Standardizing Transit Funding

Transit capital projects should receive federal funds proportional to their merit.

There’s been a lot of talk in transportation circles recently about ensuring that the federal commitment to transit projects is as strong as that to the national highway program. Such a policy change would require a sea change in Washington, principally because it would necessitate a radical transformation of the transportation legislation, which defines how funding is distributed. In addition to more funding allocated to new corridors in general, the federal government must reform the manner in which it determines its share of total construction costs.

Highway funds are distributed with an 80% federal share of construction costs on new roads projects. Gas tax revenues go to the states based on a number of factors including population and road network length; states are required to write up five-year transportation improvement plans to quantify how that money will be spent. In truth, though, states have the ability to invest more in highways than is guaranteed through than 80% share. States have their own gas taxes from which they cull money to use on individual projects, and tolling is used by a number of agencies to raise independent funds for road maintenance and construction. It is a generalization, in other words, to say that the 80% number defines all federal roads expenditures, because there simply isn’t enough money going around to pay for all possible transportation needs.

Most transit funding from Washington comes in the form of standardized “formula” grants that go to cities largely based on population and transit usage. Yet these “capital” funds are rarely used to pay for new transit corridors; rather, most of the money goes towards expenses such as new vehicles, maintenance facilities, or replacement track. Rather, the competitive New Starts grant program — at about $1.5 billion allocated a year — represents the major federal contribution for new transit lines.

Though the transportation legislation officially allows transit agencies to apply for New Starts funds that cover up to 80% of construction costs, the same legislation also points out that the federal government looks favorably on agencies that demand less of Washington. Of the dozens of corridors being built today in the United States, only two — the Mid-Jordan LRT line and the Weber County commuter rail line, both in Salt Lake City — have such strong federal support. Every other project has a federal commitment of 60% or less, depending on the involvement of local governments and agencies.

The problem with this system isn’t necessarily the fact that most transit lines require at least a 50% local funding commitment to be built. Rather, the fundamental trouble is that the federal government pays varying amounts for similar projects in different cities: the relative value of a project has no role in determining the federal government’s share of funding. There is also an unsaid rule enforced by DOT that requires more expensive projects, no matter their benefits, to receive a lower relative federal share of costs. The argument goes that Washington needs to distribute funds throughout the country, and therefore it shouldn’t have to commit too much to any single city’s project.

As a result, projects like Seattle’s $1.9 billion University Link LRT only had a 43% construction cost commitment from Washington, D.C., while Salt Lake City’s $535 million Mid-Jordan LRT had an 80% federal funding share. The former is expected to serve 40,200 daily riders by 2030 ($47,000 total/rider); the latter, 9,500 ($56,000 total/rider). There is no DOT rule explaining why the national government should pay $45,000 per rider in Salt Lake but only $20,000 per rider in Seattle.

Cities with transit systems supported by more politically powerful legislators can often expect a higher federal share of costs, even if their projects are less worthy of funds. Some cities, benefiting from a larger share of federal funds, can spread their own tax revenues across a larger number of projects, while other regions, spending a higher percentage of project costs, are unable to invest in multiple corridors. This mess needs to be cleared up.

Below, I compare the five projects recommended for New Starts funding in FY 2010. Together, the federal government has committed a total of $4 billion to these projects, with $3 billion going to the ARC tunnel between Northern New Jersey and Manhattan alone. These funds will be distributed throughout the projects’ respective construction periods. The share of costs paid by the federal government is based on arbitrary decisions by local authorities, in cooperation with the DOT.

I’ve compared these expenditures with three potential alternatives, based on more objective criteria:

• Qualified projects funded at 80% federal share: If a project meets the required (“Medium”) New Start ratings, the federal government simply chips in 80% of the construction cost. This formula doesn’t account for relative differences between proposed projects and rewards any project that meets basic requirements. This would cost Washington $8.6 billion for the projects approved for New Starts funding in FY 2010.
• Qualified projects funded at $25,000 federal dollars per projected future daily boarding: This formula would reward projects that serve the most people per project cost. It doesn’t account for travel time benefits, new riders, environmental impact, or development around lines. This would cost Washington $8.2 billion for these projects.
• Qualified projects funded at $60,000 federal dollars per projected daily travel time benefit hour: This formula would reward projects that do most to reduce commute times, and by extension measures riders (and new riders) per route mile and cost. (If the ARC Tunnel has a 104,000-hour travel time benefit, that means that once the tunnel opens, its users will collectively save 104,000 hours every weekday on their commutes compared to today.) This system doesn’t account for environmental impact or development around lines. This would cost Washington $7.7 billion for these projects.

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* This refers to the New Starts share; excludes highway transfer flexible funds and other federal transportation dollars that states may use to fund transit expansion.
** Federal share goes over projected cost, so Washington would cover entire cost.

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Reflexively, a blanket 80% federal share for new transit projects, as long as they meet New Starts requirements, may seem acceptable because that’s the way highway projects are currently funded. But the problem with that system is that it provides little incentive for local authorities to improve a project’s design once it has met federal guidelines. It funds projects — some very important, others marginally necessary — unselectively, and that’s problematic if we want our national transportation system to be improved for the purpose of achieving specific outcomes. Specifically, we want to move more people via public transportation and encourage transit-oriented development.

On the other hand, funding projects based on their anticipated ridership and travel time savings would be more effective. I’ve highlighted potential rates above — at $25,000 per anticipated rider (in 2030), or at $60,000 per weekday travel time benefit hour. I chose these rates with an interest in roughly doubling transit funding overall, but there’s no reason, for instance, that the DOT couldn’t choose to fund projects at a rate of $30,000 per rider or $40,000 per travel time benefit hour. These guidelines could be adjusted up or down depending on the amount of funds made available for transit expansion by the Congress.

Some combination of the travel time benefit calculation and additional points gained based on environmental impact and transit-oriented development should be used to determine the federal share of a new transit construction project. Both small and large projects should be judged based on these criteria, with an eye towards associating federal funding shares with objective measures of project desirability. The rather indiscriminate manner in which some cities pay more than others for similar projects needs to come to an end.

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For further information, the following table provides similar information about all the other projects currently receiving New Starts funding and demonstrates the funding commitment that would have been necessary from the federal government if another system by which to award funds had been used. I could not find all of the relevant information about travel time benefits for older projects, so that information is not complete below. If implemented, increasing the federal share to a blanket 80% or paying out $25,000 per rider would have roughly doubled New Starts expenditures, from $11.4 billion to $23.5 or $21 billion, respectively, over the construction period of these projects.

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* This refers to the New Starts share; excludes highway transfer flexible funds, etc.
** Cost goes over, so feds would cover entire cost
*** Did not include Ravenswood Line Extension project in Chicago because a large percentage of its funding comes from fixed guideway modernization funds, and it would be hard to argue that it’s a comparable “new” corridor.