Intergovernmental Responsibilities for Financing Public Transit Services

This report sorts through the myriad issues surrounding transit subsidy policy, and provides a rationale for sharing public transit costs. A range of factors that have some bearing on intergovernmental responsibilities for financing public transit are studied. An examination of the evolution of transit subsidy policy reveals that it has been shaped largely by ad hoc responses to ever-worsening industry wide fiscal crises. Although transit programs generally received broad-based support throughout the seventies, the formulation of any coherent, unified set of goals for transit became largely subordinate to simply keeping the buses rolling. A detailed analysis of the justifications for transit subsidies generally suggests that only social equity arguments are defensible, and even then it is far more prudent to subsidize users vis-a-vis transit service providers. An analysis of transit's benefits suggests that most are of only modest importance. Still, there's a general consensus that about one-half of the transit's social benefits accrue to constituents of local governments, with the remainder split evenly among state and federal government interests. It is also found that transit's current tax mix results in a fairly neutral redistribution of income as well as a diverse and reliable source of revenue. Moreover, governmental regulations, particularly those at the federal level, are partly responsible for transit's recent cost spiral. However, local subsidies are found to be far more perverse in terms of their cost and productivity impacts. Finally, an examination of alternative scenarios reveals that the elimination of public subsidies could cause severe declines in ridership and increases in fares, particularly in small urban areas.