ITS projects need to be paid for if services are to be sustainable. Broadly, there are three types of cost that have to be funded:
- capital cost, incurred at the initial deployment stage
- routine operation and maintenance cost, incurred as part of day-to-day operation
- capital maintenance cost, incurred periodically to conserve the ITS asset
Unlike project financing, the sources of funding are much more limited. The two principal sources of funding are:
- the public sector - primarily governments - who pay as part of securing public goods
- the road users - who pay to benefit from the service.
Public Sector Funding
In many countries, including those with toll roads, the public sector has traditionally played a strong role in funding road projects. Projects are constructed and then operated and maintained using public money raised from taxes (and/or borrowings) or private financing. Except for road facilities that benefit from a hypothecated user toll or charge, public sector project financing is re-paid by the government. In the case of project financing by a private sector partner the public sector pays over a number of years. An example is the English National Traffic Control Centre
Where project financing comes from the public sector the project funding is simultaneous. In essence the public sector project financing is written off by the public sector at the same time as money from taxes (and/or borrowing) is disbursed by the road authority.
Road user funding is very apparent where road facilities are paid for by means of hypothecated tolling or a road user charge. Road users pay a toll or charge to fund the financing of the facility provided by the operator. In addition, road users in most countries also pay a range of taxes and other fees related to vehicle acquisition, ownership and use.
A PIARC Technical Committee reported in 2012 on the taxes and fees paid by motorists in 22 countries. Many, particularly developed countries, have long abolished the hypothecation of revenues raised from motorists. The substantial revenues collected go straight to the general tax pool. Nevertheless, a number of countries, such as Cote d'Ivoire, Madagascar, Russia, Switzerland and United States of America, maintain dedicated funding mechanisms to fund road projects, including ITS.
These are the two primary sources of funds for ITS projects. Some projects have a third source because ITS has the ability to capture a large amount of useful secondary information in addition to the primary function. This allows ITS service providers to add value by re-packaging the information gained to third party stakeholders. For example, the Motorway Incident Detection and Automated Signalling system in England provides journey time reliability data that can be re-packaged into lorry route schedules.
As a source of funding, third party funding should be seen as the 'icing on the cake' and not a primary source. Some ITS suppliers have been caught out by over-optimistic assumptions on a third party funding stream. (See Mixed Results for Public-Private Traffic Management Partnerships)
There is great diversity in the instruments used to fund ITS projects, how they are financed and the models used in the funding schemes. A study for the European Commission identified a number of different arrangements:
- national and regional transport investment programmes: capital grants for investment in strategic roads (motorways and other major routes) including ITS components
- local (municipal) transport investment programmes: capital grants and revenue support for investment in local roads, public transport networks and information systems
- special innovation funds: aimed at stimulating innovation to address grand challenges by providing support for new products, services and systems at a critical stage of their development
- funding incentives and subsidies: from the public sector to offset user or service provider costs in order to achieve a specific policy goal
- transport operator funding: investment in vehicles, infrastructure, operating systems and ITS-based information services by bus, tram and rail operators, funded with revenue from users and exploitation of owned assets
- sponsorship: by the private or non-profit sector to offset public sector investment and operational costs in providing infrastructure and services
- special borrowing and investment arrangements: that bridge the gap between the financial cost of a transport project and the revenue which they might generate by facilitating and promoting ways to finance and operate transport projects
Mixed Public and Private
- private finance, PPP, toll roads & private sector concessions: various arrangements that make use of private finance for transport projects promoted by the public sector. They include toll revenue, user charges and the financial instruments that provide capital up front for construction and renewal of the infrastructure
- multi-partner composite funding: where a group of public and private sector stakeholders agree to cooperate together in the financing of services of common interest, with each contributing at a level determined by themselves
- joint venture funding: where a group of public and private sector stakeholders come together to form a single legal entity to invest in and deliver transport projects, including an element of public sector finance