Business Logistics 420 Public Transportation Spring 2001 Lectures

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

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

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)

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%

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)

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

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

Typical Federal Transit Budget (Fiscal 2000) • Total FTA Budget • Formula Grants (Capital or operating) • Discretionary Capital • Planning and Research $5. 8 billion $2. 5 billion $. 1 billion

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)

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

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)

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

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

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

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

“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

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

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

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

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

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

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

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

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

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?

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