Overview

“Funding” is a revenue stream from a tax, fee, grant, or other source that generates money to pay for an improvement. Local governments typically dedicate some portion of property, sales, and other jurisdiction-wide tax revenues to fund infrastructure. In a time of severe fiscal constraints for many public entities, however, communities are looking for ways to leverage traditional sources of local government revenue and generate new sources to pay for TOD and smart growth infrastructure. Beyond general property and sales taxes, the sources that local governments in California use to fund infrastructure can be grouped into three broad categories: user fees, value capture, and grants.​

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User fees and rates include the fees charged for the use of public infrastructure or goods (e.g., toll road or bridge, water or wastewater system). Such fees and rates are typically set to cover a system’s operating and capital expenses each year, which can include debt service for improvements to the system. The revenues generated from user fees help offset operations and maintenance costs. It is sometimes possible to use some portion of user fee or rate revenue toward financing the costs of new infrastructure, though doing so may require raising rates.​

 
 

Value capture is not one thing but a bundle of tools that raise revenue by capturing the value generated by public infrastructure improvements and/or a strong or strengthening real estate market. Value capture can entail the creation of a new assessment, tax, or fee (such as a special localized tax or development impact fee), the diversion of new revenues generated by an existing tax (as in tax increment financing), or a revenue-sharing agreement that allows a government agency to share in some of the revenues generated by developing publicly owned land (known as joint development).

 
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Grants are funds that do not need to be paid back and are typically provided by a higher level of government to a lower level (e.g., from the federal government to states or localities; from states to local governments) or by a philanthropic entity. The federal government, the State of California, and each region’s metropolitan planning organization (MPO) provide a wide range of grants and formula funding programs that are relevant for TOD/infill infrastructure needs, including for transportation, community and economic development, clean air and water, brownfield cleanup, parks and open space, and local and regional planning. Because grant programs are typically competitive, grant funds are an unpredictable funding source.