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Friday, April 16, 2010

Public Transit Program Funding Issues in Surface Transportation Reauthorization

William J. Mallett
Specialist in Transportation Policy

As enacted in the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA; P.L. 109-59), federal public transit assistance programs were authorized through September 2009. Congress has so far failed to enact a multi-year reauthorization; consequently, federal transit programs have been operating as a result of a series of short-term legislative extensions. Decisions about reauthorization will likely hinge on the amount of funds available from the Mass Transit Account of the Highway Trust Fund, the source of about 80% of federal transit funding. Without an increase in the federal fuels tax, the use of other dedicated revenue mechanisms, or more money from the general fund, federal funding available to support both highways and transit will slow in the short term, and may decline in the medium term. Because of the growth in authorized spending in SAFETEA and the spending down of unexpended balances over the last few years, the Congressional Budget Office (CBO) estimates that the transit account will have trouble meeting its obligations in a timely fashion in FY2013. This is about two years later than previously estimated because of an infusion of $4.8 billion from the General Fund of the U.S. Treasury enacted in the Hiring Incentives to Restore Employment (HIRE) Act (P.L. 111-147). 

CBO estimates that expenditures from the transit account will exceed revenues by about $3.1 billion in FY2011. To remedy this deficit, the fuels tax would need to be raised by approximately 5 to 10 cents per gallon overall to close the gap, with 20% of the increase (1 to 2 cents per gallon) dedicated to the transit account. This would allow for no growth in the program to deal with growing needs or inflation. The U.S. Department of Transportation (DOT), however, estimates that the country needs to spend an extra $1.0 billion annually over the next 20 years to maintain the current condition and performance of transit systems, and an extra $3.6 billion annually to make substantial improvements. At the current federal share of overall transit finances, this translates to an additional 3 cents per gallon in the federal fuels tax (0.6 cents for the transit account) to maintain the system and 10 cents per gallon (2 cents for the transit account) to improve the system. Two congressionally created commissions have estimated greater capital investment needs than DOT. 

Without new revenue, Congress may have to modify transit program priorities or, alternatively, may want to reexamine the federal role in the financing of transit systems. Some of the options that may be considered include reducing the federal matching share, encouraging more private sector involvement, including the use of public-private partnerships and innovative financing, encouraging improvements in transit system productivity, and the broad restructuring of current federal transit programs. 

The report outlines several ways of restructuring federal public transit programs, each an alternative to the possibility of leaving the existing system unchanged. First, Congress might decide to focus more resources on major capital expenses for the rehabilitation and expansion of transit service in places that are best served by this mode, primarily the densely populated parts of large cities that are often severely congested. Second, Congress might focus on supporting and rehabilitating existing services rather than major capital expansion. Third, Congress might eliminate the capital improvement programs altogether, to be replaced with a simple "block grant" that could be distributed based on transit ridership or population. This would allow state and local governments to decide how best to allocate transit funding support among existing and new services.

Date of Report: April 9 2010
Number of Pages: 24
Order Number: RL34183
Price: $29.95

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