The Hypothecation Discourse: Viability and Issues for Funding Urban Transport Investment
M Gannon, University of Winchester, UK; J Ball, Dioces of Chelmsford, formerly Transport for London, UK
To examine the debate around the use of Hypothecation to fund urban transit schemes and examine the viability and issues surrounding this innovative form of financing.
The significant constraints placed on public capital funds by central government combined with the coalition's localism agenda and non-sustainability of Public-Private-Partnership (PPP) funding has significantly emphasised the need for the public sector to develop innovative financing and funding arrangements with the private sector for investment in urban transport.
In the United Kingdom (UK) the use of hypothecation of local taxes and charges to fund urban transit, a proven method in the United States (US), Canada and Europe, has progressed extremely slowly. The two forms of hypothecation introduced in the UK to date include The Business Rate Supplement Tax and the Work Place Levy to part fund Crossrail and Nottingham Express Transit II respectively. Given the proven linkage between transport infrastructure investment and increase in land values, there is an economic justification for all beneficiaries to contribute towards funding a scheme through a form of a land value capture mechanism. In the UK however this has traditionally been a difficult principle to effect in practice, with even the newer forms of Hypothecation presenting residual public policy issues, particularly around the relative timing of infrastructure and land use development, and residual financial risks for the public sector.
The aim of the paper is to examine the debate around the use of Hypothecation to fund urban transit schemes and examine the viability and issues surrounding this innovative form of financing. The paper will specifically consider the proposals to fund the southern extension of London Underground's Northern line to Nine Elms and Battersea, which has been proposed as a pilot project for Tax Incremental Financing (TIF).
Association for European Transport