For Creating Jobs, Transit Operating Aid is Best Bet

As the country grapples with rising unemployment rates, Congressional leaders are beginning to consider passage of a “jobs bill” that could reportedly include anything from tax credits for new hires to infrastructure. A recent report by the American Public Transportation Association shows that investment in transit — and in transit operating aid especially — should be added to the bill.  The report, funded by the federal Transit Cooperative Research Program, estimates every $1 billion spent on transit can support up to 41,100 jobs and generate up to $2 billion of gross domestic product per year through job creation, increased productivity from reduced congestion and cost savings for both transit riders and businesses.

The report finds that operating aid is actually a better job creator and short-term stimulus than capital spending (see chart at right). While every $1 billion spent on transit operations supports over 41,000 jobs, the same billion dollars spent on capital investment supports about 24,000 jobs.

Transit agencies and their riders could use the help. Systems across the country are facing huge deficits and are implementing or proposing crippling service cuts and fare increases to close operating deficits. Yet the federal government virtually prohibits the use of federal transit dollars to pay for day to day operations. Instead, the funds can only be used for capital expenditures such as building new transit lines or buying buses or trains.

A Brief History of Federal Transit Aid

The federal government did provide transit operating aid prior to 1998 and it still does for areas with populations between 50,000 and 200,000.  Cities with populations greater than 200,000 have been left to their own devices to fund their transit systems.

The systematic elimination of federal transit operating assistance began with the Reagan administration’s 25% reduction in mass transit funds in the ’80s.  Federal transportation funding for transit was slashed while funding for highways increased under George H.W. Bush’s administration. The final nail was driven in the federal transit operations assistance coffin during the Clinton administration when the federal government reduced aid and eventually stopped providing transit operating assistance to larger cities altogether.

The result?  Cities and states were left on their own to make up the slack with less federal resources, resulting in unprecedented levels of borrowing and cut-backs just to maintain existing service.  Most public transit agencies operate at a deficit and seldom make a profit from revenues collected from fares.

Next Steps For Federal Policy

So what can be done to sustain transit agencies?  First, restore federal support for transit operations in any future job creation or stimulus bill.  Transit operating aid would help keep transit workers employed, offset fluctuating fuel prices, and keep service running on bus, subway, and rail lines.  Second, give public transit agencies greater flexibility over use of federal dollars. Rep. Russ Carnahan (MO) has introduced marker bill H.R. 2746 that would allow public transit agencies representing cities larger than 200,000 people to “flex” part of their capital transit funds for operating expenses (contingent on increased local match funds).  Lastly, lawmakers and members of the public alike should consider the short-term effect of public transportation spending as well as the longer-term benefits of sustained transit investment on travel times, costs and economic productivity when drafting the next federal transportation bill.  We should ask ourselves, especially during a recession, are we getting the biggest economic bang for the buck?


Veronica Vanterpool contributed to this article.

4 Comments on "For Creating Jobs, Transit Operating Aid is Best Bet"

  1. Although you identify the “Clinton administration” here in the history lesson the Gingrich-led Congress had a lot to do with it.

  2. It’s definitely true that both President Clinton and the Congress played a role. In 1995, for example, the Clinton administration proposed cuts to transit operating aid that had NYC worried. A few months later, Congressional Republicans proposed even deeper cuts.

  3. Ron Kilcoyne | November 23, 2009 at 6:33 pm |

    Transit operating assistance is an issue that needs to be addressed. We have seen significant service reductions nationally in the past year and the worse is yet to come. Even before the current economic crisis various transit agencies throughout the country were faced with “doomsday scenarios” due to lack of funding and even those agencies that were not facing the prospect of cuts did not have the resources to support growth in ridership. And the federal government needs to play a significant role. However the solution is more extensive that the proposal laid out in the blog.

    First we need to be cautious of unintended consequences or fatal flaws. Transit capital needs are not being met either so compromising capital dollars for operating dollars is not an option. Second we need to make sure that federal operating dollars don’t result in state and local governments reducing their contribution to transit operations. Finally we need to make sure there is a direct link between additional operating dollars and additional service.

    Here are four steps.

    As the article states the next stimulus bill should have general fund support for transit operations. This isn’t restoring operating funds as the article states but a one time emergency fix. (The long term fixes are below.) These funds for a two to three year period are to specifically restore service hour’s cuts since January 1, 2008, prevent service hour cuts announced prior to the introduction of the legislation or to increase service hours to meet unmet demand. This would be new funds thus not compromising capital funds and each recipient would have to demonstrate that number of service hours being “purchased” with these dollars equals the marginal cost of providing service and not in lieu of state and local funding that hasn’t already been reduced; addressing the other two concerns.

    The Carnahan bill should be modified to allow transit agencies below a certain size (e.g. 100 peak pull-out fixed route buses) use 50 to 100% of the formula funds for operating provided they determine that the amount of revenue used for operations from all non federal sources is not declining. The reason the size of a system is more important than the population of the service area is that a small transit operator in a large urban area is really no different than a transit operation a small city. Smaller systems tend to have smaller capital needs hence could make better use of federal dollars with this flexibility.

    The next two ideas should be contained in the next authorization to make sure that state and local government step up to the plate and adequately fund transit operations.

    An incentive program of at least $1 billion per year should go to states and/or regions whose aggregate service transit service hours per capital are either equal the highest year between 2000 and 2009 or exceed the median for comparable states and regions. (Note because it is based on per capita service hours will have to increase to keep pace with population changes.) Part of this incentive could also go to states that allow their transportation user fees (gas taxes etc.) used on transit capital and operations.

    The House authorization bill calls for $75 billion in two new flexible transportation program over the next six years. Before a state or region can tap into any of this money the aggregate service transit service hours per capital either are either equal the highest year between 2000 and 2009 or exceed the median for comparable states and regions.

    These for ideas provide a comprehensive approach to the lack of transit operating funds without jeopardizing transit capital or other unintended consequences.

  4. The problem with all operating assistance is that it subsidizes travel and causes the person to value travel over other goods. Also while in the urban environment the automobile gets a free ride on the capital cost of streets and their maintenance as well as at least a reduced charge on parking (as does the bus), the automobile does pay all operating costs (fuel, vehicle maintenance, insurance, and vehicle acquisition plus implied driver wages) out of the user’s pocket. We have so designed our urban areas to make retail and office space transit hostile (see Davidson Avenue, Somerset, NJ or most suburban malls and big box stores) that transit can not charge fares that cover costs or provide service that is even remotely time competitive. Until we look at how we can make transit self sufficient and cover vehicle operating costs out of the fare box, we will have the problem that successful transit is a larger burden on the taxpayer than unsuccessful transit. Federal operating assistance just papers over the problem.

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