Association for Public Policy Analysis & Management

This paper examines the link between accumulated transportation capital stocks in Minnesota counties and their annual property tax revenues using longitudinal data in the 1995-2011 period. We separated the effects of two different transportation capital stocks, one associated with load roads and the other with trunk highways. In addition, we considered not only the internal effect of transportation investments within a county, but also the spillover effect due to transportation investments made in neighboring counties.

Results of panel-date regressions show that local road capital stocks and trunk highway capital stocks both have significant positive effects on property tax revenues, but in different ways. Local road capital stocks within a county seem to have a larger internal effect for the county itself, but much of the benefits may come from inter-local competition of property tax bases. Trunk highway stocks have a smaller internal effect, but they also lead to substantial external benefits.

Applying the estimations to the county data in FY2010, we calculated the ROI (return of investment) of additional transportation investments on property tax bases. The average ROI on the growth of EMV (Estimated Market Values) within a county is about 1.254 for local roads, and about 0.871 for trunk highways. However, the regional impact would be reduced for local roads due to the inter-local competition, but significantly amplified for trunk highways due to spillover benefits.