Transportation Investment and Economic Development in Minnesota Counties

Abstract

This project 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. Estimations from panel-data regressions show that local-road capital stocks within a county have a positive effect on its property tax revenues, with an elasticity of 0.093, but much of the benefits may be the outcome of a zero-sum game due to inter-local competition of property tax bases. Trunk-highway capital stocks within a county also show a positive effect, with an elasticity of 0.013. The spillover effect of trunk-highway development is even higher: The average level of trunk-highway capital stocks in neighboring counties has a positive elasticity of 0.030 on a county’s property tax revenues. 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. 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.