The Basics of Transit Funding

An Overview of Transit Subsidy Sources

NYC Subway commuters ride the train
Brent Winebrenner/Lonely Planet Images/Getty Images

The issue of transit funding is of supreme importance to us in the industry; quite simply, without money transit cannot operate. The purpose of this article is to explore different types of transit funding and subsidies, and how they are generated at the local, state, and federal levels.

Operating and Capital Funding

Look elsewhere on my site for a refresher on the two different types of transit funding - capital and operating .

Capital funding is used for infrastructure items such as buses, garages, and light rail lines, while operating funding is used for things such as operator salaries and fuel. Although the federal government has recently attempted to divert some capital funding to operating funding, transit systems around the country are still at risk of buying buses and rail lines they cannot afford to operate.

The Role of Farebox Revenues

Certainly the first thing that comes to mind when considering how we pay for public transit is the money that passengers deposit into the farebox whenever they board. In the United States and most countries, the percentage of total operating revenues that passengers pay for through fares is called the farebox recovery ratio, and ranges widely. Most transit systems in the United States have farebox recovery ratios between 25 and 35%. BART in the San Francisco Bay area is an example of a relatively high farebox recovery at almost 66%, while an entity such as the Central Oklahoma Parking and Transportation Authority of Oklahoma City comes in with less than an 11% farebox recovery.

Other countries generally derive more of their revenue from the farebox than the United State does, with recovery ratios of 50% common in Canada and Europe and up to 100% in parts of Asia and Australia. Click here for a comprehensive list of farebox recovery ratios for different cities .

Transit Subsidies

Where does the rest of the money come from?

Taxes, the types and amounts of which differ from region to region. In the United States, the most common form of taxation for transit is the sales tax. In states as ideologically diverse as California, Texas, and Washington, statewide sales taxes provide the lions share of transit subsidies. Many states also offer some portion of gas tax revenues to transit, although doing so is forbidden in many state constitutions. Property taxes, which are a more common form of transit subsidy in Canada, support public transportation in some states. Income and payroll taxes are rarer, but provide important transit support in New York City and Portland, OR, amongst other places.

Federal Transit Support

These taxes are used to fund budgetary programs at the local, state, and federal levels. At the federal level, a segment of the federal gasoline tax is used to support the programs of the Federal Transit Administration (FTA). The FTA supports transit development through such programs as the New Starts Program , which provides funding for new rapid transit projects and the rehabilitation of existing lines, the Job Access and Reverse Commutes (JARC) program, which provides funding to assist the poor in accessing jobs in underserved communities, and operating subsidies to transit agencies in areas with a population of under 200,000.

The federal government has recently passed a new federal transportation bill.

State Transit Support

States vary widely in their support of transit. At one extreme, Nevada, Hawaii, Alabama, and Utah provide no state transit support at all. Fortunately, most states provide some support for transit, even though the recession has caused the support to diminish. New York's state public transportation funding is the highest of any state, while California's state public transportation funding is the second highest.

Local Transit Support

In recent years, most increases in public transit funding support have come at the local level. Almost all of these increases have come in the form of higher sales taxes approved by voters, and the vast majority of increases on the ballot have been approved by voters.

The most notable transit ballot measure in recent years has been Los Angeles's Measure R. Measure R, which passed in 2008 with almost 67% of the vote, will result in a massive increase of public transit options for Southern Californians. Perhaps it's biggest victory was to signal to Americans that even in the capital of car culture residents are looking for alternative means of getting around.

The success of Measure R inspired Los Angeles Mayor Antonio Villaraigosa to advocate for a plan he called "30 - 10" or America Fast Forward . These plans envision constructing the thirty years worth of projects specified in Measure R in ten years to realize the benefits much sooner at a cheaper cost. Since the announcement of the plan Salt Lake City, UT has expressed interest in accelerating its Frontlines plan , Denver, CO has expressed interest in accelerating its Fastracks plan, and Minneapolis, MN has expressed interest in advancing its' own transit plans.

Transit Funding By Individual Transit Agency

The best way to understand how different sources of transit funding come together to form a whole is to look at the budgetary makeup of individual transit agencies. On this site, I have provided several individual agency profiles, including Los Angeles Metro ; the Toronto Transit Commission of Toronto, ON ; Long Beach Transit in Long Beach, CA ; the Ann Arbor Transportation Authority and University of Michigan Parking and Transportation Services of Ann Arbor, MI ; the Urban Transit Authority and others of Sydney, NSW, Australia ; and the Regional Transportation Commission of Southern Nevada in Las Vegas .