NJ Transit’s $1.79 billion FY 2010 operating budget, approved last week, avoids a fare hike and major service cuts despite a $62 million reduction in state operating aid. NJ Transit is filling the gap by slashing administrative costs, a laudable achievement, but one that may be hard to repeat in future years.

MTR has written before that the bigger problem is that NJ Transit lacks a dedicated source of operating funding and must annually go begging to the state legislature. Because the legislature consistently underfunds the agency, NJ Transit diverts significant funding from its capital budget to operations. In the most recent budget, diverted capital funds made up 21% of the operating budget — over $350 million in mostly borrowed money that should be going towards maintenance, new buses and train stations, and the like.

Transit agencies across the country, including those listed below, are grappling with budget cuts and rising operating costs. But NJ Transit is the largest transit provider in the country without a dedicated source of operating funds, making it especially vulnerable to fiscal woes. Here’s how some of NJ Transit’s peers keep their buses and trains running.

Chicago’s Regional Transit Authority

The RTA was established in 1974 to provide oversight of Chicago’s transit system. A decade later, the RTA’s responsibilities shifted giving it authority over the operating and fare responsibilities for the Chicago Transit Authority, Metra commuter rail and Pace suburban bus.  At that time, a county sales tax was enacted to support transit operations, and a state match of 30% of tax revenues was imposed.  Cook County’s rate was set at a higher level (now 1 and 1/4 cent after a 2008 increase) than the surrounding 5 counties (now 3/4 cent) and one-third of the suburban tax revenues was set aside for the suburban counties.  The tax currently brings in about $1 billion annually.

More recently, the state legislature passed in January 2008 a real estate transfer tax in the City of Chicago, which brings in between $20 and $100 million annually.  The state match for both taxes amounts to approximately $300 million.

Importantly, the law which established the RTA requires that half of operating expenses be serviced through fares, advertising, investment income and concessions.  This forces the RTA to periodically raise fares.

Boston’s Massachusetts Bay Transportation Authority

The MBTA, which serves the greater Boston metropolitan area, was created in 1964.  In 1980, the state legislature changed the MBTA’s governing structure to require all cities and towns served by the agency to pay their proportionate share of the MBTA’s deficit.

This was changed once again, in 2000, when the legislature dedicated 20% of the state’s sales tax to pay for MBTA’s operating expenses.  This is striking because the MBTA serves only the eastern part of the state.  In establishing a statewide tax to fund Boston’s transit service, the legislature is recognizing that transit acts as a state economic engine.

Los Angeles County Metropolitan Transit Authority (Pre-Budget Crisis)

Until recently, operating funds for the Los Angeles MTA came primarily from two sources in addition to fare box revenues: county sales taxes, and money received from the state. Proposition A, approved by LA County voters in 1980, imposes a 1/2 cent sales tax and requires 35% of its revenue to be spent on rail development and 40% for discretionary purposes (such as operating funds for buses). The rest of the revenue is returned to the cities in the county.

A decade later, Los Angeles County voters passed Proposition C, enacting an additional 1/2 cent sales tax and requiring 40% to be spent on bus and rail operations and expansion, 25% for highway and freeway improvements, 10% on commuter rail, 5% on bus and rail security, with the rest to be turned over to cities in the county. Additionally, in 2008 a county wide initiative, Proposition R (yet another 1/2 cent sales tax), was passed which will add additional funding to expand LACMTA service, with particular emphases on the Red Line subway expansion to Santa Monica.

Before this year, the LACMTA also received operating revenue from programs created after the 1972 passage of the state Transportation Development Act. The act dedicated part of the state sales tax to a State Transit Assistance fund, which was distributed to transit agencies based on a formula that included the size and population of the area served by each agency. But this year, with California facing a state budget shortfall of over $40 billion, Gov. Schwarzenegger and the state legislature eliminated the state assistance fund. California still dedicates a portion of the state tax in each county to a Local Transportation Fund for transit and transportation improvements within the county.

Image: TSTC graphic using FTA data.

TSTC’s Evan Carter contributed to this story.