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39 SECTION 4.0 Guidance in Considering New Local and Regional Funding Sources for Public Transportation The process of identifying, evaluating, and enacting new islative actions of state governments that local and regional local and regional funding sources for public transportation taxing authority is established for local and regional entities. follows a generalizable path and sequence of steps that has Raising revenue at the local and regional level often times re- many variations from one locale to another. However, suc- quires a popular vote locally in support of specific revenue- cess in enacting new funding sources for transit requires an raising measures and expenditures as well as state-enabling understanding of the following: legislation. The general taxing and revenue-raising process and legisla- 4.2 Contextual Issues in Local tive procedures at the local and regional level, and Regional Funding for Contextual issues in local and regional funding for public Public Transportation transportation, Basic advantages and disadvantages of local and regional Not all potential sources of local and regional revenue used funding mechanisms, and for or available for transit will be equally well suited or accept- Criteria in evaluating potential local and regional funding able in all circumstances. The relevance and acceptability of sources various funding mechanisms at the local and regional level de- pends to varying degrees on a number of contextual factors, Each of these aspects is discussed briefly in the sections that the most significant of which are discussed briefly below. follow. Governance Traditions and Philosophies 4.1 General Process for Taxing and of Taxation and Spending Revenue-Raising and Mechanics A wide variety of traditions, philosophies, and legal frame- at the Local and Regional Level works have evolved at the state and local level governing The authority to tax for public purposes is contained in the how public funds can be raised and for what purposes they U.S. Constitution. The Tenth Amendment to the Constitution can be spent. According to the National League of Cities, "to provides that all powers not explicitly granted to the federal speak about cities or other forms of local government in the government (or explicitly shared with the states) are retained United States is to speak about fifty different legal and polit- by the states. "The states, however, retain the right to impose ical situations."74 any type of tax except those taxes that are clearly forbidden by A simple comparison serves to illustrate how these traditions the United States Constitution and their own state constitu- and philosophies might influence consideration of new local or tions."73 Municipalities, counties (including parishes or bor- regional funding mechanisms in a particular locality. In the oughs), and special-purpose districts and authorities, in turn, state of Texas, the tradition and underlying philosophy guid- are creations of state governments, and it is through the leg- ing the provision of public transit is that local governments, 73 United States Department of the Treasury. "Fact Sheets--Taxes: State and 74"City Charters." National League of Cities website. Available at Local Taxes." Available at taxes/state-local.shtml.

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40 cities, and counties should bear the responsibility for raising cific duties and provide specific services, often with author- the funds needed to build and operate transit systems and ity to raise and dedicate for their sole use the revenues from services. As a result, the state provides little direct funding specific revenue-raising mechanisms in member jurisdic- for public transportation, with the exception of very modest tions in their respective service areas. amounts for small urban and rural services. The state, how- Municipal transit systems. Municipal transit systems are ever, has provided legislative authority to local officials and operated as part of general purpose municipal or county residents to organize regionally and to design, build, and op- governments, often drawing on general revenues of the ju- erate transit services. The state has also provided them with risdiction, along with other sources, both dedicated and the authority to raise necessary revenues through local option not dedicated, to support transit services. sales taxes, conditioned on local popular approval. Under this tradition, new and expanding public transit systems and ser- In addition, there are several transit systems that are owned vices are being developed and operated effectively in the and operated by the states they serve, including the New Jersey state's major metropolitan regions. Transit Corporation (NJ Transit), the Delaware Transit Cor- In contrast, in Connecticut, a large number of independent poration (DART First State), and the Rhode Island Public Tran- transit districts have been established under state-enabling sit Authority (RIPTA). Decision-making dynamics and fund- legislation organized to serve the needs of one or more Con- ing mechanisms used to support transit in state-owned and necticut towns. Funding for capital investment and operation -operated systems are different from those in independent re- of locally designed and managed transit services is provided gional authorities or municipally operated systems. from federal and state sources. The districts and local towns It is critical to note as well that there is significant variation historically have contributed minimal financial support to among urban regions with respect to (1) the number of po- their systems. In some cases, districts and towns have resisted litical jurisdictions included; (2) the geographic extent of the being given the authority to enact local funding mechanisms region being served; (3) the number of operating agencies and/or have chosen not to use local revenue-raising authority providing service and sharing (or competing for) resources; for public transportation where it does exist. (4) the nature of the travel markets to be served; and (5) the The examples of Texas and Connecticut represent opposite types of improvements for which funding is being sought-- ends of the spectrum in terms of local and regional transit expansion versus maintenance and reinvestment. funding and financing traditions and experiences. While each Table 4.1 shows the distribution of transit agencies by type, tradition/experience represents a legitimate posture or phi- other than state agencies, based on 2005 reporting to the NTD, losophy for taxing and spending in support of public trans- which contains financial and operating data from all systems portation, each involves different political dynamics and leg- receiving federal assistance in urbanized areas (areas with islative procedures, and these affect the sources to be targeted population greater than 50,000). Of the nearly 500 systems and the amounts of revenue that may be captured. Most expe- reporting their organization type: riences with local and region transit funding across the United States fall somewhere between the experiences/traditions of Municipal systems are somewhat more prevalent (57 per- Texas and Connecticut, with significant funding coming from cent) than independent authorities (43 percent), and both state and local sources. Knowledge and understanding The municipal model is far more prevalent in smaller ur- of these overarching revenue-raising and spending traditions banized areas where nearly 7 in 10 systems are municipal and philosophies are essential to fashioning a workable and in character. effective strategy for enhancing local and regional transit fund- ing mechanisms either by conforming to them or by attempt- It is generally assumed that independent authorities' ability ing to alter them. to draw on or raise revenues locally or regionally to support transit services is significantly different than the ability of mu- nicipal systems to raise revenues. Municipal systems may be Types of Public Transportation Agencies somewhat more restricted in the funding sources available Transit operating agencies are organized in several basic to them and may have limited ability to independently seek ways. Agencies are managed under particular statutory and funding sources outside of the broader municipal budgeting regulatory provisions as well as through administrative pro- process. There may be a potential advantage, however, in the cedures that vary from state to state and locale to locale. The ability of municipal systems to better control costs through two most frequent organizational models are the following: such mechanisms as municipal pooled or contract purchases of vehicles and fuel, lower insurance costs through municipal Independent authorities. Independent authorities are purchases, or more favorable borrowing rates under munic- authorized and enabled by state legislation to perform spe- ipal debt issuance processes and ratings.

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41 Table 4.1. Distribution of public transportation agencies by type and size of population area (2005). Population Area 200,000 Agency Type > 1.0 Million 1.0 Million <200,000 Total Independent 78 68 62 208 Authority % 49 54 31 43 Municipal System 80 59 139 278 % 51 46 69 57 Total 158 127 201 486 Source: 2005 National Transit Database. For all the reasons cited above, it is evident that no single "Financing" typically involves some form of debt, the advan- approach is suited to all areas seeking increases in local or re- tage of which lies in allowing future streams of revenue to be gional transit funding. available in the present to meet needs in a more timely and pre- dictable way. Debt financing allows systems to meet current needs from future revenues. The "cost" includes the attendant Funding Projects versus Programs borrowing costs and the potentially diminished availability of There are obvious differences between the funding alter- those revenues in the future. As noted above, the ability and natives that are best suited to support individual public authority to "finance" transit investments, i.e., to incur debt, transportation projects, which may require large infusions of is not uniformly available across all agencies or types of agen- capital funds over specific timeframes, and the funding alter- cies. Issuing debt to support municipal systems may be influ- natives that are best suited to support ongoing programs, enced heavily by state and/or local fiscal tradition and philos- which require sustained levels of reliable and predictable ophy as well as by public needs for services that may compete support over long periods of time. Although it will seldom for available funding. be the case that increases in one type of funding are needed without increases in the other, the funding sources from Current and Future Role of Transit which transit project and program funds are drawn can vary in a Community significantly. A frequent strategy is for agencies to use some type of debt financing, e.g., bonds secured by a dedicated There are persistent and differing views on the role of transit local or regional revenue stream, to ensure that major capi- in various community and regional settings. The most limiting, tal projects can proceed on time and on budget. This strat- but still common, view is the notion of public transit as a ser- egy requires authority to incur debt as well as access to a rev- vice intended largely to support the needs of transportation enue stream to support annual financing costs as well as disadvantaged individuals in the community--the young; retirement of the debt. These conditions may be somewhat the old; those with disabling physical, mental, or emotional more difficult to satisfy within a municipal organizational conditions; and low-income individuals or households. The framework since capacity to issue debt and revenue streams broader human service and support needs of this client base to support debt are competed for by a variety of municipal are served by a large number of local, state, and federal pro- services and operating units and are subject to overall bor- grams. These programs have increasingly become sources rowing and debt management limitations imposed on the of revenue for transit agencies through locally negotiated municipality. purchase-of-service agreements with Medicaid; aging, men- tal health/mental rehabilitation, and job training social ser- vice agencies; and other local social service agencies. Funding Funding versus Financing and financing arrangements focused on serving transportation- Another way to view the difference between project and pro- disadvantaged citizens have become a focus of a federal coor- gram funding is to recognize the distinction between "funding" dination initiative, United We Ride; a new federal program, and "financing." "Funding" generally implies a "pay-as-you- New Freedom; and a new federal transit and human service go" process, in which a continuing revenue stream is drawn "coordination" planning requirement. on for current ongoing expenditures and which allows lim- At the other extreme, in terms of perceptions of the role ited, if any, ability to spend beyond that revenue stream. of transit in a community, are those areas where transit is