Local Funding

Revenue from local government plays an important role in transportation finance.

General fund appropriations represent the largest single source of local funding. The use of property taxes also distinguishes local transportation funding from that of the Federal and state governments. Other broadly collected taxes, such as hotel or rental car taxes may also be directed to transportation.

An increasing number of local county and municipal governments are making the decision to enact new taxes to generate revenue for transportation needs. These often require local referenda and result in increases to the local sales tax, which can be leveraged in the municipal bond market. A range of value capture techniques, including for example, tax increments, development impact fees, and special assessments, also highlight local governments’ attempts to direct non-traditional revenue to transportation improvements.

Sources of Local Funding

The FHWA Center for Innovative Finance Support provides information on the following types of local funding sources:

The Center for Innovative Finance Support also provides information on:

Additional sources of local funding include local motor fuels taxes, tolls, and fares.

Local motor fuels taxes are levied in certain states statewide or only by certain jurisdictions. The American Petroleum Institute provides a frequently updated summary of state motor fuel taxes that includes notes on the inclusion of local option taxes in those rates.


Tolls are a direct user fee charged for use of facility capacity and services. Historically, toll roads played a prominent role in the provision of road transportation in the eighteenth and nineteenth centuries. In the first half of the nineteenth century, it is thought that private toll roads outnumbered public roads in the United States. Private investors formed tollway companies that improved, constructed, and maintained roads and, in turn, charged the public for their use.

In the late nineteenth century, toll road development tapered as toll evasion as well as rail travel increased. However, by the 1930s, some states began developing public toll road programs to respond to growth in automobile ownership, the rising needs of commerce, and the absence of significant Federal-aid for highways. While private tollway companies dominated the “turnpike” industry in the earlier centuries, the toll facilities of the twentieth century have largely been authorized, constructed, and managed by quasi-public authorities established by state and local governments. The pursuit of toll roads declined again after 1956, when the Federal-aid Highway Act established a Federal motor fuel tax to support the interstate highway system and prohibited tolling on new, Federally-funded highways.

Today, public funding constraints have fueled new interest in tolls as a revenue source to support transportation investment. Interest in toll roads today is largely an outgrowth of more supportive regulations beginning in 1991 with ISTEA that have liberalized and incentivized the use of Federal-aid in conjunction with private resources for road development purposes. Public-private partnership development of toll roads has been the focus of most state DOT activities in privatization.

Federal tolling programs first launched by ISTEA have also expanded through subsequent Federal-aid authorization acts, including the 2012 Moving Ahead for Progress in the 21st Century (MAP-21) Act’s mainstream and pilot toll programs, now continued under the 2015 Fixing America’s Surface Transportation (FAST) Act. The FHWA Center for Innovative Finance Support manages these toll programs.

Toll organizations use a variety of funding sources, although the two most common are toll charges and revenue bonds. These funding sources are closely linked, in that future toll revenues are typically pledged as the security for bonds issued to construct, maintain, expand, or operate the associated toll facility(ies) and are used to make bond principal and interest payments.

Potential Advantages of Tolling

Today, many state transportation agencies see toll facilities as a way to close funding gaps for transportation projects in a time of constrained public resources. Specifically, tolling can promote the following benefits in transportation spending:

  • Fostering public-private partnerships by attracting private capital
  • Drawing on the public’s willingness to pay direct user charges
  • Leveraging new sources of capital, such as additional debt
  • Freeing up traditional public resources for non-revenue-generating projects
  • Allowing additional transportation facilities to be developed more quickly than would be possible under conventional public procurement, funding, and ownership
  • Facilitating road pricing as a demand management tool (congestion pricing)

Potential Disadvantages of Tolling

Toll facilities were traditionally associated with long queues and high emissions at collection points, but these disadvantages are disappearing with electronic toll collection at toll booths or in overhead gantries and/or the pavement. Still, toll roads and bridges face other challenges, including:

  • Costs of borrowing capital
  • Restricted availability because of the distance between access points
  • Disproportionate impacts of tolls on low-income motorists and associated equity issues
  • Negative public opinion that views tolls, on top of fuel taxes, as double taxation


Federal Tolling Programs – FHWA Center for Innovative Finance Support
Information on mainstream Federal tolling programs and pilot programs, tolling program administration, and questions and answers on tolling and pricing covering changes made by MAP-21.

FAST Act Tolling Fact Sheet
Information on FAST Act provisions that modify Federal requirements related to highway tolling.

Congestion Pricing – FHWA Office of Operations
Information on Federal tools and programs that support congestion pricing, including HOT lanes and express toll lanes.

Tolling Facilities in the United States – FHWA Office of Highway Policy Information
Report containing selected information on toll facilities in the U.S. including inventories and toll receipts.

IBTTA: International Bridge, Tunnel and Turnpike Association
The IBTTA is the industry organization representing tolling entities and the engineering, construction, and financial corporations that support them. It has an international membership and maintains a member address directory and serves as an information clearinghouse and research center. It also conducts surveys and studies and publishes a variety of reports, statistics, and analyses.

News and briefs on toll roads, turnpikes, toll bridges, toll tunnels, and road pricing.


Fares are a user charge for public transit exclusively collected at the local level.

Like tolls for turnpikes, fares are one of the oldest means of collecting revenue for transit services. From mass transit’s very beginning with privately operated coaches, omnibuses, and streetcars, transit operators have charged fares to cover the costs of their service.

Today, the majority of the nation’s transit systems dedicate fare revenue to covering operating costs. It is extremely rare, however, for a passenger service to be self-supporting. According to the 23rd Edition of the FHWA Conditions & Performance Report (published 2019), farebox receipts from 2004 to 2014 for all transit modes combined was 35.5 percent of operating expenses, and for many smaller transit systems, the proportion is significantly lower. In many cases, fare revenue is now viewed as the means of closing the gap between the costs of a given amount of service and the revenues from governmental support. Additionally, farebox revenues may be used to back bonds issued to finance transit improvements.

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