Local and Regional Funding Mechanisms for Public Transportation (2009)

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92.1 Profile of Overall Public Transportation Funding The current intergovernmental partnership in transit fund- ing is summarized in Table 2.1. For urbanized areas with pop- ulations over 200,000, local sources (including regional sources) account for the largest single share of total transit investment— 33 percent. If the combination of fares (25 percent), local rev- enues (33 percent), and “other” sources (9 percent) are viewed together as complementary or interrelated means of gather- ing local resources in support of transit, over two-thirds of all investment (67 percent) is derived locally, including 60 per- cent of capital investment and nearly 69 percent of operating expenses. Over the last decade or so, several trends indicate why con- sideration of new sources of local and regional funding for public transportation is of mounting importance: • Investment in public transportation from all sources has nearly doubled in nominal dollars, indicating a continued interest in meeting transit system needs, according to the American Public Transportation Association 2006 “Public Transportation Fact Book.” • Despite these increases, both public transportation indus- try and U.S. DOT estimates confirm a substantial and grow- ing shortfall. The level of transit investment is not keeping pace with the investment needed to maintain transit equip- ment and facilities in acceptable condition, sustain current levels of performance, and expand systems and services to serve growing travel demand. The additional transit invest- ment required from all sources exceeds $10 billion annu- ally from all sources. • Despite consistent success in enacting new local funding for transit in recent years, resistance to increasing taxes and public spending persists. • State and federal assistance, as well as funds raised locally and regionally for transit, have provided a fairly constant share of total transit investment, with a slight trend upward in state support. • On the local level, over time, there has been a modest shift away from local government general fund assistance toward (1) “directly generated” funds (i.e., fares and revenues from taxing authority authorized to transit agencies as indepen- dent local and regional political entities) and (2) various forms of earned income from transportation and nontrans- portation activities such as lease revenues or joint develop- ment income. 2.2 Defining Local and Regional Funding Sources for Public Transportation The definition of a local or regional source is not always clear. For instance, as a matter of administrative convenience, states may collect sales and other taxes authorized and levied in a particular local jurisdiction and return the full revenues to the source jurisdiction for budgeting and expenditure. Are such revenues a state or a local revenue source? Local human service agencies may purchase transit services for local clients on a contractual basis using funds received from state or fed- eral programs. Are these funds a state, local, or federal revenue source? This study defines local or regional revenues as those rev- enues one step removed from use by the transit agency, e.g., where local general funds are used to support transit, researchers did not attempt to examine the individual taxes that contributed to local general fund revenues. This defini- tion of local and regional revenues is meant to maintain the focus of this study on the actions required by local decision- makers and advocates to increase revenues from local govern- ments, residents, businesses, and organizations. For the purposes of the project, local and regional transit revenue sources are those that are raised from local and/or regional residents/organizations only and made available S E C T I O N 2 . 0 Overview of Local and Regional Public Transportation Funding

for local/regional transit use, regardless of how funds are col- lected, administered, or (re)allocated. The following points provide a further elaboration on this definition and its application: • Taxes or fees specifically authorized and collected within the locality or region, processed (with or without an administrative fee) by state or other agents, and fully allocated back to the originating jurisdiction(s) for tran- sit are considered “local and/or regional,” as is the case in the use of many local option sales and motor vehicle taxes and fees. • Revenues earned by transit agencies from transportation services or other business activities that are the initiatives of the transit agency itself, regardless of the scope or source of authority, are considered “local and/or regional” sources, e.g., parking fees, revenues from advertising, property or right-of-way leases, concessions, and fund-raisers.1 • Revenues from the purchase of service by units of govern- ment and other public or private organizations, regard- less of where their own revenues originate, are considered “local/regional” for the purposes of this project. These rev- enues come most frequently from payments for the pur- chase of transit service by businesses, school districts, universities, and human service organizations under vary- ing formal and informal agreements covering varying peri- ods of time. • Local general revenues and funds made available to tran- sit systems from local or regional “enterprise funds,” regardless of their source, are considered “local and/or regional.” This includes funds mostly raised locally from sources over which local officials have budgetary control and authority to appropriate and allocate funds within the locality or the region. • Revenues from private- or public-sector partners that gen- erally reflect negotiated project-oriented economic inter- ests are considered “local and/or regional.” These typically include revenues from joint development, assessment dis- tricts, public-private partnerships (PPP), and other value- capture mechanisms. • Revenues that flow from financing mechanisms that typ- ically involve capturing the value of future streams of local or regional dedicated revenues for current use under various conditions and requirements are considered “local and/or regional.” 2.3 Profile of Local and Regional Public Transportation Funding Sources—2005 Although a great deal is known about local and regional funding for transit, the information has been largely anec- dotal. There are two major exceptions: (1) information from NTD, managed by FTA, and (2) information from the Center for Transportation Excellence (CFTE) on the results of state and local transportation and transit funding referenda and ballot measures around the country. In addition, a number of 1 Although passenger fares may fit this definition, they are not included in this research. While important policy and political tradeoffs exist between what riders are expected to pay versus the costs to be borne by all local citizens, fare policy and strategy in the industry are addressed in great detail as a separate topic of research and analysis. The current effort focuses, therefore, on non- fare local and regional sources of revenue for public transportation. Operating Expenses $ Billion (%) Capital Investment $ Billion (%) Total $ Billion (%) Federal 2.2 (8) 2.4 (25) 4.6 (12) State 6.7 (23) 1.5 (16) 8.2 (21) Local/Regionala 8.4 (29) 4.4 (46) 12.8 (33) Other 2.1 (7) 1.3 (14) 3.4 (9) Fares and Earned Income 9.7 (33) 0b 9.7 (25) Total 29.1 9.6 38.7 Total (Less Federal and State) 20.2 5.7 25.9 Source: National Transit Database, 2005. Available at www.ntdprogram.gov/ntdprogram. a NTD data incorporate most “regional” sources as “local.” b Less than $20 million. Table 2.1. U.S. public transportation funding profile for urbanized areas with population over 200,000 (2005). 10

recent analyses have been conducted that provide further detail on local and regional funding for transit. The material that follows provides a profile of what types of local and regional sources of funding are being used by tran- sit systems in urbanized areas with populations over 200,000 and by different types of agencies for both capital and operat- ing expenditures based on 2005 NTD data. Table 2.2 summa- rizes aggregate sources of local and regional funding for capital investment, operating expenses, and totals in 2005, i.e., Table 2.2 is Table 2.1 data, less federal and state funds. Features of interest from Table 2.2 include the following: • Nearly $26 billion was made available for transit from local and regional sources in 2005, including nearly $6 billion for capital improvements and $20 billion for operations; • Fares and other earned income accounted for about 51 per- cent of revenue, virtually all revenue used for operations; • Local dedicated taxes accounted for about 18 percent of revenue, including revenues from: – Sales taxes (57.5 percent), – Property taxes (5.8 percent), – Gas taxes (3.8 percent), – Income taxes (2.0 percent), – Tolls (2.0 percent), and – “Other” (28.8 percent); • Directly generated taxes accounted for about 16 percent of revenue: – Sales taxes (45.5 percent), – Property taxes (7.0 percent), – Tolls (5.0 percent), – Gas taxes (0.2 percent), and – “Other” (42.1 percent); • Local general funds accounted for approximately 10 per- cent of revenue; and • Other local sources accounted for about 5 percent of revenue. From 1995 to 2005, total revenues from local and regional sources rose 15 percent in inflation-adjusted terms. The largest shifts among sources involved substantial increases in the proportion of funding from dedicated sources, both directly generated sources and local sources, and a corresponding decline in the proportion from local general funds and other local sources. Most of this shift resulted from increases in Table 2.2. Local and regional public transportation funding sources for urbanized areas with population over 200,000 (2005). Source Total $ Million Percent Capital Investment $ Million Percent Operating Expenses $ Million Percent Fares and Other Earned Income 13,109 50.6 1,284 22.5 11,825 58.5 Dir. Gen. Ded. Taxes 4,227 16.3 1,819 31.9 2,408 11.9 Sales taxes 1,926 45.5 330 18.1 1,596 66.3 Property taxes 297 7.0 27 1.5 270 13.3 Tolls 213 5.0 0 213 11.2 Gas taxes 10 0.2 1 0.1 9 8.8 Other 1,781 42.1 1,460 80.4 321 0.4 Local Ded. Taxes 4,598 17.7 1,116 19.6 3,482 17.2 Sales taxes 2,646 57.5 618 55.4 2,028 58.2 Property taxes 268 5.8 66 5.9 202 5.8 Gas taxes 174 3.8 18 1.6 156 4.5 Tolls 92 2.0 0 0 92 2.6 Income taxes 91 2.0 22 2.0 69 2.0 Other 1,326 28.8 392 35.1 934 26.8 Local General Funds 2,688 10.4 315 5.5 2,373 11.7 Other Local 1,265 4.9 1,165 20.4 100 0.5 Total $ Billion 25.9 5.7 20.2 Source: National Transit Database, 2005. www.ntdprogram.gov/ntdprogram. 11

directly generated, dedicated sales tax revenues, i.e., agencies empowered to directly levy sales taxes on a local or regional basis. Local and Regional Public Transportation Funding by System Size Overall, transit investment and use are heavily concen- trated in the nation’s larger transit systems. NTD data indi- cate that the top 50 systems accounted for 83 percent of trips in 2005, 79 percent of total operating expenditures, and 89 percent of total capital investment. Of the nearly $26 billion in local and regional revenues expended in 2005 by urbanized area systems, nearly 84 percent was expended within areas served by the 50 largest systems. Table 2.2 indi- cates the sources of the largest shares of local funding for capital and operations. Table 2.3 elaborates on and reinforces several points made earlier: • Sales taxes serve as a major revenue source among systems of all sizes; • Local general funds play a large role in systems serving areas under 1.0 million; • Fares and earned income are the largest source of operating support drawn from local areas; • Fares and earned income are predominantly used to support operations; • Other directly generated dedicated funds are most promi- nent in the largest systems; and • Property taxes for transit are concentrated among smaller systems. According to 2005 NTD data, the importance of local fund- ing sources is relatively consistent across areas of all population sizes, accounting for approximately 20 to 25 percent of rev- enues for both capital and operations. Systems in areas with a population over 1.0 million have a lower dependence on federal sources (under 20 percent) than systems in areas with a population of 50,000 to 200,000 (33 percent); however, sys- tems in areas with a population over 1.0 million have a higher dependence on fares and earned revenue (25 percent versus less than 10 percent).2 The most noteworthy change in local and regional funding flows from 1995 to 2005 is the growth in the percentage of revenues from sales taxes across area size. This change also reflects the rise of local and regional sales taxes. Table 2.3. Sources of local funding for public transportation capital investment and operating expenses by system size (population of area served). Percentage of Capital Investment Percentage of Operating Expenses Local Funding Source > 1.0 Million 200,000– 1.0 Million 50,000– 200,000 >1.0 Million 200,000– 1.0 Million 50,000- 200,000 Fares and Earned Income – a – – 58.2 30.2 37.8 Sales Taxes 35.5 38.9 51.1 18.8 25.8 28.3 Other Directly Generated Dedicated Funds 33.7 – – – – – Local General Funds – 42.5 32.7 11.1 26.9 21.3 Other Local Dedicated Fundsb 18.4 – – – – – Local Property Taxes – – 9.7 – – – Other Local Sources c 8.2 c cc c Source: National Transit Database, 2005. www.ntdprogram.gov/ntdprogram. a Dashes indicate a very minor contribution. b The high percentage of revenues available in larger systems from “Other Local Dedicated Funds” includes $1.4 billion from 10 systems of which $1.2 is reported from the New York City Transit Authority (NYCTA), i.e., budgets and expenditures in the New York region can overwhelm or mask patterns in the remaining large urbanized areas. c Majority or all of the remaining revenues. 2 National Transit Database, 2005. www.ntdprogram.gov/ntdprogram. 12

Local and Regional Public Transportation Funding by Type of Agency As suggested earlier, independent transit authorities and services operated by municipal or county governments have different latitude and authority in seeking increased revenues. Likewise, independent authorities can be structured with widely varied authority as well. Table 2.4 summarizes the sources of local and regional transit funding for these two basic organiza- tional structures. Table 2.4 also elaborates on and reinforces several points made earlier: • Sales tax revenues are important regardless of agency type, but they are particularly important for larger agencies and independent agencies, where sales taxes typically are used to support large-scale capital programs; • Sales tax or directly generated revenue sources provide over 70 percent of capital investment by independent authorities; • Independent authorities are more often empowered to tap larger proportions of directly generated revenue; • Fares and earned income (concessions, advertising, lease revenues, etc.) are a significant source of operating support regardless of agency type, but they represent a larger share of operating expense in independent authorities, perhaps due to the political difficulty of raising fares in the smaller markets typical of municipal systems; and • Property taxes are more often a source of revenue for municipal and county systems. More detailed system-level NTD data suggest that munici- pal and county systems often use a more varied mix of sources than independent authorities. Appendix C provides additional insights and observations about the NTD and its usefulness in informing local and regional officials and transit professionals about alternative local and regional sources of funds for public transportation. Table 2.4. Sources of local public transportation funding for capital investment and operating expenses by agency type (2005). Percentage of Capital Investment Percentage of Operating Expenses Local Funding Source Independent Municipal/ County Independent Municipal/ County Fares and Earned Income –a – 58.6 32.9 Sales Taxes (directly generated or locally dedicated) 36.0 43.6 19.8 18.9 Other Directly Generated Dedicated Funds 35.9 – – – Local General Funds 6.6 13.0 8.9 34.4 Other Local Dedicated Fundsb 20.2 13.8 5.5 5.1 Local Property Taxes – 16.1 – – Other Local Sources c cc c Source: National Transit Database, 2005. www.ntdprogram.gov/ntdprogram. a Dashes indicate a very minor contribution. b See note to Table 2.3 on “Other Local Dedicated Funds” and the impact of data from the New York region. c Majority or all of the remaining revenues. 13