The economic efficiency of value capture and road pricing to fund major transport projects

Cost-Benefit Analysis is the most commonly used project evaluation tool to evaluate transport projects. However, Cost-Benefit Analysis generally disregards the economic cost of funding mechanism used to pay for the project. Public funds are typically used to pay for transport infrastructure projects, however, the use of the public funds has an economic cost to society through the raising of taxes. The marginal cost of using public funds accounts for both the tax burden and the welfare cost to society, through the distortion in resource allocation caused by the tax. This paper examines and compares the economic efficiencies of funding mechanisms, including a tax-based strategy consisting of various value capture strategies, and a user charges-based strategy of road pricing strategies. The economic efficiency of the two funding mechanisms is investigated through an adjusted Benefit-Cost Ratio, which is calculated by incorporating the economic cost of the proposed funding mechanism in the Cost-Benefit Analysis. A major Australian public transport project is investigated as a case study to observe the impact that the funding mechanism has on the economic viability of the project as measured by the adjusted Benefit-Cost Ratio. Incorporating the funding mechanism into the Cost-Benefit Analysis provides decision-makers with a better understanding of the impact that different funding strategies have on the viability of potential projects and also aids in the selection of the preferred funding mechanism. Different types of transport projects can be investigated to further study the effectiveness of various funding strategies.