Transportation Utility Fees:

Possibilities for the City of Milwaukee

May 11, 2007

Prepared by:Deven CarlsonBill Duckwitz

Karen KurowskiLamont Smith

Problem Statement

Milwaukee budget predicts a growing structural deficit• Exacerbated by existing revenue constraints• Threatens quality of Milwaukee’s transportation

infrastructure Equity concerns: payments do not reflect

usage• We estimate single-family homes pay 3x their usage• Tax-exempt properties do little to fund infrastructure

Budget strategy to move toward user fees Would a TUF be a solution for Milwaukee?

What is a TUF? Treats transportation infrastructure like a

public utility—paid as a user fee Assigns fees based on estimated road

usage:• Property characteristics: proxies (e.g., number of

bedrooms, square footage); OR• Trip rates: estimated trips generated according to

land use Not subject to revenue/expenditure

constraints Applies to all properties—even tax-exempt

Evaluation Criteria

Equity• Benefit principle, Ability-to-pay principle

Economic Impact• Importing revenue, Market distortions

Budgetary Impact• Revenue adequacy & stability, Diversification

Feasibility• Political, Legal, Administrative

Assumptions

Each alternative would generate $17.8 million • Equal to property tax revenue Milwaukee will use to

fund transportation infrastructure in 2007

Intergovernmental aid, special assessments, and miscellaneous revenue unaffected

Each TUF alternative is revenue neutral• Each TUF would raise $17.8 million and property

taxes would decrease by same amount

Policy Alternatives

Status Quo

Flat FeeTrip

GenerationHybrid

Fee Basisassessed property

value

lot area &

property features

estimated annual

trips

estimated annual

trips

& property features

(residential)

Data Source

tax assessor

tax assessor

ITE rates & assessor

ITE rates & assessor

Benefit-Principle Ratio

Ratio = 1 indicates cost proportionate to use• Our estimate of use is based on trip generation data,

so trip generation TUF ratio is 1 by definition Ratio > 1 indicates overpayment Ratio < 1 indicates subsidy received

Benefit-Principle Equity under the Status Quo

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Single-

Family

Duplex

Mult

i-Fam

ily

Mixe

d: Com

mer

cial-R

esid

entia

l

Whole

sale/

Retai

l Tra

de

Service

s

Mixe

d Com

mer

cial

Man

ufactu

ring

Trans

porta

tion

Agricultu

re a

nd Fish

ing

Public B

uilding

s

Parks a

nd O

pen S

pace

s

Land-Use Category

Ben

efit

-Pri

nci

ple

Rat

io

Trip-generation alternative denoted by dark horizontal bar:

Benefit-Principle Equity under a Flat-Fee TUF

0

3

6

9

12

15

Single

-Fam

ily

Duple

x

Mul

ti-Fam

ily

Mixe

d: C

omm

ercia

l-Res

ident

ial

Whole

sale/

Retail T

rade

Servic

es

Mixe

d Com

mer

cial

Man

ufactu

ring

Trans

porta

tion

Agricu

lture

and

Fish

ing

Public

Bui

lding

s

Parks

and

Ope

n Spa

ces

Land-Use Category

Ben

efit

-Pri

nic

ple

Rat

io

Trip-generation alternative denoted by dark horizontal bar:

Benefit-Principle Equity under a Hybrid TUF

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Land-Use Category

Ben

efit

-Pri

nci

ple

Rat

io

Trip-generation alternative denoted by dark horizontal bar:

Ability-to-Pay Equity for Residential Properties: Single-Family

All TUF alternatives are similar and slightly regressive• Example: under the flat-fee TUF, average wealth

differs by $180,000 from poorest to richest quintile, but the fee charged increases only $4

Status Quo alternative is perfectly equitable on ability to pay

All TUF alternatives are substantially more affordable for the vast majority of properties

Importing Funds

0

6.5

1.0 1.00

1

2

3

4

5

6

7

StatusQuo

FlatFee

TripGeneration

Hybrid

Policy Alternative

Mil

lio

ns

of

Do

llar

s

Market Distortions

0

10

20

30

40

50

60

70

80

90

100

Residential Commercial Public Other

Property Type

Per

cen

tag

e

Number ofProperties

Total Assessed Property Value(Status Quo)

AggregateLot Area(Flat Fee)

Total Estimated Annual Trips(Trip Generation and Hybrid)

Budgetary Impact & Feasibility Budgetary impact: Revenue adequacy and

stability• Each TUF alternative enables the City to adequately and

stably fund transportation infrastructure

Budgetary impact: Diversifies revenue sources• TUF alternatives introduce new revenue sources

Feasibility• Overall, each of the four alternatives is politically, legally,

and administratively feasible

• Legal concerns pose greatest challenge in other municipalities

Comparison of Alternatives

Status Quo

Flat FeeTrip

GenerationHybrid

Fee Basisproperty

valuelot area

(primarily)estimated

usageestimated

usage

Advantageability-to-pay equity

imports funds

benefit-principle equity

equity & minimizes distortions

Drawbackdistorts market

inequitablesomewhat regressive

complex policy design

Policy Recommendation

City of Milwaukee should adopt the hybrid TUF alternative• This alternative best aligns cost of transportation

infrastructure with usage

• Most likely to be ruled legal of all the TUFs

• Minimizes financial burden on owners of residential property

• Provides Milwaukee with revenue flexibility

Other Recommendations

Set a cap to limit the maximum fee• We suggest initially capping fees at the

maximum paid by a residential property under the status quo

Consider trip-generation rate adjustments• Pass-by trips

• Trip length Design an effective appeals process

Concluding Remarks

Questions? Contact information:

• Deven Carlson: decarlson@wisc.edu

• Bill Duckwitz: wpduckwitz@wisc.edu

• Karen Kurowski: kakurowski@wisc.edu

• Lamont Smith: lsmith3@wisc.edu