Alternative Funding Sources for Transport Infrastructure
Sean Thomas, Oxera Consulting, Adam Hildred, Oxera Consulting
This paper considers the economics of alternative funding sources for transport infrastructure. It looks at under what circumstances alternative sources of funding could be used in addition to traditional public sector provision.
Transport infrastructure spending among the EU28 in the last ten years increased almost 40% compared with the previous ten years. Estimates suggest that spending will continue to grow in the next ten years. Against this backdrop, public sector budgets are coming under increasing pressure. Before the financial crisis, the governments of the EU28 ran a combined deficit of 0.7% of GDP. In the most recent data, this had increased to 2.4%. In the long term, ongoing investment is a driver of growth, but in the short term, decisions to invest in infrastructure can risk being deprioritised.
Transport infrastructure by its nature creates new economic opportunities. Government funding of transport infrastructure is typically justified on the basis that it has characteristics of a public good and would be underprovided by a free market. However, in some cases these benefits can be captured and monetised to provide alternative options for funding. Governments and infrastructure managers are increasingly looking beyond traditional public sector funding for their projects. A range of tools has been used to secure external funding sources, including developer contributions, local property tax supplements and leveraging of assets.
Contribution of this report
This report discusses the economics of alternative funding sources and, in particular, under what circumstances third-party contributions can be levied to fund transport infrastructure investment. We begin by outlining an economic framework that can be used to identify whether there is scope for third-party contributions. We then set out a series of cases studies from Europe and beyond where these ideas have been put into practice and the challenges associated with these experiences.
Association for European Transport