Montana Department of Transportation

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Research Toolkit

Montana Transportation and Land Use

Development Exactions and Incentives - Transportation Utility Fee

Density Awards and Bonuses

What is a Transportation Utility Fee?

A Transportation Utility Fee (TUF) is a monthly fee based on use of the transportation system. Fees are typically assigned proportionately to road usage based on land use generation, trip intensity, vehicle miles traveled (VMT) or, in some cases, a flat rate. Like any other public utility fee, it is collected from residential and commercial property owners through a regular local utility bill.

Sometimes known as a Street Maintenance Fee, Road User Fee, or Street Utility Fee, a TUF is imposed on a jurisdiction-wide basis and continues in perpetuity, providing a dedicated and stable funding source to finance ongoing maintenance and operation of a locality's transportation system. This structure ensures that the users of the road system share the costs of the corrective and preventive maintenance needed to keep the street system operating at an adequate level.

Use of a TUF to fund road maintenance has one compelling advantage over the usual reliance on general funds from property tax receipts for roadway maintenance and improvements. With a property tax, a significant percentage of roadway users and traffic generators pay nothing due to their tax-exempt status. By contrast, a TUF requires every local traffic generator to help support the local road system. Some inequity can creep into a transportation utility fee schedule because road use usually is estimated rather than measured and because estimates are based on averages for entire classes of property. Still, this shortcoming may be less problematic than the exemption of entire classes of developed property from any financial contribution to road maintenance.

Because it is assessed on all transportation system users, transportation utility fees are a stable revenue source for backlogs, operations and maintenance. TUFs can be used in urban centers and along transit corridors to fund localized mobility needs including transit operating expenses. By supporting expansion of all modal alternatives, TUFs may help reduce overall vehicle-miles traveled (VMT) and foster compact, mixed use development.

Who can implement a density bonus?

Government agencies are responsible for making roadways available to all of the traveling public. The intent behind a transportation utility fee is that all potential users should help pay for upkeep of the system. This includes the maintenance and possible extension of street networks. In most states, localities may levy taxes only if specifically authorized by state law, but they have blanket authority to charge user fees. Therefore, a TUF is typically collected as part of a unified municipal utility bill rather than as an add-on to the local property tax bill.

A locality can create the legal presumption that a TUF is a fee by collecting it with fees for other public services such as water and sewer service, trash collection fees and stormwater management. A well-reasoned TUF established as part of the monthly utility bill generates far less public opposition than a general tax.

What are the keys to success and potential pitfalls?

Clearly Defined Purpose and Structure: The object in structuring a TUF is to emphasize its identity as a user fee rather than a tax. To qualify as user fees, government charges must be reasonably related to the use of public facilities or services. For TUFs, the most reasonable basis for fee setting is the "cost occasioned" by a class of roadway users - in other words, the cost incurred by government in meeting the needs of that class. Along with a fee schedule, operating policies and procedures must be established. In addition, the community will need to establish a process for planning and implementing transportation improvements to be supported by the fee.

Public Education: Educating citizens and business community members about the deteriorating condition of local streets, the cost benefits of preventative maintenance, and various street funding options will help garner support for creating funding tools. Education is especially important if a locality chooses to implement a trip-generation based TUF. The business community could be strongly opposed to such an action, and negotiation may be necessary. Some cities have compromised to cap fees for large businesses.

Sound Technical Methodology: A community will need to expend some staff resources up-front in order to properly classify land uses according to their transportation purposes and, in some cases, establish accounts for developed properties not already receiving municipal services. To determine the appropriate fees, it is first necessary to decide which roadway costs are occasioned by feepayers. Then the community must decide which classes of feepayers occasion specific costs, and how to divide the costs among individual feepayers within the classes occasioning them. Once the methodology has been established and the fee is put into place, the ongoing cost to administer the fee is relatively low, in part because it is processed along with other utility fees.

For example, TUF customers in Oregon City, OR are designated as residential and non-residential. Residential customers are charged for maintaining local streets, while non-residential customers are charged for maintaining arterials. Maintenance of collector streets is equally shared. In addition, the fee is based on the average number of trips by land use, based on trip generation rates established by the Institute of Traffic Engineers.

Maintaining Community Support: Once a locality has passed a TUF to collect revenue, that revenue must be used efficiently and for the purpose for which it was raised. Also, making an effort to show the positive results of the fee revenue to the public, such as posting signs at TUF-funded project sites, will preserve public support.

Where has this strategy been applied?

Examples in Montana

Many Montana communities are making use of Street Maintenance Fees including:

Examples outside of Montana

  • Oregon Pavement Maintenance Facility Fee Programs: To date, 12 Oregon communities have adopted transportation utility fee (TUF) programs to augment shrinking roadway maintenance revenues from gas taxes and other sources. The cities of Ashland, Canby, Bay City, Corvallis, Eagle Point, Grants Pass, Hubbard, La Grande, Lake Oswego, Medford, Milwaukie, North Plains, Philomath, Phoenix, Talent, Tigard, Tualatin, West Linn, and Wilsonville all have a Transportation Utility Maintenance Fee. Other cities actively pursuing a fee include Hillsboro, Eugene, and Silverton. The TUF allocates a portion of the recurring roadway maintenance costs to all development located within the jurisdiction on a monthly basis.
  • Port Orange, Florida: In June 1992, Port Orange, Florida, became the tenth U.S. city (and the first east of the Mississippi River) to adopt a TUF. Initially, TUF funds were established to replace a 0.287-mill subsidy from the city's general fund and to eliminate a shortfall in the city's road maintenance budget. Over time, funds have been used to pave dirt roads, construct bike paths, and reconstruct and widen deficient city streets.
  • Corvallis, Oregon: In response to declining street fund revenues, Corvallis formed a task force to assess the funding need and look at current transportation funding resources. After deciding to move forward with a transportation maintenance fee, the city conducted over 20 presentations to business and community groups about the state of city streets and the need for additional investment. To alleviate some concerns, the fee was structured so that 75% of the revenue comes from residential users, and the ordinance will sunset in 2011. The transportation maintenance fee was passed in 2005 and generates over $400,000 per year dedicated to specific pavement maintenance projects, almost half of Corvallis' locally raised street fund revenue.

Case studies

How can I get started?

The first step in determining a transportation funding solution is to first analyze the existing street conditions, conduct an inventory and analyze major streets, and identify the overall maintenance need. Once the severity of the transportation funding problem is determined, localities must explore various revenue options. A transportation utility fee may not be the best solution for every community. Localities should assess whether a TUF is the best mechanism for achieving their desired transportation funding goals, and consider the political environment and the attitudes of the citizens regarding fees and taxes.

In establishing a structure for a transportation utility fee, it is first necessary to decide which roadway costs are occasioned by feepayers. Then the community must decide which classes of feepayers occasion specific costs, and how to divide the costs among individual feepayers within the classes occasioning them. Along with a fee schedule, operating policies and procedures must be established.

Where can I get more information?