Transit Funding

In 2000, $30.8 billion was available from all sources to finance public transit investment and operations. Public transit funding comes from two major sources: public funds allocated by Federal, State, and local governments and system generated revenues earned for the provision of transit services. Federal funding for transit includes fuel taxes dedicated to transit from the Mass Transit Account of the Highway Trust Fund and undedicated taxes allocated from Federal general fund appropriations such as personal and business income taxes. State and local governments also provide transit funding from their general fund appropriations as well as from fuel, income, sales, property, and other unspecified taxes, specific percentages of which are dedicated to transit [See Exhibit 6-16]. These percentages may vary considerably by type of tax and among taxing jurisdictions. Other public funds may also be provided from sources such as toll revenues and general transportation funds. System generated revenues are comprised principally of passenger fares, although additional revenues are also earned by transit systems for the provision of other services such as advertising and concessions, and from joint development fees. (See Exhibit 6-17 for a sources of total transit funding.)

Click here for text description of this exhibit.

Level and Composition of Public Funding

In 2000, public funds of $21.0 billion were available for transit and accounted for 68.1 percent of total transit funding. Of this amount, Federal funding was $5.3 billion and accounted for 25.0 percent of total public funds and 17 percent of all transit funding. State funding for transit was $5.4 billion and accounted for 25.8 percent of total public funds and 18 percent of all transit funding. Local jurisdictions provided the bulk of public transit funds, $10.3 billion in 2000, or 49.2 percent of total public funds and 33 percent of all transit funding.

Federal Funding

The fuel tax is the largest source of Federal funding for transit and accounts for 80.0 percent of total Federal funds. Allocations from the Federal general fund contribute the remaining 20.0 percent. [See Exhibit 6-18].

Click here for text description of this exhibit.

State and Local Funding

General funds and other dedicated public funds are important sources of transit funding at both the State and local levels. [See Exhibits 6-19 and 6-20]. In 2000, 40.4 percent of State funds and 22.5 percent of local funds came from general funds. Allocations from other public funds accounted for just over 26.0 percent of total State and local transit funding. Dedicated sales taxes are a major source of revenue at the local level and in 2000 accounted for 40.8 percent of total local transit public funding. They contributed a smaller share, 10.6 percent, to State transit funding. Dedicated income and property taxes provide more modest levels of funding at both the State and local levels. Dedicated income taxes are a more important source of transit funds at the State level, whereas dedicated property taxes are more important at the local level.

Click here for text description of this exhibit.

Click here for text description of this exhibit.

Level and Composition of System-Generated Funds

System generated funds were $9.8 billion in 2000 and provided 31.9 percent of total transit funding. Passenger fares contributed $7.8 billion, accounting for 79.4 percent of system-generated funds and 25.3 percent of total transit funds. These passenger figures do not include payments by State entities to transit systems to offset reduced transit fares for certain segments of the population such as students and the elderly. These payments are included in other revenues.

Trends in Public Funding

Prior to 1962, there was no Federal funding for public transit. State and local funding was limited, equal to about 16 percent of total current public funding in real terms. Public funding grew rapidly during the 1970s; at an average annual rate, Federal funding increased by 38.9 percent and State and local funding by 11.9 percent throughout the decade. Federal funding grew minimally during the 1980s, increasing at an average annual rate of 0.4 percent, while funding at the State and local levels continued to grow steadily at an average annual rate of 7.8 percent. Since 1990, Federal funding has increased at an average annual rate of 4.3 percent, more slowly than the 4.8 percent average annual increase in State and local funding. [See Exhibit 6-21].

Flexible Funding Since 1973, Federal surface transportation authorization statutes have contained flexible funding provisions that enable transfers from certain highway funds to transit programs and vice versa. In 1973, Congress began allowing local areas to exchange interstate transfer highway trust funds for transit funding from general revenues. Federal-aid highway dollars could be converted to transit grant purposes, with a higher local share. Flexible funding was implemented under the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) and continued by the Transportation Equity Act for the 21st Century (TEA-21). Transfers are subject to State, regional/local discretion, and priorities established through Statewide transportation planning processes. All States and territories within the U.S. participate in the flexible funding program, with the exceptions of Kansas, North Dakota, South Dakota, and Wyoming. (See Exhibit 6-22). Click here for text description of this exhibit. These flexible funds may be transferred to one or more of the following FTA programs. Urbanized Area Formula Program (Section 5307). Funds are allocated to urban areas for transit capital and planning costs as well as for operating assistance to urbanized areas with populations of less than 200,000. Non-urbanized Area Formula Program (Section 5311). Funds are allocated to support service to residents outside urban areas based on the size of States' non-urban populations. Elderly and Persons with Disabilities Program (Section 5310). Funds are allocated for the provision of specialized transit services for the elderly and disabled. Metropolitan Planning Program (Section 5303) Interstate Substitute Program

Federal funding as a percentage of total public funding for transit reached a peak of 43.0 percent in the early 1980s. [See Exhibit 6-23]. However, as growth in State and local funding for transit vastly exceeded the growth of Federal funding during the 1980s, by 1990, the share of total public transit funds provided by Federal funds had fallen to 26.0 percent. The share of Federal funding fell to a low of 21.3 percent in 1994, climbed to 27.1 percent in 1997, fall back to 23.2 percent in 1999, and increased again slightly to 25.0 percent in 2000.

Click here for text description of this exhibit.

Funding in Current and Constant Dollars

Total public funding for transit in current dollars reached its highest level in current dollars of $21.0 million in 2000 (See Exhibit 6-24).

Total Federal funding in constant dollars has grown more unevenly than in current dollars, although it has increased in most years (See Exhibit 6-25). The largest decline in constant dollar funding occurred between 1980 and 1984, a period of rapid inflation when funding in current dollars increased.

Click here for text description of this exhibit.

The growth of State and local funding, which as previously mentioned has been considerably more rapid than the growth in Federal funding, has also been more erratic on a constant, as compared with a current, dollar basis (See Exhibit 6-26).

Click here for text description of this exhibit.

Capital Funding and Expenditures

Transit operators generally use system generated revenue to fund operations. Therefore, funding for capital investments by transit operators in the U.S. comes principally from public sources. In 2000, 31.2 percent of total transit expenditures were for capital investment. Capital investments include the design and construction of New Starts and the modernization of existing fixed assets. Fixed assets include fixed guideway systems (e.g., rail tracks), terminals and stations as well as maintenance and administrative facilities. Capital investment expenditures also include the acquisition, renovation and repair of rolling stock, i.e., buses, rail cars, and locomotives, and service vehicles.

Capital investment funds for transit are also generated through the issuance of bonds. Certificates of participation (COPs) are tax-exempt bonds issued by State entities that are generally secured by revenues that are expected to be earned from the equipment that the COP funds are used to purchase. The U.S. Department of Transportation has three innovative financing programs to facilitate funding for transportation projects, including transit projects. These programs, the Transportation Infrastructure and Finance Innovation Act of 1998 (TIFIA), the State Infrastructure Bank (SIB) Pilot Program, and Grant Anticipation Revenue Vehicles (GARVEE bonds), which are discussed at the end of this chapter, contribute to the financing of transit capital investment.

In 2000, total capital expenditures on transit were $9.1 billion current dollars. [See Exhibit 6-27]. Federal funding for transit capital expenditures grew at an average annual rate of 5.0 percent between 1990-2000, while State funding grew by 4.2 percent and local funding by 11.7 percent. There is considerable variation among these three sources in the year-to-year changes of funding levels.

Over the decade, the share of Federal funds allocated to capital expenditures has declined substantially, from 58.1 percent in 1990 to 47.2 percent in 2000, while the share of local funds has increased from 27.7 percent to 45.7 percent in 1999, decreasing slightly to 42.0 percent in 2000. This shift reflects an increase in local support for transit projects. The share of capital funding from State sources has remained relatively constant, fluctuating between 10.2 percent in 1999 and 14.2 percent in 1990—with the exception of 1993, when the State share soared to 23.0 percent.

New Starts Section 49 USC 5309 provides for the allocation of funds for the construction of new fixed guideway systems, fixed guideway modernization and expansion, and bus capital requirements. Projects involving the construction of new fixed guideway systems are known as "New Starts." In order to receive FTA capital investment funds for a New Starts project, the proposed project must emerge from the metropolitan and/or Statewide planning process. A rigorous series of planning and project development requirements must be completed in order to qualify for this funding. Local officials are required to analyze the benefits, costs, and other impacts with alternative transportation strategies before deciding upon a locally preferred alternative. Proposed projects are evaluated on the basis of expected mobility improvements, environmental benefits, operating efficiencies and cost-effectiveness. Initial planning efforts are not funded through the Section 5309 program, but may be funded through Section 5303 Metropolitan Planning or Section 5307 Urbanized Area Formula Grants programs. Under current law, Federal funding may comprise up to 80.0 percent of a New Start funding requirement. The Administration is seeking a legislative change that would lower this share to no more than 50.0 percent, beginning in FY2004. Total Federal funding for New Starts authorized by TEA-21 from 1998 through 2003 is $6.1 billion. Annual funding for New Starts has increased from $800.0 million in 1998 and will reach $1.2 billion in 2003. [See Exhibit 6-28]. Click here for text description of this exhibit.

A higher percentage of total transit capital expenditures is allocated to rail rather than to bus modes of transportation, and to investment in transit facilities rather than in rolling stock. [See Exhibit 6-29]. In 2000, $5.7 billion, or 63.1 percent of total transit capital expenditures, was for capital investment in rail modes of transportation such as commuter rail, heavy rail, light rail, etc., $2.9 billion, or 32.1 percent, for capital investment in bus modes, and $0.4 billion, or 4.8 percent, for capital investment in other transit modes. With regard to investments in fixed assets, $5.3 billion, or 58.0 percent of total capital expenditures, was spent on investment in transit facilities, $2.8 billion, 31.4 percent of the total, on investment in rolling stock, and $1.0 billion, or 10.6 percent of the total on other capital.

A higher percentage of capital expenditures for rail modes is for facilities, and a higher percentage of capital expenditures for bus modes is for rolling stock. In 2000, 68.0 percent of all expenditures for capital investment in rail was for facilities, while 54.0 percent of all expenditures for capital investment in bus was for rolling stock. [See Exhibit 6-29]. These differences, which have remained relatively constant in recent years, reflect the reliance of rail modes on separately constructed fixed guideway systems, whereas buses, vanpools, and demand response vehicles travel on roads.

Operating Expenditures

In 2000, operating expenditures, including purchased (contracted) transportation, were $20.0 billion and accounted for 68.8 percent of total transit expenditures. Transit operating expenditures include wages, salaries, fuel, spare parts, preventive maintenance, support services, and leases used in providing public transit service.

Operating Expenditures by Transit Mode

Buses account for the largest percentage of transit operating expenditures, $11.0 billion in 2000, or 55.1 percent of the operating expenditure total (See Exhibits 6-30 and 6-31). Heavy rail accounted for $3.9 billion, 19.7 percent of the total, and commuter rail, $2.7 billion, 13.4 percent of the total. Operating expenditures for demand response vehicles have more than tripled over the past decade from $386.0 million in 1990 to $1.2 billion in 2000, reflecting increased services to the elderly and persons with disabilities pursuant to the Americans with Disabilities Act and new programs targeted toward the provision of services to these groups. These expenditures appear to be stabilizing, with a marginal decline from 1999 to 2000. In 2000, demand response systems accounted for 6.1 percent of total transit operating expenses. Light rail and other transit vehicles accounted for just under 3 percent each.

Click here for text description of this exhibit.

Operating Expenditures by Transit Operations

In 2000, $10.3 billion, or 51.6 percent, of transit operating expenses were for vehicle operations. [See Exhibit 6-32]. Expenditures on vehicle maintenance were $4.2 million or 20.9 percent of the total. Bus and rail operations have inherently different cost structures. While 68.4 percent of total operations expenditures for demand response transit and 56.6 percent of total operations expenditures for buses were spent for actual operation of the vehicles, only 40.0 percent of rail operations expenditures were spent on the operation of rail vehicles. A significantly higher percentage of expenditures for rail modes of transportation are classified as non-vehicle maintenance for the repair and maintenance of fixed guideway systems.

Rural Transit

Since 1978, the Federal Government has contributed to the financing of transit in rural areas, i.e., areas with populations of less than 50,000. These rural areas are estimated to account for 36 percent of the U.S. population and 38 percent of the transit-dependent population.

Funding for rural transit is currently provided through Title 49 Section 5311, which, in 1994, replaced Section 18 of the Urban Mass Transit Act. Rural transit funding was increased substantially with passage of the Transportation Equity Act for the 21st Century (TEA-21). In FY 2000, Federal funding for transit under TEA-21 was $194 million. Federal funding for rural transit, will reach $240 million in 2003, the end of the TEA-21 authorization period. This is an 80 percent increase from the 1998 and a 266 percent increase from the 1991 levels. States may transfer additional funds to rural transit from highway projects, transit projects, or formula transit funds for small, urbanized areas.

On average, 14 percent of rural transit authorities’ operating budgets comes from Section 5311 funds. [See Exhibit 6-33]. State and local governments cover 23.0 and 21 percent, respectively, of their rural operating budgets through a combination of dedicated State and local taxes, appropriations from State general revenues and allocations from other city and county funds. In 2000, total State and local contributions to rural transit operating budgets increased to a total of $431 million, up from $145 million in 1994. Human Services programs, including Medicaid, cover about 15 percent of rural operating budgets, and in-kind contributions and other revenues cover the remainder.

Click here for text description of this exhibit.