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Monday, March 21, 2011

Federal Support of Public Transit Operating Expenditures: Trends and Policy Issues

William J. Mallett
Specialist in Transportation Policy

Congress may debate federal transit assistance as it considers reauthorization of surface transportation programs, which have been extended until September 30, 2011. Reauthorization will proceed in the context of serious budget problems at many transit agencies. The single largest source of funds for public transit, local sales and property tax revenue, has declined or remained stagnant. In response, many transit agencies have had to raise fares, reduce service and eliminate routes, or slow capital improvements.

The American Recovery and Reinvestment Act of 2009 (ARRA) (P.L. 111-5), enacted in February 2009, appropriated $8.4 billion specifically for public transit. But, as is usually the case with federal transit assistance, a large proportion of this funding was only available for capital investment. This revived a long-standing complaint from localities that while the federal government helps transit agencies buy buses and build rail lines, it does not help them pay for labor and fuel to operate them. This complaint is not entirely accurate. Although Congress formally eliminated federal operating assistance for transit operators in large urbanized areas in the late 1990s, federal funding of transit operations has grown dramatically since then, thanks to congressional action redefining “capital expenditures” to include items traditionally considered to be operating expenses, such as maintenance.

Congress subsequently provided some flexibility in the use of ARRA funds for operational expenses in the Supplemental Appropriations Act, 2009 (P.L. 111-32). Other measures to give transit agencies more flexibility in using existing funds for operating expenditures and to make extra funds available for operating expenses on a temporary basis were introduced, but not adopted, in the 111
th Congress. The 112th Congress may wish to consider these and other options, including leaving current federal funding rules unchanged; removing all restrictions on the use of federal transit funding for operating expenditures; reducing or eliminating federal support for transit operations; and using a performance-based system of distributing federal funds to encourage improvements in productivity and revenue generation.

There are three main issues Congress may evaluate as it considers these options:
  • the effects of operating assistance on service provision and fares, as federal operating assistance might help to avoid threatened service cuts and fare hikes; 
  • the effects of operating assistance on transit productivity, given that research has generally concluded that government operating assistance has led to rising costs per vehicle mile; and 
  • the effects of operating assistance on transit infrastructure, as some transit agencies may be directing funding to pressing day-to-day needs while allowing the condition of capital assets to decline. 

Date of Report: March 16, 2011
Number of Pages: 26
Order Number: R41695
Price: $29.95

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