Management & Operations

A new search for rail funding sources

Posted on May 1, 2006

At the recent APTA Legislative Conference, a panel on the prospects for funding in future federal reauthorization bills made two things clear. One, the present dedicated revenue source for federal assistance of rail transit projects will not come close to meeting projected needs, and new sources must be found. Second, and perhaps most important, local, state and private sources will increasingly be called on to fill the gap, which will have profound implications for federal transit policy and the way that the marketplace for rail transit goods and services will be organized. On the first point, John Horsley, executive director of the American Association of State Highway and Transportation Officials (AASHTO), cited a Transportation Research Board report predicting that Highway Trust Fund revenues from today’s fuel taxes would serve as a foundation for the next two authorization cycles. “If no other tax is created to make up the difference, the federal surface transportation assistance program as we currently know it will end,” he said. Alternatives ignore politics
A variety of alternatives have been suggested, including a tax on personal vehicle miles traveled. The same lower-tech system used to enforce annual or biennial smog inspections — technicians record odometer readings along with the text data — now makes such a tax’s enforcement feasible. Another approach is to use modern wireless toll collection technology, which could measure distances with sensors or transponders. The responsible state or local agency could simply mail a vehicle’s owner a monthly or quarterly report much like an electric utility. These technologies also enable variable pricing for better congestion management and to encourage use of transit alternatives. Although such alternatives would overcome some of the inherent problems with fuel taxes, they ignore the problem that all taxes share today — politics. If Congress cannot even consider a gas tax increase for additional transit and highway financing, what makes anyone think a new tax would stand a better chance? Self help a ‘political miracle’?
Political will has been greater at the state and local levels. Horsley points to the “self help” counties in California where residents have voted repeatedly to increase sales taxes for major transit and highway improvements. Some of these victories have come with supermajorities required when tax increases are proposed. In fact, more than 80% of state and local referenda around the nation involving rail transit proposals have passed in the past three years, according to the Center for Transportation Excellence. However, it remains to be seen how much longer this can be sustained as budget pressures have mounted on state and local governments in recent years. Few observers believe that California’s “Governator” will win approval for his massive infrastructure bond proposals, for example. One emerging trend that could help save foundering rail projects is private financing. For instance, toll-based financing figures prominently in multimodal transportation improvement programs in San Diego and Denver. In addition, the use of flexible federal highway funds and the bonding against them now outstrips traditional federal transit capital funding. Thus, even at record levels enacted in the past decade or so, the federal transit program now contributes less than 50% of rail transit capital funding — and that number is expected to drop below 40% in the coming years as state, local and private sources continue to increase their contributions to project finances. Implications of weaker federal role in funding
This downward shift of the financial fulcrum from federal to more localized sources has enormous policy implications. First, more and more project sponsors will choose federal funds as the “last strategy” rather than a prime driver, as they tire of waiting for project approval. Moreover, federal rules on everything from Buy America for rolling stock purchases to ridership models will matter far less if more projects give up on federal financial assistance. In short, more than 20 years after Ronald Reagan approved the first dedicated federal revenue source for New Starts, another policy that many believe more closely represented his true political philosophy — devolving responsibilities to states and localities — could be Reagan’s longest-lasting contribution to transit finance.

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