review of the literature”, Transport Reviews, Vol. 34/3, pp. 276-96,https://doi.org/10.1080/01441647.2014.902404.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

87

REFERENCES

TfL (n.d.), “Annual Reports”, Transport for London, https://tfl.gov.uk/corporate/publications-andreports/annual-reports-past-years.
TfL (2022a), “Annual Report and Statement of Accounts 2021/22”. Transport for London,
https://content.tfl.gov.uk/tfl-annual-report-and-statement-of-accounts-2021-22.pdf.
TfL (2022b), “Advertising Annual Report 2021/22”, Transport for London,
https://content.tfl.gov.uk/adertising-annual-report-2021-22.pdf.
TfL (2021a), “Annual Report and Statement of Accounts 2020/21”, Transport for London,
https://content.tfl.gov.uk/tfl-annual-report-2020-21.pdf.
TfL (2021b), “Advertising Annual Report 2020/21”, Transport for London, https://content.tfl.gov.uk/tfladvertising-annual-report-2-july-2021-acc.pdf.
TfL (2019), “Transport for London’s advertising revenue increases as innovative advertising platforms are
introduced”, Transport for London, Press release, 17 January 2019, https://tfl.gov.uk/infofor/media/press-releases/2019/january/transport-for-london-s-advertising-revenue-increases-asinnovative-advertising-platforms-are-introduced.
TfL (2010), “Transport Assessments”, Transport for London, https://tfl.gov.uk/info-for/urban-planningand-construction/transport-assessment-guide/transport-assessments?intcmp=10094.
Topham, G. (18 November 2016), “TfL fares to be frozen for four years”, The Guardian,
www.theguardian.com/uk-news/2016/nov/18/tfl-fares-to-be-frozen-for-four-years.
Toronto Transit Commission (n.d.), “Annual Reports”, www.ttc.ca/transparency-andaccountability/Annual-Reports.
Transports Bordeaux Métropole (n.d.), “Social fare”, https://www.infotbm.com/en/rates/socialfare.html.
TUMI (2019), “Sustainable Urban Transport: Avoid-Shift-Improve (A-S-I)”, Transformative Urban Mobility
Initiative, https://www.transformative-mobility.org/wpcontent/uploads/2023/03/ASI_TUMI_SUTP_iNUA_No-9_April-2019-Mykme0.pdf.
UK DfT (2023), “Modal comparisons: Average number of trips, stages, miles and time spent travelling by
main mode”, TSGB0103 (NTS0303), UK Department for Transport, London,
www.gov.uk/government/statistical-data-sets/tsgb01-modal-comparisons.
UN (2021), “Fact sheet: Climate Change”, United Nations Sustainable Transport Conference, Beijing, 1416 October 2021, www.un.org/sites/un2.un.org/files/media_gstc/FACT_SHEET_Climate_Change.pdf.
UN (2015), The Paris Agreement, United Nations, https://unfccc.int/process-and-meetings/theparisagreement/the-paris-agreement (accessed 16 November 2022).
UNDESA (2019), “World Urbanization Prospects 2018: Highlights”, United Nations Department of
Economic and Social Affairs, Population Division, New York,https://digitallibrary.un.org/record/3828520?ln=en.
US DoT FHWA (2023), “Naming rights”, Fact sheet, US Department of Transportation, Federal Highways
Administration, Center for Innovative Finance Support,
https://www.fhwa.dot.gov/ipd/fact_sheets/value_cap_naming_rights.aspx (accessed 16 February 2023).

88

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

REFERENCES

Vassallo, J.M. and L. Garrido (2023), “Transport funding and financing: A conceptual overview of theory
and practice”, in Tirachini, A., D. Hörcher and E. Verhoef (eds) (2023), Handbook on Transport Pricing and
Financing, Edward Elgar Publishing, Cheltenham, https://doi.org/10.4337/9781800375550.
Verougstraete, M. and H. Zeng (2014), “Land value capture mechanism: The case of Hong Kong MTR”,
United Nations Economic and Social Commission for Asia and the Pacific, Public Private Partnership Case
Studies, No. 4, https://www.unescap.org/sites/default/files/Case%204_Land%20Value_HongKong%20MTR.pdf.
Ward, M. (2021), “JC Decaux wins Sydney trains contract from oOh!Media”, Australian Financial Review,
21 September 2021, https://www.afr.com/companies/media-and-marketing/jcdecaux-wins-sydneytrains-contract-from-ooh-media-20210225-p575y7.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

89

ANNEX

Annex. Working Group members
Jean COLDEFY (Co-Chair), Counsellor to the President, Transdev, France
Jonathan SAKS (Co-Chair), Deputy Director, Aviation, Maritime and Borders Analysis,
Department for Transport, United Kingdom
Michael BALTES, ITS Program Director, Federal Transit Administration, United States
Toni BÄRMAN, Senior Advisor, Transport and Communications Agency, Finland
Carolina BAIMA CAVALCANTI, General Coordinator, Project Management,
Directory for Urban Mobility, Brazil
Daniel Alberto BENITEZ, World BankÁgnes BORBÉLYNÉ SZABÓ, Head of Department of Transport Services,
Ministry for Innovation and Technology, Hungary
Tomás CAMPBELL, Department of Transport, Ireland
Armando CARTENI, Associate Professor in Transportation Planning, University of Campania, Italy
Nicolas COULOMBEL, Laboratoire Ville Mobilité Transport, France
Alice CROSSLEY, Department for Transport, United Kingdom
Yves CROZET, Professor Emeritus, Sciences Po, Lyon and Laboratoire Aménagement Économie
Transports, France
Rex DEIGHTON-SMITH, Project Manager, ITF Secretariat
Sergio FERRARI, Liguria region, Italy
Neil FLEMING, Department for Transport, United Kingdom
Rafael FURTADO, Director of Infrastructure Promotion and Development,
Ministry of Infrastructure, Brazil
Luyang GONG, Director and Senior Researcher, Transportation Service Research Group, CATS, China
John HULTÉN, Director, National Centre for Research and Education on Public Transport, Sweden
Mila IGLESIAS, Project Assistant, ITF Secretariat
Meike JIPP, Professor, Director, Transport Research Institute, Germany
Halil KARA, Ministry of Transport and Infrastructure, Türkiye
Layla KHALAF, Project Assistant, ITF Secretariat
Fumio KUROSAKI, Professor, Dept of International Tourism Management, Toyo University, Japan
Laura LANGER, Senior Advisor, Transport and Communications Agency, Finland
90

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

REFERENCES

Carlos LARA ESPARZA, General Director, Institute of Transportation, Mexico
Paul LINDWALL, Commissioner, Productivity Commission, Australia
Josephine MACHARIA, Policy Analyst, ITF Secretariat
Soichiro MINAMI, Policy Research Institute for Land, Infrastructure, Transport and Tourism, Japan
Corinne MULLEY, Professor Emerita, Sydney University, Australia
Tiia ORJASNIEMI, Ministerial Advisor, Ministry of Transport & Communications, Finland
Tom PARKER-MCLEAN, Department for Transport, United Kingdom
Pierre-Yves PÉGUY, CNRS, France
Philippe POINSOT, École nationale des ponts et chaussées, France
Roger PYDDOKE, Senior Researcher, VTI, Sweden
Piotr RAPACZ, European Commission (DG Move)
Norihiko SAKURAI, Policy Analyst, ITF Secretariat
Haruki SAWAMURA, Policy Research Institute for Land, Infrastructure, Transport and Tourism, Japan
Buket SENGUL, Ministry of Transport and Infrastructure, TürkiyeÁrni Freyr STEFÁNSSON, Special Advisor, Department of Transport and Infrastructure, Iceland
Ryusuke TAKEUCHI, Associate Professor, Chuo University and PRILIT, Japan
Jose Manuel VASSALLO, Universidad Politécnica de Madrid, Spain
Matjaž VRČKO, Head of Public Transportation Division, Ministry of Infrastructure, Slovenia
Xianguang WANG, Researcher, CATS, China
Clara WINKFORSS, Railway Industry Association, United Kingdom
Chao YAN, Senior Engineer, CATS, China

Participants provided their affiliations at the time of their participation in Working Group meetings.

THE FUTURE OF PUBLIC TRANSPORT FUNDING © OECD/ITF 2024

91

The Future of
Public Transport
Funding

International Transport Forum
2 rue André Pascal
F-75775 Paris Cedex 16+33 (0)1 73 31 25 00
contact@itf-oecd.org
www.itf-oecd.org

Published: 02/2024 | Photo credit: Anna Jurkovska/Shutterstock

Well-funded public transport
services can play a crucial role indecarbonising the transport sector.
This report aims to help governments
meet the challenge of funding
public transport sustainably andequitably. It recommends revisiting
investment allocations, moving awayfrom a road focus, and ensuring
the efficiency of public transport
services. Governments must also
optimise the contributions of users,
indirect beneficiaries of public
transport (including landowners andbusinesses) and the public sector.