1. Business Logistics 420 Public Transportation Spring 2001 Lectures 10 : Description and Critique of U.S. Federal Transit Programs

2. Lecture Objectives Provide an overview of the history of federal policy and programs that provide financial support for public transit Provide a brief description of current federal programs Provide an appreciation of the pro and negative transit funding arguments

3. History of Federal Role in Transit Funding The Early Period –Prior to 1960 -- just talk about the condition of transit -- especially the railroad –1960 -- First Government Funding for R&D HUD (Dept. of Housing and Urban Development) Demonstration Grants $25 million)

4. History of Federal Role (Continued) 1964 -- Urban Mass Transportation Act The major piece of federal legislation –Capital Assistance -- 2/3 federal share –Demonstration grants -- 100% federal –University grants -- 100% federal –Planning grants -- 80% federal 1970 -- Major funding increase and capital share changed to 80%

5. History of the Federal Role (Continued) 1974 -- Federal Operating Assistance for Urban Areas –Major resistance to this move –Funds distributed to urban areas by formula based on population and population density –Federal share up to 50% 1978 -- Operating Assistance for rural areas under 50,000 population)

6. History of the Federal Role (Continued) 1982 -- Gas tax used for the first time to fund transit ($`0.01/gal. Placed in transit trust fund) 1990 -- Additional gas tax dedicated to transit 1991 -- ISTEA (Intermodal Surface Transportation Efficiency Act) allowed for “flexing” of highway funds for transit

7. History of the Federal Role (Continued) ISTEA also changed name of Urban Mass Transportation Administration to the Federal Transit Administration 1992 -- additional $.02 for transit TEA 21 of 1998 (Transportation Equity Act) preserved all transit programs and greatly increased funding

8. Typical Federal Transit Budget (Fiscal 2000) Total FTA Budget $5.8 billion Formula Grants (Capital or operating)$2.8 billion Discretionary Capital$2.5 billion Planning and Research$.1 billion

9. Strings Attached to Federal Transit Programs Many requirements attached to federal funds in order to accomplish other federal objectives Examples –Buy American Clause –School and charter bus restrictions –Civil Rights and DBE Requirements –Davis-Bacon Act (construction wages)

10. Strings Attached to Federal Transit Programs (Continued) Examples (Continued) –ADA –Section 13c Labor Protection –Environmental Regulations –Accounting and Reporting requirements –Drug and Alcohol requirements –Bus Testing

11. Criticism of Federal Programs Need to distinguish between capital and operating Criticism of Capital Programs –Gold plated systems (due to low local share) –Too much emphasis on rail (again, due to too little local funding) –Premature replacement of vehicles (because capital money was easy to obtain)

12. Criticism of Federal Programs (Continued) Criticism of Operating Assistance Programs –Philosophical A local, not a federal function Subsidy level depends on service level and fare policies that are local, therefore, subsidies should be local Reduces management incentives for efficiency

13. Criticism of Federal Programs (Continued) Criticism of Operating Assistance Programs –Practical Large portion of subsidy (68%) consumed by higher production costs -- most notably driver labor, benefits, administration Another significant portion (28%) used to cover inappropriately low fares and low ridership service to suburbs 4% used to cover general decline in ridership

14. A Pro-Transit Argument: Does Transit Work? A Conservative Reappraisal The “1%” argument against transit is faulty Total ridership is the wrong way to measure transit Transit works where it is high quality and available Competition in providing service would be beneficial

15. False Dreams and Broken Promises -- An Anti-Transit Point of View Transit subsidies have not increased ridership Transit subsidies have not reduced congestion or air pollution or save energy Subsidies have not helped to revitalize cities (uses Buffalo as an example, but this is a poor example) Transit does not benefit the poor

16. “A Better” Approach Introduce competition in the provision of transit –Periodically bid out all transit services –Public and private sector can bid –Competition will reduce waste, improve efficiency

17. Introducing Competition into Transit Transit critics cite current practice of public monopolies providing transit as one reason for high costs/subsidies Monopoly –Increases costs – especially labor due to lack of competition for resources –Reduces management incentives –Results in more expensive service

18. Why Public Monopoly? Enables cross subsidization of services Economies of scale Coordination of services – a system rather than a group of routes

19. How to Introduce Competition Choices –Competition on the street – multiple transit providers offering competing services –Competition for the right to offer service Separate the public agency as provider of service from public agency as producer –CATA, for example is both the provider and producer of transit services in State College

20. Provider vs. Producer A provider of service could be the public agency that would assure that certain services are available at a reasonable fare The producer of services could be a private firm that is competitively selected by the public agency to produce the desired service

21. Experience with Competition British local and intercity bus services reorganized around provider/producer concept in mid 1980s and early 1990s In US, many transit systems competitively procure paratransit services and commuter services, some contracting for fixed route Also, maintenance and other specialty functions subcontracted

22. Pros and Cons of Contracting Pros –May result in lower costs – primarily due to lower labor wage rates and benefits –Serves as check on public sector labor rates and administrative costs Cons –May not be viable competitors –Service disruptions during transitions –Problems with quality of service and contract monitoring

23. Barriers to Competition/ Contracting Lack of qualified providers Labor rules Attitudes of labor and management Expertise on both sides – public and private

24. Study Questions What are the key benefits derived from public transit service that make transit a worthy recipient of public funding? Briefly trace the history of federal involvement in public transit funding Identify key federal funding programs, what the funds can be used for and the federal share provided

25. Study Questions What are user-side subsidies? How do they work? What are the pros and cons of using this approach to providing transit subsidies? What are the arguments against federal funding of transit capital and operating expenses, or transit funding in general? What case can be made for funding transit according to Weyrich and Lind?

26. Study Questions Identify three “strings” attached to federal transit funding and explain the impact they have on transit costs and/or operations What are the benefits of competitively procuring transit services? What are the problems? Explain the difference between providing and producing transit services