Transit Funding: Coping with Cuts - Research Paper Example

?Transit Funding: coping with cuts Introduction The recent financial crisis and the resulting recession have forced over four-fifths of the transit systems in the United States to either reduce services or increase fares due to a sharp decline in government revenue both at the local and state level. According to a survey by Rosenbloom (2010), services during non-peak periods have been reduced by around 60%, services during rush hour by 55% and reduction in the number of transit routes by over 42%. In fact, the survey goes on to demonstrate that such changes have been implemented in over 60% of the transit systems. Between 2009 and 2010, over eight out of ten largest transit systems in the country estimated a serious shortfall in budget over the next 2-3 years. Many of these transit systems have been forced to reduce personnel. Besides, 50% of these transit systems have diverted their funds from capital use towards maintaining operations, thus preventing effective maintenance and upkeep of these systems (Katz, 2010). As a result of these recent issues, decline in funding is causing much discomfort and affecting the lives of millions who depend on the transit system for their daily needs. Schultz (2010) says that the primary issue facing transit systems in the massive shortfall in funding from local and state authorities. Transit funding in California The state of California has supported the transit system at all levels through various means. In terms of funding, California remains one of the top providers of revenue ($2.3 billion in 2008) even after excluding funding from federal and local sources. A major chunk of the funding comes from the excise and sales duty imposed on the sale of fuel. While most of the revenue derived through this method is spent on improving the roadways in the state, California is historically known to set aside a major part of the remaining funds for use by the transit system. For example, 0.25% of the income from sales tax is used by the transit system. Under the guidelines of the Transportation Development Act (TDA) of 1971, these funds are provided through a number of transportation funds that are established in each country within the state (Tolley, 2011). Additional revenue left over from the excise duty on gasoline is also diverted to public transport. This has however been difficult to maintain during recent years due to the huge budget deficit being experienced by the state government. As a result, such excess funds are now included into the state’s general fund. While voter preference to such practices has been negative, the excess funds continue to be diverted away from public transit. On the other hand, local agencies generate funding for the transit system by levying taxes for transit through their respective counties. These transit taxes can range anywhere between 0.5% and 1% and still exist despite the intense public disapproval against additional taxation. The imposition of these taxes, however, requires a two-thirds majority for approval by the concerned county. The importance of transit funding for the public is evident from tax schemes approved in 2008 by voters in the counties of Los Angeles and Santa Clara (Dittmar, 2010). In early 2011, the incumbent governor Jerry Brown put forth his strategy to maintain government spending on public transit at a constant level. However, Murray (2009) warns that funding for the transit system may decline over the next six years if local citizens remain reluctant to approve temporary hikes in taxes. There are also issues from pending legislation whereby the Republicans have been pressing for a reduction in spending on transportation. Hecker (2009) says that such a move would seriously affect state agencies like the Los Angeles Metro that depends on federal inflows for constructing new transit routes. Stanley (2008) believes that although income from sales tax has been increasing since mid-2010 due to the economic recovery, the flow of funds to the transit systems has been very slow. This has put a serious strain on several operators such as ‘Caltrain’ which is struggling to maintain services to all stations at all times. Lack of adequate funding is also threatening several transit-related projects that are currently underway across many cities in the state. Deficient funding has also caused a rollback of spending on employee healthcare and pension which needs to be tackled at the earliest. Trends in Transit funding Federal Funding Over the past few decades, federal funding for transit services has been directed towards capital projects. Much like any other construction or transportation project such as developing new highways, these federal funds have largely been used to construct new transit systems. However, federal funds have traditionally not been spent for operation and maintenance of these transit systems (Schultz, 2010). Due to this inadequacy, most transit agencies are able to establish sophisticated transit systems but always find it hard to generate funds for their maintenance and repair. For instance, transit agencies in several states procure buses and related equipment with federal funds. In many cases, the agencies are in no position to put them in operation over the long term. Some unions are also reluctant to utilize federal funding for transit operations as they feel this will provide an additional opportunity for labour unions to negotiate more compensation without any noticeable improvement in quality of service. The financial stimulus issued by the US government in the wake of the 2008 financial crisis included over $8 billion for use by the nation’s mass transit systems (Murray, 2009). However, existing legislation prevented the use of this money for operational purposed and instead restricted it solely for capital requirements. This has forced transit systems to hike passenger fares, relieve workers and reduce the quantity and frequency of services. Members from both the Republicans and Democrats have recognized this discrepancy in transit spending and are working towards a new legislation that could provide additional funds of up to $10 billion annually to be used at the discretion of the transit agencies. However, the bill has faced stiff opposition from a few of the bigger transit agencies such as the Washington Metro and New York MTA, thus adding to the uncertainty in future trends. These agencies are of the opinion that wider flexibility in the use of federal funds would provide labour unions an added incentive to seek higher wages. They also reason that state and local governments may be prompted to cut their spending on transit services due to higher inflows from the federal government. Thus, they believe that such a move could increase their dependence on federal agencies for funding in the future were this bill to be passed. While this sounds like a fair argument, Dilger (2009) says that the basic requirement for better funding of transit operations cannot be ignored, at least in the present scenario where services in several routes are being curtailed due to deficits. State and local Funding Funds from state agencies have generally not been sufficient in keeping up with rising needs and increasing costs of construction and maintenance of transit routes. Thus, most transit systems face a deficit in available funds in comparison to the revenue required to maintain current inventory and develop new projects. Hanson (2009) says that these deficiencies, coupled with the rise in construction expenses, imply that states are in desperate need of cash for their transportation requirements (Hecker, 2009). In fact, the deficit when combined across all states was $24 billion for 2010 while the total deficit over the last 20 years was a staggering $400 billion. A survey by the Revenue Study Commission in 2009 revealed that the revenue imbalance for transit services across all states was in the range of $100-120 billion (Dilger, 2009). These figures clearly suggest that demand for better and widespread transit services exceeds the supply and that states have largely struggled to provide the required transit services to local citizens. Smith (2009) says that states have constantly sought new ways to source funds for transit services. These include taxes on sale of gasoline and other fuels, transit fees, toll fees, motor vehicle fees and investments from private enterprises. However, revenues from fuel taxes have declined in value to rising inflation. The recession has forced both auto manufacturers and consumers to prefer fuel-efficient cars and automobiles that have also reduced the dependence on fuel to a lesser extent, thereby contributing to a slight decline in fuel taxes. States also tend to borrow money to fund development projects including those pertaining to transit services. Today, more than 30 states charge a toll fee for transiting vehicles across state highways (Hanson, 2009). States have also realized the benefits of public-private sector partnerships and have engaged with qualified private entities in various aspects of transit services including operations, maintenance, construction and investments. Driven by high prices of crude oil in the international market, lawmakers in several states are working towards alternate solutions to encourage a wider use of public transit systems thereby reducing the dependence on private automobiles. The recent increase in local transit funding has also encouraged the Los Angeles Mayor, Mr. Antonio Villargosa, to put forward his ’30-10’ plan. Also known as ‘America Fast Forward’, the roadmap calls for projects outlined during the next 30 years to be constructed within the next 10 years, thereby doing so at a lesser cost. The plan has also found interest with other cities such as Denver and Salt Lake City, which are looking for ways to accelerate their respective transit plans (Smith, 2009). Suggested solutions Rosenbloom (2010) argues that funding transit systems is an absolute national priority. He further adds that this should encompass relevant economic, social and environmental factors that can aid in revenue growth, improve transportation and reduce the carbon footprint. The prospect of developing high speed rail being promoted by the federal administration is one such example in this context. To achieve this, agencies at the local, state and federal levels must identify and demarcate the various deficiencies that currently exist in the funding workflow. Although the financial crisis contributed to most of the troubles faced currently by the transit systems, it is important to understand that funding has always remains inadequate and unavailable when required. While local and state agencies must actively participate in generating funds, they can seldom fulfil this task on their own. In fact, the national policy on transportation is a direct indicator of the government’s seriousness towards improving mass transit and reducing the burden on citizens who are already troubled by the economic downturn (Rosenbloom, 2010). Currently, only 18% of the federal funds spent on transportation are directed for mass transit. The rest is sourced thorough taxes by state and local agencies. Apart from the proposed legislation to allow greater flexibility to transit agencies in fund allocation, it is also possible to include the HR 2746 provision as part of this bill that allows larger transit agencies to use federal funds to maintain lower passenger fares and low cost service (Tolley, 2011). Federal, State and local agencies must work in cooperation to enhance their contributions on an equitable basis. These additional funds can also be used to reduce fuel consumption and reduce carbon emissions through the use of better equipment. Relying on providing subsidies to transit agencies to overcome budget shortfalls will however not achieve the desired results given the effects of the recession. In fact, this solution was strongly opposed by the American Public Transportation Association (APTA) as it would prompt the labour unions to demand most of these subsidies as salary hikes or threaten strikes (Katz, 2010). The existing laws are also deficient as they require labour unions to approve of any spending of federal funds. In fact, this clause was one of the main reasons for the restricted use of these funds for capital requirements, which eventually did not benefit either the public or the transit agencies. One way to resolve this discrepancy, especially during times of recession, is to substitute federal funds for lost operating income. This would maintain operating ratios at healthy levels while ensuring optimum availability of services to the public. Such replacement should be carried out over several quarters since proceeds from local taxes involve some delay in recovery. Given the temporary nature of this substitution, the labour unions would find it difficult to press for wage hikes as managements can now correlate wages with lost operating income and thus decline any such attempts (Dittmar, 2010). This will also keep the management in check from introducing any new services that cannot be sustained in the long run besides allowing them to determine the requisite array of services that suit the local economy. Conclusion The preceding sections highlight some of the important aspects that have influenced the operations and funding of mass transit services across the United States. The discussion revolved predominantly around the recent financial crisis as this brought about several changes in transit funding. The recession combined with flawed legislation and lack of coordination among federal, state and local agencies has affected the lives of citizens. Lack of adequate funds has forced transit agencies to reduce services that have affected millions of commuters. Services in many areas have been shut down while many services have been restricted to operating solely during rush hour. Moreover, transit fares have increased adding to the woes of passengers already troubled by the effects of the recession. The analysis suggests that funding needs to be increased across all levels of administration. The federal government must act fast to initiate the new legislation if it is to alleviate the problems of commuters. Spending of federal funds should be left at the discretion of transit agencies and no related party like the labour unions should be allowed to interfere with their proper usage. The managements of transit agencies must also get their act together and make every effort to direct funds towards improving operational efficiency and minimizing passenger fares without compromising profitability. References 1. Dilger (2009), American transportation policy. London: Greenwood Publishing. 2. Dittmar (2010), the new transit town: best practices in transit-oriented development. London: Island Press. 3. Hanson (2009), the geography of urban transportation. London: Guilford Press. 4. Hecker (2009), Surface Transportation Programs: Proposals Highlight Key Issues and Challenges in Restructuring the Programs. New York: DIANE Publishing. 5. Katz (2010), Taking the high road: a metropolitan agenda for transportation reform. Brookings Institution Press. 6. Murray (2009), Strategies to assist local transportation agencies in becoming mobility managers. Transportation Research Board. 7. Rosenbloom (2010), Transit markets of the future: the challenge of change. New York: McGraw Hill. 8. Schultz (2010), Pennsylvania State Transportation Funding Study: Final Report. New York: DIANE Publishing. 9. Smith (2009), Guidebook for transportation corridor studies: a process for effective decision-making. Tranportation Research Board. 10. Stanley (2008), Performance-based measures in transit fund allocation. Transportation Research Board. 11. Tolley (2011), Sustainable transport: planning for walking and cycling in urban environments. Chicago: Woodhead Publishing. Read More