Reversing Roles: Should Washington Cover Operations Costs?

» Are public transportation operations too much of a redistributive function to be funded by local governments?

Since 1998, Congress has banned the use of federal funds to pay for public transportation operations in communities of more than 200,000 people, effectively requiring transit agencies to pay for all of their salary, electricity, and fuel costs using local or state revenues. Meanwhile, the U.S. government has continued to sponsor a majority of costs for capital expenses, including the construction of expensive new fixed-guideway bus and rail lines.

This split in funding has resulted in a number of particularities in the American transportation system — during the recent recession, transit agencies actually received more money to pay for new construction programs from the federal government’s stimulus and steady transportation allocations, but less to sponsor services from fluctuating state and local revenue sources. This has produced a situation in which many cities are actively building new rail lines even as they’re cutting offerings on their bus operations.

Should Washington be asked to help find a way out?

Since last year, when the full effects of the recession were making themselves clear, some agencies have been clamoring for the federal government to take a bigger role in operations funding; they’ve argued that the stimulus would have little effect if they’re forced to fire drivers and technicians. Recently, several Democratic Senators have suggested promoting a two billion dollar emergency operations aid plan and several agencies have been asking for the flexibility to use capital funds for operations, though the American Public Transportation Association and several other agencies argue that this would limit their ability to adapt to changing fiscal conditions; they prefer their operations and capital budgets separate.

In the past, I’ve argued against federal aid for operations, suggesting that such policy would reduce local funding responsibility and ultimately diminish the ability of the U.S. government to fund investments in new corridor construction programs. Federal Transit Administrator Peter Rogoff suggested last month that local agencies must find more local funding before the federal government will commit to sponsoring their expansion schemes.

Nonetheless, it may be worthwhile to consider the possibility of entirely reversing the current equation — what if the federal government paid for operations costs while local governments invested in new capacity?

Paul E. Peterson — the urban political theorist whose views on most issues I hardly share — nevertheless provides an interesting approach to considering this question. In his seminal 1981 book City Limits, Peterson addresses the issue of what role urban governments should have within the U.S. federal system. He argues relatively persuasively that cities and their leaders should have only a minor interest in promoting policies that are designed to move wealth from that city’s wealthiest residents to its poorest; “The local interest in economic growth all but precludes a commitment to redistribution,” he suggests (93). “Broad-scale redistributive policy proposals are inappropriately addressed to local governments. For example, if a city-wide minimum wage is passed, it will drive business outside the city’s boundaries. If good quality, subsidized housing is built with local funds, not only must it be paid for out of local tax dollars, but it might very well attract low-income families from other places” (173).

The suggestion is that cities cannot in their own budgets commit to politics that aid the poor; these policies generally have the tendency to encourage the wealthy to leave cities and the poor to stay, ultimately resulting in a declining tax base. Rather, Peterson argues, cities will produce more benefit by investing in developmental projects that increase attractiveness and expand the tax base. Obviously, all of these arguments must be understood with a grain of salt — they’re not all-encompassing, and cities are affected by trends outside of their own making. We also must assume that it is in a city’s primary political interest to want to increase its tax base.

Also, Peterson does not argue against redistribution entirely — City Limits does leave room for higher levels of government to be involved in funding services designed specifically for the poor — he simply points out that it is not in a city‘s long-term interest to use locally raised funds on the lower class. After all, the net migration in and out of a city can be quite significant (the city of Baltimore, just to take an example, has lost a third of its population since 1950), while the country as a whole, and its tax base, will mostly remain constant.

If we take these assumptions as more or less true, what implications do they have for public transportation? The answer comes down to both whether we define transit operations as a redistributive resource or as a developmental one and whether the tax base of a transit district is sufficiently broad as to be able to ensure long-term revenue sources from middle and high-income populations.

The first question — whether transit operations are redistributive or developmental — is not easy to answer. If a bus or rail system serves almost entirely as mobility of last resort, used only by people in the lower class to get around, it is almost assuredly redistributive. Cities that provide such services are, according to Peterson, investing in something that will ultimately lower the local tax base (I’m not sure if I would go that far, but the argument still makes some since). In these situations, it would make complete sense for the federal government to pay for operations, because it is unfair to burden already poor cities with the need to raise local funds to cover social services.

The more progressively oriented Washington’s political climate is, in other words, the more local transit operations would be subsidized. The question of how many services to provide comes down to how much we want to help the lower class.

On the other hand, if transit proponents are to suggest that bus and rail operations in themselves produce economic benefit — i.e., if you have more buses on the same line, you get an increase in economic activity — than there is an argument for local funding based on Peterson’s assumptions. If the transit system is used by a whole spectrum of the population and increases overall efficiency of the local economy, it isn’t really redistribution. In these cases, it seems highly advantageous for cities to invest local money in their day-to-day transit, even if it means taking out loans to do so.

But the other problem posed by Peterson’s arguments is where the money is coming from; the basis of the city “limits” relies on the idea that the wealthy can leave (presumably into the suburbs) if they feel overburdened by taxes to support the local poor. Yet if a transit district is large enough, this poses less of a problem. For example, if a district covers everyone in a metropolitan region and taxes them all, there is no problem with paying for redistributive transit services — assuming the taxes aren’t so high as to encourage people to leave the region entirely.

On the other hand, if that district fails to grow with an expanding population, it may lose its ability to perform these redistributive functions. Take Dallas as an example: Though the local DART agency includes a number of suburban jurisdictions within its tax base, it hasn’t expanded to encompass the region’s far exurbs, ultimately reducing its ability to maintain necessary budgetary growth. This means that it has less of a capacity to invest in essential transit services that don’t necessarily ensure long-term economic benefit.

Is a potential answer to ask Washington to pay for operations as cities and their metropolitan regions invest in new rail and bus capacity as a developmental tool? Perhaps: If cities investing in new public transportation projects can prove that that spending will increase their tax base over time, there may be advantages to taking out loans to pay for new projects and then paying them back using the corresponding increase in local tax revenues. On the other hand, because cities have a whole variety of circumstances, some places may be more capable of doing do than others; whereas a fast-growing metropolis like Phoenix may have no problem seeing immediate return in its capital investments, cities with falling populations like Detroit may not. In those situations, it should be the federal government’s role to step in, even on construction spending.

It may be in the federal government’s interest to provide adequate operations funds to ensure (or even require) a minimal level of transit services in every community of a certain size. That idea, however, requires federal intrusion into policy that is overwhelming affected by state and local decision-making; this could pose insurmountable obstacles to this concept. That said, it may be time for cities to take more responsibility for the funding of new transit capacity through capital construction. If these investments do produce a measurable return on investment — and that’s an argument made frequently by proponents of new light rail lines, for instance — then municipalities should have an economic interest in using local funds to pay for them.

Image above: New York City’s George Washington Bridge Bus Terminal, by Yonah Freemark