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Michigan bill to fund transit through property tax growth a good move to emulate

How do we pay for new transit?

Usually we use a sales tax or a general property tax to pay for most of the cost and rely on fares for the rest of it. That makes sense because most of the benefit of transit ridership actually flows to non-riders: drivers who have a faster commute, employers who have access to a larger pool of workers and businesses who have access to a larger pool of customers. 

The other big beneficiary of transit (particularly rail) are property owners near the line. Their property value goes up — often considerably — because of their access to the train line. It would make sense, then, that the property owners help to pay for the transit that enriches them. So far, however, not many places have figured out how to do that.

In Chicago, we recently passed a property transfer fee for transit of all property sold in the city limits (a type of property tax that is only paid when the property changes hands). This is the first time that the bustling business district of Chicago that only exists because of our transit network will specifically help pay for transit’s operation. That’s a good policy step.

In Michigan, transit leader Representative Marie Donigan (D-Royal Oak) passed a bill out of the state House last week that would capture the growth in property tax revenue from new transit lines for their construction and operation. HB 6114 sets up the ability of municipalities to create new tax increment financing authorities that can contract with public transportation operators to provide service. That way, the muncipalities that want the economic development that transit brings can pay for it by devoting some of their property taxes from the new development into transit. 

Using the rise in property values from transit to fund transit expansion should be a central strategy in our policy development in the next decade. Congratulations to the Michigan House and Representative Donigan for showing the way.